Medicare D: Early windfall, but what’s next?
By Bruce Buckley, Special to GMDC
Since the beginning of the year, pharmacy retailers have been reaping an unexpected windfall.
It’s the result of a big jump in selected health and beauty care sales, and it’s being driven by seniors who have more cash in their wallets now that a good portion of their prescription medicine costs are being covered by the Medicare Part D benefit.
Their savings are substantial. The Centers for Medicare and Medicaid Services estimate that the average Part D enrollee will keep about $1,100 more a year as a result of the new benefit. Part of that bonus is being plowed back into HBC needs, according to Information Resources Inc. The sales lift affects both necessities and discretionary items.
From January to April 2006, IRI reports, sales from consumers 65 and older have surged in home health care kits (+36 percent), eye cosmetics (+25 percent) and adult incontinence products (+18 percent). Other double-digit gainers are moist towelettes (+14 percent) and foot care (+13 percent).
Certain food & beverage categories have also benefited, with sports drinks up 31 percent, pot pies up 12 percent and beer up 11 percent.
Drug stores have been the primary beneficiary of the sales boost, mainly due to their persistent efforts to sign up seniors to Part D plans in the months before the January 1 kickoff. Supermarkets, in contrast, have lagged in both Rx and healthcare categories in the post-Part D period, according to IRI. One reason may be that many food stores don’t have pharmacies.
While the overall sales gains are welcome, they may not last. As many as 7 million seniors are slated to get dunked in the so-called “donut hole” this year when they reach the $2,250 threshold in total prescription spending and their benefit runs out.
Many seniors have already hit this coverage gap and more will follow as the year unfolds. Only a small percentage will spend enough ($2,850 more) to reach the much more generous catastrophic coverage that awaits at the other side of the donut hole.
Discussion Questions: How can retailers and suppliers
maintain this surge in spending by seniors, particularly with benefits running
out for a substantial portion of beneficiaries? What promotional or merchandising
strategies can they employ? What can supermarkets do to protect their share
of sales from this vital population segment?
This will be an interesting development to watch play out. The fact that Drug Chains recognized and took advantage of the opportunity provides them an advantage to early connectivity with Med D shoppers, who are more inclined to remaining retail loyal when their needs are met.
That stated, Food stores have the advantage of frequency and assortment breadth, and can use those advantages to win back senior shoppers’ extra dollars. Of course, this will take a more aggressive win-back of prescriptions first, so those Food retailers who build an aggressive and dynamic marketing plan to accomplish this goal can and should gain Med D seniors back based on the advantages of frequency and assortments in the front of the store.
No one can increase senior citizen spending when they hit the donut for Medicare Part D. When customers have to choose between food and prescriptions, they’ll have no funds for anything else. The best thing retailers can do? Support in-store petition campaigns to reform Medicare Part D immediately. Any retailers brave enough to do this will get immediate front-page headline nationwide publicity.
Savings from Part D are going to wind up going in a lot of different directions. Right now people enrolled in Part D are still getting used to it, so any additional sales is going to be temporary. Long-term, the grocery channel has got to figure out a way to be able to stock the numerous slow-moving SKUs that have long been the strong-hold area of the neighborhood pharmacy. It’s going to be very difficult for a grocery/ pharmacy to be able to carve out a niche serving the diabetic market or any other segment that is a high-user of health care. High user segments will always be the strong-hold of the smaller specialized pharmacy until the grocery channel can figure out a way to serve segments like this without having to inventory too many slow-moving SKUs.
The pharmacists in my nearby Safeway pull down a safety screen over their department during midday for lunch. All five or six department employees split simultaneously. Of course, this timing corresponds precisely with the period during which many of their customers can duck away from work to pick up prescriptions and, coincidentally, visit the nearby, high-profit HBC aisles.
The pharmacy in my nearby Raley’s is located in a darkened area perpendicular to customer traffic flow and view, amidst vision-blocking aisles that are too high for most shoppers, especially aged ones (I’m 6’2″, and often have to help co-shoppers reach products on the upper levels).
While waiting in front of both of these pharmacies with my empty shopping cart (because I’ve learned to go to the pharmacy first), I’m often asked, “Are you in line?” There’s no waiting area there, or way to get out of the traffic flow. Plus, my empty cart is sometimes grabbed by other shoppers.
What’s wrong with these pictures? Engagement, pure and simple. I live in a brand-new, very large Sun City “active adult” community. Got to be 55+ to live here. Some retirees, but many working stiffs and stiffs still working. Within golf cart, bicycling, and walking distance, there’s a brand-new Safeway and a brand-new Raley’s. What a hotbed for pharmacy-driven ancillary sales! And yet, they just don’t seem to get it.
In my neck of the woods in NorCal, Safeway installations seem always to be partnered with Long’s Drugs locations just a few storefronts away in the same strip center. Has Safeway ceded some of their pharmacy bidness to Long’s? Have they caved to union lunch requirements that penalize customers? Inquiring minds want to know. And from personal experience, I know that the non-foods side of Raley’s holds disproportionate sway over the entire business, forcing questionable store designs.
So, down to business. Supermarkets with serious aspirations in the pharmacy biz and its ancillary sales need to understand reality. First, chain-wide policies need to be modified by location (like union-mandated lunch breaks). Second, in-store pharmacies need to be easy to find by anyone from puberty to senility. And third, pharmacy waiting areas (with accommodations for carts) need to be provided. There are fourths, fifths, and sixths in this list, but let’s allow the chain supermarkets to deal with these first.
It is amazing what the drug store chains have accomplished. They spent major dollars to implement the training, the education and the programs that seem to have paid off in a big way. As one drug store chain exec said to me last year, “this is the biggest initiative that I’ve been involved with in my 20 years in the industry.” We worked with several of the chains to measure the effectiveness of their training. They deserve the rewards they are getting.
On the other hand, I read what Michael Banks wrote and wonder if the supermarkets that he mentions listen to their customers. I also know, from first hand experience, that the supermarkets did not plan or execute to the extent that the drug store chains did. The proof is in the numbers.
In order for the pharmacies to continue their lead, they need to get the pharmacist more involved with the customer and assist in the sale of over-the-counter products. Many of those are required to be housed in the pharmacy department. By interacting more with the consumers a greater loyalty can be created.
Expectations of the pharmacy customer might be very different than that of the supermarket shopper. Thus the supermarkets must a) listen to their consumers (see Michael Banks’ comments), b) retrain their pharmacy employees to be more customer friendly and proactive, c) use services such as mystery shopping (after steps a & b) to determine if they are delivering what the customer is expecting, and d) partner with insurance companies and drug firms to promote the pharmacy department.
The drug store chains use the pharmacy to sell the non-prescription products. The supermarkets use the non-prescription products to get consumers to use the pharmacy department. By falling behind the pharmacy chains, the supermarkets are losing profitable dollars of the add-on items.