Competition Deals with $4 Generics

Discussion
Dec 27, 2006

By George Anderson


When Wal-Mart announced its $4 generic prescription program, some moved quickly to match it (Target), others claimed to have a better option (Kmart’s 90-day program) and yet others (CVS) were comfortable enough with existing offerings to stand pat.


Wal-Mart said the plan is working as its pharmacy sales were up in November. That would mean others are seeing sales tail off, right? Not necessarily.


The top three drugstore chains all announced sales increases in November and independent pharmacy groups, such as the National Community Pharmacists Association, say members learned how to deal with large competitors long ago and this new wrinkle wasn’t anything they couldn’t handle.

A Dow Jones Newswire report said Wal-Mart’s increase might be a result
of attracting uninsured consumers that have gone without purchasing prescription
medicines in the past because of the cost.


Mary Sammons, Rite Aid chief executive, said, “Customers chose location, convenience and services over the small price differential on nearly all of the generics on the list. I continue to wonder how long these programs can last since the $4 cannot cover the full cost of dispensing, and you can only sell a product below cost for so long.”


Wal-Mart claims it is not selling the generics below cost. The company has maintained it has made deals with suppliers that enable it to offer the drugs at the $4 price point.

Discussion Questions: Will the $4 generics program
lead to lasting changes in the retail pharmacy business? What do you see as
being the next logical (illogical) step that Wal-Mart or other retailer will
go from the $4 plan?

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9 Comments on "Competition Deals with $4 Generics"


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John Keegan
Guest
John Keegan
15 years 5 months ago
Robert May and Rudolph the Red-nosed Reindeer have some relevance on this topic. Collective thinking hatched this marketing campaign. Sewell Avery and Sam Walton were sharing stories. As a pharmacy owner I recently completed a cost of dispensing survey at http://www.2006CostofDispensing.com. Salaries (pharmacist personnel, bookkeeping, technicians), heat, light, insurance, vial costs, label costs, office supplies, bank/credit card charges, accounting and legal fees, security, rent or mortgage charges, bad debt, building investment, computer, delivery vehicle, other Rx computer technologies, telephone, postage, and accounts receivable cover most of the data needed to arrive at the cost of dispensing. One must add the cost of dispensing to the cost of goods sold. The sum of those two components represent the total cost for a pharmacy operation to place a prescription in the patient’s hands. Currently the cost of dispensing is anywhere from $7.48 to $9.63 per prescription. If you simply look at that figure you will see that in fact Wal-Mart is losing money, regardless of what they say, on each and every $4.00 generic prescription, nothwithstanding any… Read more »
Mark Lilien
Guest
15 years 5 months ago

The prescription drug business is growing nicely for several reasons: (1) the graying of America (2) the new Medicare drug plan (3) greater marketing investments by drug producers (4) the continuing flow of new drugs and (5) the fact that most prescriptions are certainly cheaper than hospital treatments and death. The $4 Wal-Mart generics publicity isn’t material compared to the 5 huge growth drivers listed above. Every so often Wal-Mart scores a PR home run.

Kai Clarke
Guest
15 years 5 months ago

I disagree with many of my BrainTrust panelists. This is a huge win for Wal-Mart. Getting people into their pharmacies is a win both for the pharmacy as well as the store. People have to walk into a Wal-Mart store to get to a pharmacy. This forces them to consider buying other products located in the store, or at least increases their awareness of the store’s offerings. Even if this program does not increase the pharmacy traffic, it will increase store sales. This creates a win for the store and for the pharmacy.

Ed Dennis
Guest
Ed Dennis
15 years 5 months ago

Wal-Mart’s move with $4 generic pricing was brilliant. It provided some very good publicity and Wal-Mart will be credited with all of the other retailers who follow them. Any pharmacist will tell you that profit margins are often much much larger on generics than on non generic drugs. While generics cost the consumer less they cost the pharmacist much much less. In fact, generics are so cheap that Wal-Mart found 400 different generics that they could retail for $4 and still make money. Wal-Mart didn’t say that they would lose money on any of these products just that they would sell them for $4.

Additionally, this bit of marketing did a great job of reinforcing the value pricing that Wal-Mart works so hard to deliver to all of us.

Bernice Hurst
Guest
15 years 5 months ago
Look away now if you’re not in the mood for a post-holiday, outsider’s view of the American prescription drug market. I’m in the US, as I’ve said before, on a working vacation, travelling from coast to coast with stops in between. Wherever I turn on the television, whichever channel happens to be the affiliate of national networks, I am besieged by commercials for drugs, drugs and more drugs. Obviously because they are required by law to do so, each commercial regales the audience with a description of possible side effects, albeit gently and soothingly read to minimise the seriousness and stress that most people do not encounter any of them. Euphemisms abound – “potentially fatal episodes” may result???!!! Consult your “healthcare provider” – give me a break, puhleese. Joe Delaney makes some excellent points about Wal-Mart and its generics initiative. They’re really not doing it because they’re such nice folks down there in Bentonville. What I’m waiting for is the big manufacturers to start flinging the mud about the quality of the generics and how… Read more »
Joe Delaney
Guest
Joe Delaney
15 years 5 months ago

The thought that Wal-Mart is leading the way on this is a wee bit off the mark. This is capitalism 101. Adam Smith would be proud. They are trying to get additional foot traffic, polish their image, convince the public that they are the least expensive retailer and drive non-pharmacy sales. They are not doing this out of charity. The unintentional benefit is to those without insurance and that is a very good thing. But let’s not put lipstick on the pig….

As to whether it will lead to lasting changes, it will depend on whether additional, newer, more widely used generics are added to the list.

Bob Bridwell
Guest
Bob Bridwell
15 years 5 months ago

Anything that gets the discussion going on healthcare & Rx’s is long overdue.

Congress continues to wallow in the pork barrel. Bridges to Nowhere, sewer subsidies and the like. These guys and gals work about 2 1/2 days per week for about 40 weeks and the rest of the time are out fundraising. Instead of trying to solve all the world’s problems, how about just setting a few hard but achievable objectives.

Wal-Mart, like every other company, knows that unless they and we get a handle on this issue that we will all be selling or manufacturing things as a sideline to pay for healthcare. This seems to be just the state our once great automobile industry is falling into.

Charles P. Walsh
Guest
Charles P. Walsh
15 years 5 months ago

My first impression is that Wal-Mart is probably attracting customers who previously had not purchased prescriptions or had not purchased them on a regular basis as required.

As Art states, anything that can help offset the ridiculously high price of health care and maintenance in this country is welcomed. Wal-Mart has long been a leader in driving industry pricing down, and they will do the same with pharmacy manufacturers. Wal-Mart has the ability to source and label their own “private label” or “generic” products which has tremendous leveraging potential.

I do believe their $4 prescriptions are both sustainable and potentially profitable and believe you will see an expansion of the offer in the future.

Art Williams
Guest
Art Williams
15 years 5 months ago

While I am surprised that Wal-Mart hasn’t hurt other pharmacy’s sales, I do believe that much of their increase may be coming from uninsured people that weren’t buying in the past. Anything that can slow down or reverse the high cost of prescription drugs in this country is very welcome. I applaud Wal-Mart for leading the way on this.

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