Healthcare reform would be a double-edged sword, boosting sales but hurting profit
Los Angeles, CA (PRWEB) April 03, 2012
While sales have been resilient during the recession, growth for the $222.9-billion Pharmacies and Drug Stores industry has slowed from historical levels. Profit margin has been pinched, and consolidation has persisted, says IBISWorld industry analyst Sophia Snyder. Industry revenue is expected to grow at an annualized rate of 1.3% during the five years to 2012. However, over the five years to 2017, sales growth is forecast to accelerate. Competition among players and from alternate retailers will continue to intensify as strong demand for prescription drugs entices pharmaceutical manufacturers, healthcare reform poses potential benefits and a rosier economy is forecast.
Prescription drug purchases are less sensitive to changes in consumer income than other products because they are often bought out of necessity, Snyder says. Further, as the economy began to strengthen in 2011, decreasing unemployment and rising personal disposable income nudged up the Pharmacies and Drug Stores industry's pharmaceutical and front-end sales (i.e. goods other than medicines). As more consumers find work, the level of insurance coverage is expected to rise, increasing the affordability of pharmaceuticals. Consequently, revenue is expected to increase 1.7% in 2012. The 2010 healthcare reform act, if left intact, is anticipated to expand insurance coverage and subsequently increase pharmaceuticals' demand as they become more affordable. While sales volumes will likely increase as more people gain coverage, the government is expected to initiate cost cutting, which adversely affects profit margin. Industry consolidation is already underway to combat probable pricing pressures. Pharmacy benefit managers (PBMs), third-party administrators of prescription drug programs, have diverted sales to mail-order pharmacies, which can carry lower prices and are often owned by the PBMs themselves.
Several mergers and acquisitions have pushed independent drug stores out of the market. In response, smaller companies are offering more convenience to regain customers. In-store clinics, better merchandising, accessible locations and drive-through pharmacies are drawing time-strapped consumers to these drug stores; however, independent stores are still exiting the industry or being acquired by larger players. Walgreen Corporation and CVS Caremark remain the most dominant players in this industry. These behemoths combined with Rite Aid Corporation generate well over half the industry’s total revenue. For more information, visit IBISWorld’s Pharmacies and Drug Stores report in the US industry page.
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IBISWorld industry Report Key Topics
Pharmacies and drug stores retail a range of prescription and over-the-counter medications, health and beauty items, toiletries and consumable goods directly to consumers on a walk-in basis. Industry companies may also provide basic health and photo processing services. The industry includes retail stores with a pharmacy but excludes mail-order retailers, hospitals and clinics.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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