How Canadian Pharmacies Can Survive and Thrive in the Post-Pandemic Era.

Three of the largest drugstore chains in the US — CVS, Rite Aid and Walgreens — are operating in crisis mode and plan to close nearly 1,500 stores by the end of 2024. A lack of differentiation, online pharmacy growth and a rise in retail theft are just a few reasons for the closures. In an effort to remain competitive and avoid the same fate, traditional drugstore retailers in Canada are facing their challenges head-on and transforming into one-stop healthcare destinations.

While closing stores is a fact of life for retailers, this shift in the retail pharmacy landscape is one that’s hard to ignore and can be attributed to several factors:

CVS Health Store Closures

CVS Health announced that it will close 900 stores from 2022 to 2024. Out of these, 300 stores have already been closed. The move is part of the wider trend observed in the U.S. drugstore industry, which has seen significant consolidation following the end of the pandemic.

In an interview with CNN, GlobalData analyst Neil Saunders said that too many of its stores have fallen into disrepair, with “bad lighting, depressing interiors, messy merchandising and a weak assortment of products. They are not destinations or places where people go out of anything other than necessity.”

Last year, CVS had revenue of $106.6 billion, with nearly 8,000 stores and 2,000 pharmacies in retail chains, such as Target.

Rite Aid Files for Bankruptcy

Struggling under the weight of immense debt and declining sales, Rite Aid filed for Chapter 11 bankruptcy protection in October and faces more than a thousand lawsuits that say it filled illegal prescriptions for painkillers. It has raised $3.45 billion to allow it to operate during bankruptcy and continue serving its customers. Their troubles are part of broader industry challenges, especially those connected to the opioid crisis in the US.

Earlier this year, they had proposed closing 400 to 500 of its 2,100 stores. Rite Aid’s retail pharmacy segment brought in $17.8 billion in 2022 with $288 million in adjusted EBITDA.

Walgreens

Number one pharmacy chain Walgreens operates just shy of 9,000 stores and generates $109.1 billion in sales. It recently announced plans to close 150 locations and reduce the operating hours in some 1,100 stores.

TheStreet columnist Thomas Lee warned, “Closing stores is a fact of life for retailers. But some closings should worry consumers and investors more than others,” referencing Walgreens specifically, but it applies to all in the sector.

“As a pharmacy chain, Walgreens primarily sells the stuff that people depend on for daily life, the merchandise that is supposedly more immune to inflation. Because of the worsening economy, the rest of the industry should take note,” he continued.

Shifts in the U.S. Retail Pharmacy Landscape

Lack of Differentiation: Most major drugstores offer very similar shopping experiences, selling nearly identical products in similar ways. Efforts to diversify, such as introducing upscale beauty lines, often lead them into direct competition with specialized stores like Sephora. As these chain stores tried to diversify their offerings, they sent mixed signals to consumers, jeopardizing their standing as primary health and wellness partners. Independent pharmacies, which prioritize their primary function as drugstores, have been gaining ground.

Changing Drugstore Dynamics: A majority of sales at chain drugstores like CVS come from the pharmacy section. The front-of-store retail portion exists mainly to add convenience for prescription customers. However, many find it more convenient to fill their prescriptions at grocery chains. In fact, J.D. Power’s 2023 study revealed that supermarkets had a higher customer satisfaction score compared to chain drugstores.

Rise in Retail Theft: Retail theft has significantly impacted many chain drugstores. Last year saw a loss of $112.1 billion in the retail industry due to theft, a 19% increase from 2021. Drugstore chains were prime targets for these thefts. Measures to counteract theft, such as placing items behind locked glass, deterred sales instead.

Online Pharmacy Growth: Amazon and other online retailers are stepping into the space, offering prescriptions without the need for customers to visit a store. Amazon’s RxPass service, launched as a part of its Prime membership, offers a new dynamic in the pharmacy sector, providing even more convenience. Research and Markets predict that online pharmacy revenues will see a CAGR growth of 19% from 2020 to 2026.

Shift in Focus Post-Covid: Drugstore chains have started focusing more on healthcare post-pandemic. CVS has launched MinuteClinics for urgent care and CVS Health Virtual Primary Care Service. Similarly, Walgreens has introduced Village Medical primary care.

What Does This Mean for Canadian Pharmacies?

In an effort to remain competitive, traditional drugstore retailers in Canada seek to become one-stop healthcare destinations.

