Publix sees pharmacy as a growth engine
Just a day after Target announced plans to sell its pharmacy operations to CVS to concentrate on its core business, the Orlando Sentinel reported that Publix is looking to expand its pharmacy operations in Central Florida. Clearly Publix sees pharmacy as integral to its growth plans in the Sunshine State and beyond.
The grocery chain is looking to acquire a warehouse, west of Orlando Airport, to help more effectively and efficiently supply prescription medicines to stores in the local market and across the Southeast. The chain has applied for tax exempt incentives to help finance the effort.
Part of the reason Publix may see pharmacy as a key to the chain’s success is the number of senior citizens in its customer base. The percentage of persons 65 and older is the highest in the nation, according to U.S. Census Bureau statistics. The percentage of seniors in Florida was 18.7 percent in 2013, compared to the national average of 14.1 percent.
Photo: Publix
According to a U.S. Department of Health and Human Services report, "Health, United States, 2014," 55.6 percent of people between the ages of 55 and 64 took between one and four prescription medicines in the past 30 days (2009 – 2012) and 20.3 percent took more than five. Medicines to treat cardiovascular conditions, cholesterol, gastric reflux, diabetes and depression all increased compared to findings in similar research conducted between 1999 and 2002.
- Publix plans $15.6M expansion of pharmacy operations – Orlando Sentinel (tiered sub.)
- Quick Facts – U.S. Census Bureau
- Trends and statistics relating to U.S. seniors, elderly: Census Bureau 2014 report – Journalist’s Resource
- Health, United States, 2014 With Special Feature on Adults Aged 55-64 – U.S. Department of Health and Human Services
Discussion Questions
Are pharmacy operations more important to supermarkets such as Publix than to Target and other mass merchandisers? How important is pharmacy to Publix’s brand image and, ultimately, its business performance?
Poll
BrainTrust
Roy White
Editor-at-large, RetailWire
Dave Wendland
Vice President, Strategic RelationsHamacher Resource Group
I think the advantage of an in-store pharmacy is, aside from pharmacy revenues, that you put more people in your store. That should theoretically increase traffic in non-pharmacy areas. I’d also think someone has actually studied this to see if it’s true — do you get more purchases from someone who uses an in-store pharmacy?
Target isn’t giving up pharmacies, they are just doing it in cooperation with CVS, who will manage them. They still believe it’s important for them to have it — they just don’t want to run it.
Pharmacy has considerable upside potential — not always taken advantage of — with a link to healthy eating, so a pharmacy operation would seem to fit better with a supermarket than a mass merchandiser. Publix also has the benefit of addressing just the right audience for a pharmacy business. That’s an added prompt for the Florida chain to expand pharmacy, but many supermarketers struggle with fitting pharmacy into their grocery mindset and business/traffic expectations. As a result, pharmacy is a mixed bag for the supermarket industry.
For a mass merchandiser, making pharmacy fit so that it becomes a destination and a key department for their shoppers can also be problematic for similar reasons. Target’s issue with pharmacy likely goes beyond whether or not pharmacy fits within their stores given the chain is in turnaround mode. Target management obviously feels it does, and they are bringing in outside professionals to run it. Maybe that’s the way for both grocers and mass merchants to make prescriptions work for them.
If a category is not important to a merchant, it will not receive the resources of people, financing, marketing/promotion, or strategic focus. That will throw it in the “red-headed stepchild bin.” (Is that politically correct?)
In the process the customer, who wishes to be associated with a winning platform, will choose another avenue for the goods and service in that category.
Publix values the pharmacy in their picture of how to serve the customer. They’ll make it a win. Target values the customer, but figured out a way to run the pharmacy in a better fashion by bringing in a top flight leader like CVS, who does have a significant stake in health care.
Publix will make the pharmacy a winner without chewing up excess space within the store footprint. It will also provide them with needed experience in the online space.
A significant key to brick-and-mortar growth is traffic. And if the traffic is in the core segments, that is even better and should be more profitable.
Publix certainly has a an older target segment that has a pattern of prescription medicines, particularly in Florida.
But “building it” no longer means that “they will come.”
