March 14, 2005
Drug Chains Should Target Natural Constituents; My Turn
By Jeffrey Woldt
The "age wave" foreseen by gerontologist Ken Dychtwald has already had a significant effect on the marketplace, particularly in the health care sector, yet its full impact won't be evident for years. As the forces inherent in the graying of America do their work, chain drug retailers savvy enough to harness them will have the opportunity to make their stores central to the shopping patterns--for both prescription medications and front-end merchandise--of such consumers.
"Aging Baby Boomers: Capturing Boomer Potential Through Lifestage Transitions," a recent study by Information Resources Inc. (IRI), analyzes how the aging process alters the needs of consumers, and what that might mean for retailers and their suppliers. The report examines the link between the increased incidence of chronic health conditions among older people and shifts in the composition of families, and consumer requirements in product categories ranging from pharmacy to beauty care to convenience food.
Within the baby boom generation, whose size is estimated at 77.8 million, older boomers (those 50 to 58 years old) are far more likely than younger members of the group (40- to 49-year-olds) to have chronic health problems that need ongoing treatment. To cite just two examples from the study, 40% of older boomers suffer from arthritis while 24% of younger boomers do, and the former are twice as likely to have diabetes as their counterparts.
The positive implications for drug chains and other community pharmacy operators are readily apparent. Increased needs, coupled with the advent of a prescription drug benefit for senior citizens under Medicare next January, point to steadily increasing pharmacy volume.
The challenge for retailers on that front is to prevent third-party payers from steering pharmacy patients to mail-order providers. To do so, they must tap the reservoir of support they enjoy among consumers, who consistently rank pharmacists among the most trusted professionals of any kind and, more important, quantitatively demonstrate the difference that pharmacist/patient interaction makes in enhancing the outcome of pharmaceutical therapy, preventing harmful drug interactions and reducing overall health care costs.
The stakes for drug chains are especially high because pharmacy is what makes their stores a destination. Formidable challengers for prescription sales are lining up. For instance, Medco Health Solutions and the pharmacy benefits management division of Aetna have announced that they intend to offer pharmacy plans for Medicare beneficiaries throughout the country.
Although those programs will include retail components, Medco and Aetna can be expected to provide incentives for enrollees who make use of mail order.
If drug chains are able to retain their primacy in pharmacy, the demographic transition under way should benefit their front-end business as well. As consumers age, convenience and ease of shopping often become more important considerations than before, and drag stores are ideally situated to capitalize on those priorities.
Chain drug stores are located in close proximity to the places where most Americans live and work, and their relatively small size makes them easier to shop than other mass retail outlets. As the IRI report suggests, if drug chains can successfully leverage their existing relationships with baby boomers in health care and gradually fine-tune their mix, members of the trade class should be able to augment sales outside the pharmacy.
Changes required will include expanding beauty care assortments to appeal to a broader age spectrum of customers, and carefully calibrated shifts away from such youth-oriented categories as dry fruit snacks and juices in favor of such segments as beer, wine and spirits, and pet supplies, which are more heavily shopped by older consumers.
Some drug chains have been working to court seniors for years. Kerr Drug, Shoppers Drug Mart and Medic Drug have been pacesetters in home health care.
Walgreen Co., CVS Corp. and other pharmacy operators working through the Pharmacy Care Alliance have bolstered their commitment to seniors by offering drug discount cards as a transitional step toward the federally funded Medicare pharmacy benefit.
As reported elsewhere in this issue, Rite Aid Corp. has joined the ranks of drug chains offering special discounts to older customers. The "Living More"
loyalty program will give those over age 60 discounts on cash prescriptions, store brands and other merchandise, as well as an online newsletter targeted to their lifestyles and an opportunity to enter a quarterly sweepstakes.
Senior vice president of marketing John Learish says the free program is a way of acknowledging the importance of such consumers to Rite Aid, and letting them know that the retailer takes their health and wellness "personally."
That initiative and those at other chains geared toward older customers attest to the retailers' perspicacity. The sheer number of baby boomers and the close alignment of their needs with what chain drug stores have to offer make them the trade class' natural constituents.