Small, local drug stores hold out against chains
By ERIK ORTIZ
Staff Writer, 609-272-7253
Published: Sunday, November 23, 2008
The inquiries arrive every so often for Mark Taylor, owner of Jersey Shore Pharmacy. The form letters are from bigger competitors, wanting to talk about buying him out."It's almost like junk mail," said Taylor, who has a pharmacy location in Egg Harbor Township and a nonretail location in Galloway Township that opened in July.He throws out the solicitations. There's no need to entertain them, he said, with business still doing well. After all, the health care industry often is thought to be recession-proof since people will always get sick and need medications.But in this economy, the smaller, independent drug stores, along with regional chains, may find it harder to survive in such competitive times, industry experts say. CVS and Rite Aid seem to be popping up everywhere, while mail-order prescription services are growing in demand."Chain consolidation is going to continue, and in say, maybe five years, there will probably be four or five major players left," said Pete Reiss, executive vice president of Garden State Pharmacy Owners, a Bergen County-based association with about 650 independent pharmacy members.
The latest to be snatched up is Long's Drug Stores, which had about 500 locations in California, Nevada and Hawaii. In a $2.7 billion deal last month, Rhode Island-based CVS Caremark bought out the smaller chain, also agreeing to assume about $200 million of its debt.CVS, the nation's top provider of prescription medicines, has been steadily gobbling up stores over the past few years, including some Eckerd's, Osco Drug and Sav-On Drugs stores.Meanwhile, competitors Rite Aid and Walgreens have been complaining about slowing sales growth at their stores.Walgreens said October sales of general merchandise were flat, while prescriptions filled at stores open at least a year increased just 0.4 percent. Pharmacy sales at Rite Aid stores open at least a year increased 1.9 percent in October from a year ago.Given how cash-strapped consumers have become, IMS Health, a health data company, forecasts U.S. prescription drug sales will grow by only 1 to 2 percent next year, compared with about 8 percent in recent years.Besides the effects of the shaky economy, Reiss said, the ability of independent pharmacies to earn profits in prescription drug sales is being hindered by third-party pharmacy benefit managers, or PBMs. These private companies, which are not regulated, are hired by employers to administer prescription drug programs, negotiate discounts and better rates from drug companies and contract with individual pharmacies. But "the pharmacies are being told by these (PBMs) what they're going to get reimbursed," Reiss said. "Their profitability is being taken away, and they can't adjust their own profit margins."Ron Sorr, a 30-year pharmacist with Trenton Avenue Pharmacy in Atlantic City, said he is staying upbeat despite front-end sales declining since the summer. His clientele includes unionized employees of the casino industry, which has recently experienced rounds of layoffs."People have even less money these days, and the (cost of) drugs are high," Sorr said. "But I'm hoping for the best."E-mail Erik Ortiz:EOrtiz@pressofac.com
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