Here are some of the challenges and opportunities they face heading into 2024:

Challenges:

• Increased competition from online pharmacies and existing competition from mail-order pharmacies: Customers enjoy the convenience of Amazon and other online retailers who offer the flexibility of filling prescriptions without the need to visit a store.
• Business challenges such as drug reimbursement rates decreasing: As the reimbursement level for drugs continues to decrease, the profit margin on the core part of the retail pharmacy business is under pressure.
• Tight labour market leading to staffing challenges: Pharmacists have been under increasing pressure for the last few years, resulting in an increase in retirements and a slower uptick in new hires. 
• Erosion of convenience advantage due to online retailers like Amazon: The growth of online retailers such as Amazon has made it easy for consumers to fulfill immediate needs without a visit to their local pharmacy, thus eroding the convenience factor that many drug stores have leveraged.
• Business district drug stores are losing foot traffic due to remote work trends: Drug stores in business districts have lost some of the front-of-store traffic they previously enjoyed from workers who may now be working from home some of the time.
• Homogenized product assortments leading to reduced local relevance: Drug store assortments have become more homogenized across locations, reducing their local relevance to the needs of individual communities.
• Difficulty competing on price, especially with the rise of dollar stores: Customers who buy the same products regularly may be inclined to look for more convenient or low-cost options online or at a dollar store. 
• Potential erosion of in-store pharmacy sales: Less foot traffic and fewer trips to the store are having an impact on pharmacy sales.
• Migration of certain brands to online platforms: “Mission-based” brands in niches such as organic or animal-free are ripe for migration to online platforms.

Opportunities:

• Drugstores are transforming into one-stop healthcare destinations, offering more holistic care: Drug stores are reinventing themselves by adding more clinical services and transforming into one-stop healthcare destinations with a range of offerings. By providing a more holistic healthcare experience, they can simplify the process for patients and at the same time improve healthcare overall.
• Use of loyalty programs and mobile apps to engage and retain customers: Loyalty programs are effective at engaging a drug store’s existing customer base, and keeping them engaged. Customers can use the provider’s app to set health and wellness goals, manage chronic conditions, schedule deliveries and access their loyalty membership benefits.
• Leveraging data for personalized customer experiences: Mobile apps can also help retailers personalize communications with their customers, and cross-promote products based on their shopping history.
• Emphasis on in-store pharmacists for building trust and providing holistic healthcare: The pharmacist is the most important resource a retail pharmacy has, and ensures the customers keep coming back for a personalized experience.
• Integration of clinics, in-store screenings, and collaborations with other healthcare providers: This presents opportunities for brick-and-mortar retailers that can execute this type of experience in their stores, leveraging the data they have about their customers to help determine their needs.
• Adapting to digital connectivity for seamless communication with doctors and other healthcare providers: One of the keys for drug store operators to be successful in becoming a primary destination for healthcare will be digital connectivity and the ability to communicate with doctors and other healthcare providers. The potential to fulfill multiple healthcare needs in one visit is a key strength of the retail drug store.
• Leveraging automation to enhance efficiency and cope with labour shortages: Drug stores will increasingly turn to automation to help ensure that pharmacists are available for patient interactions in the stores. 
• Reevaluating store design and operations to accommodate expanded healthcare offerings: The pivot to providing a one-stop holistic healthcare experience dramatically changes how to structure operations in the store. This includes changes to both workflow and store layout.

The Road Ahead

Rodey Wing, a partner in the health and retail practices of global strategy and management consulting firm Kearney, sums it up best:

“I think there’s a number of challenges which are coming to a head,” said Wing. “One, you have ongoing reimbursement pressure. The reimbursement level for drugs continues to decrease, so profit margin on the core part of the business is under pressure.”

“As you have a bunch of new niche solutions or home delivery solutions coming on, it chips away at that volume,” said Wing.

“That starts a bit of a vicious cycle because it starts to impact volume, and then that volume drives lower profitability and becomes a bit of a challenging spiral to get out of for retail pharmacy,” said Wing.

“When you have dollar stores popping up nearby, it’s become even harder to try to maintain that premium [price positioning], particularly given the size of premium that they’ve tried to maintain,” he said.

“It’s a repeat of what happened with the independent pharmacies and drug stores getting taken on by the chains, but now the chains are being taken on by online,” he said. “And people are saying the same things—that customers won’t like giving up personalized service. They said it when customers went from independent drug stores to chain drug stores, and now the chains are saying it as customers go online.”

Standing Out From the Crowd

The pandemic changed the retail pharmacy market in huge ways, and navigating the shifting landscape can be challenging. If reevaluating your store design to accommodate new healthcare offerings is part of your retail strategy, contact our team to get a project plan and quote. 

We are Canada’s leading supplier of Lozier pharmacy shelving and can design the most efficient setup for your pharmacy: a safe, modern retail environment that represents everything you stand for, everything that makes your brand unique — be that style, products, being a local independent business, or your passion for amazing customer experience.