First Research US Industry Profile

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Drug Stores
SIC Codes: 5912
NAICS Codes: 44611
Last Quarterly Update: 5/30/2022
Companies in this industry sell prescription drugs, over-the-counter medications, health and beauty, and general merchandise from physical retail locations as well as online stores. Major companies include CVS Health, Rite Aid, and Walgreens (all based in the US), along with AS Watson Group (Hong Kong), Boots (UK), China Nepstar (China), Dm-Drogerie Markt and Rossmann (Germany), Jean Coutu and Shoppers Drug Mart (Canada), and Matsumoto Kiyoshi (Japan).
Annual worldwide revenue for pharmaceutical manufacturing, an indicator of demand for prescription drug sales, exceeds $1.1 trillion and is expected to reach $1.5 trillion by 2023, according to a 2019 forecast from market intelligence firm IQVIA.
The US drug stores industry includes about 45,000 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $270 billion.
Competitive Landscape
The evolving US health care system and growing competition from online and other retail channels are rapidly transforming the retail pharmacy business. Independent pharmacies, many in rural and low-income areas, are closing. Between 2009 and 2015, 9,654 pharmacies in the US closed, with independent pharmacies three times more likely to close than chain pharmacies, according to a study by the University of Illinois at Chicago. As a result, CVS and Walgreen dominate the US chain drug store industry, especially in big cities. Other major players include Walmart, which ranks among the top five US retail pharmacies by prescription revenue, and grocery-giant Kroger. In a move that further consolidated the market, Walgreen in 2018 won a hard-fought battle with federal regulators to acquire about 1,650 stores from Rite Aid, giving Walgreen about 9,300 US locations. Walgreen also operates Duane Reade drugstores. Diminished Rite Aid ranks 7th in prescription revenue, behind Walmart and Kroger.
As scale becomes increasingly important to success in the drug store business, retail pharmacy chains, including Walgreen and CVS, have spent the past decade bulking up to become integrated pharmacy health care companies by acquiring pharmacy benefits management companies, drug wholesalers, specialty pharmacy companies, walk-in clinics, and other health care-related businesses.
Online pharmacies are growing in reach and popularity, particularly for the refilling of maintenance medications. Amazon already sells OTC medications and medical supplies and equipment online in the US, as well as pharmaceuticals in Japan (with approval from a pharmacist). Despite the complexities and regulatory hurdles to online drug sales, Amazon is making inroads into the online pharmacy market, having acquired the online pharmacy PillPack in 2018. In India, online players are vying for a larger share of the country's fragmented pharmacy market amid an e-commerce boom.
Demand is driven by aging populations in developed nations such as the US and Canada, growth in emerging economies, awareness of health issues, advances in medical treatment, and longer lifespans. Considered essential retailers, drug stores are among the few retailers that remain open during the coronavirus pandemic. After an initial surge in sales in early March as consumers stocked up on prescription drugs and other health essentials, sales slumped as people stayed at home. The profitability of individual companies depends on access to medical insurance groups. Large companies have economies of scale in purchasing and in access to large groups of customers. Small companies can compete effectively through convenient locations or special merchandising. The US industry is highly concentrated: the four largest companies generate nearly 70% of revenue.
Drug stores that also sell general merchandise compete with grocery and convenience stores, discount department stores, dollar stores, warehouse clubs, and other retailers.
Products, Operations & Technology
Drug stores sell two main types of products: prescription drugs and "front-store" products, including over-the-counter (OTC) drugs, health and beauty aids, ... plus:
Sales & Marketing
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Finance & Regulation
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Regional & International Issues
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Human Resources
Also includes the following chapters:
Quarterly Industry Update
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Industry Indicators
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Business Challenges
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Trends and Opportunities
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Call Preparation Questions
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Financial Information
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Industry Forecast
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Industry Websites
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Glossary of Acronyms

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