Customers, especially in older segments, already have a well established pattern of where they get their prescriptions filled. CVS and Walgreens have been masters at managing prescription relationships and making things very convenient, such as drive-up windows for pickup.
If Publix wants pharmacy to drive both traffic and growth, they need to make their pharmacy more than a store-within-a-store location. They need to create a premium customer experience capable of wooing target customers away from their already well-established pharmacy relationships.
As mentioned by other BrainTrust members, pharmacy can be an image maker for a retailer as long as it is supported and complemented as a core tenet of the operation. In the case of Publix, I’m encouraged by their overall commitment to health and wellness and the consistent message they are communicating to their shoppers. Not only does pharmacy extend their service offerings, but they are also providing services and other product options to support a person’s well-being.
To the question of “importance,” I’m not sure that it is a fair question to ask whether pharmacy operations are more important to Publix than Target and other mass merchandisers. The relevance must be to the customer base served and whether they support the pharmacy as important to their daily needs. If so, then it should be important to the retailer regardless of format.
Publix is located mostly in high-growth states like Florida that have a huge influx of older Americans taking more of their fair share of prescription medications. For Publix, being concentrated in this type of area, pharmacy is going to be much more important compared to stores in markets that have no growth, younger populations and fewer people with health insurance.
Particularly in Florida, pharmacy is a growth category while groceries are not.
Customers will think of the convenience of one stop versus two. “I go to Publix anyway, I might as well use their pharmacy and save a trip.”
The reality is, more than a convenience for the customer, it is a traffic builder for Publix.
The strategic logic for mass merchants isn’t much different. Their core merchandise is in maturity and real growth is minimal. they must find alternatives within the same footprint to grow both the top and bottom line.
I grew up in Florida near the Publix HQ and worked in the bakery during high school. And yes, the amount of older shoppers in that area is monumental. Moreover, they are often in the store on a daily basis. Given the focus on health during their later life stage, their pharmacist is a key character in their lives.
Living in Georgia now, I still have irrational loyalty to Publix. Last year I started using the their pharmacy and, true to their brand, the experience was far superior to any that I’ve had. The pharmacist and staff always go the extra mile regarding care and questions. They never make me feel like they are rushing me through. Even more impressive, every time I’ve used them I get a proactive follow-up call from the pharmacist directly inquiring on the family member that the prescription was for, asking if there are any more questions and telling me to not hesitate to call.
Experience is everything. And when adding a category enhances the brand’s role in someone’s life and also drives traffic, it’s just a great move.
Publix is simply going to the heart of loyalty. Consumers trust their pharmacist. Consumers are loyal to their pharmacist.
In states that allow non-primary pharmacy-only retailers to own pharmacies, it is the thing to do for conventional supermarket chains.
In many cases, sales will exceed center store.
There’s no magic here.
Yes, absolutely more important. Just competition alone makes it critical. If your competitors have a pharmacy and you don’t, then you are at a great disadvantage.
This is a stimulus for floor traffic, and adding clinics, clothing and home goods should follow for many big box grocers.
This new market expansion is slow to grow for two reasons that the managing company’s executives either fail to realize or are ill prepared to address. The first shortfall is seen in the poorly planned or executed leasehold improvements needed to provide a contiguous ergonomic floor plan that is both practical and enjoyable from the consumer perspective. This is clearly demonstrated by the amount of time customers and associates spend looking for high turn product relevant to the shopping mission needs list.
The second need is to allow and support departmental management and expertise for the majority of decision processes. What big box executives are struggling with is how to limit redundant stocking orders that may slow turns and increase shelf life shrink. This problem is severely aggravated by the assembly and utilization of several incomparable data file structures brought about by poorly planned Information Technology investments, and the software burdens brought in with mergers and acquisitions.
The development of an omnichannel structure will lead any size company into the unknown and expose the company to catastrophic risk if key critical path ingredients are undiscovered or downgraded as a priority. The time to learn is before you play the game.
Yes, pharmacy operations are more important to grocers than to mass merchants, simply due to the frequency of visits and convenience. Publix is a great grocer with or without pharmacy, but people have come to expect the large regionals to house a pharmacy and it could deter shoppers if a grocer doesn’t have one.