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Executive Summary

Whslrs. may be able to increase their toehold in the supermarket pharmacy market by stressing their expertise in pharmacy computer systems, University of Texas Associate Pharmacy Professor Kenneth Kirk, PhD, suggested Nov. 5 at a seminar during the Natl. Whsle. Druggists Assn. (NWDA) annual meeting in Orlando, Fla. While a few food chains are committed to developing pharmacy computer operations, and one group, headed by Sweda and Scrip Systems, has announced a system aimed specifically at supermarket pharmacies, "overall, supermarkets have not served as pioneers in this area, even though they've used scanners and other computer services in their grocery outlets for some time," Kirk said. "If, in fact, supermarkets do not plan to implement their own computer systems in their pharmacies, perhaps this is an area for drug whslrs. to provide a value added service." Kirk, along with K-Mart Pharmacies President William Propst, participated in a Management Institute seminar at the meeting on "New Entrants in Rx Retailing and Their Potential for Whslrs." Supermarkets have probably not invested in pharmacy computer systems because of the relatively small proportion of total grocery sales that Rx drugs represent, he said. Kirk pointed out that in 1983 supermarkets accounted for about $1.4 bil. (about 8%) of total Rx sales in the U.S. However, Rx drugs represented only about .6% of overall grocery volume. The number of supermarket pharmacies has been growing about three percent per year, about the same rate as the drug chains, Kirk said. However, in 1983, there has been about a 15% reduction in the number of pharmacies operated by mass merchandisers, the pharmacy professor told the group. Kirk added that K-Mart and Wal-Mart, the leading mass merchandisers in terms of pharmacies, have been exceptions to the trend. The Texas pharmacy professor said there are about 17,000 chain drug stores compared to about 4,900 food store operated and 2,200 mass merchandiser operated pharmacies. Recent Rx Price Increases On Products Nearing End Of Patent Could Spur Govt. Involvement -- K-Mark's Propst Commenting on food store motivations for expansion into the pharmacy area, Kirk asserted: "I believe it is fair to say that food chains see in pharmacies much of what they saw in previous years when they began to carry general merchandise. "Pharmacy operations help ease the stores' profit squeeze, help build traffic as part of an attempt to create a one-stop shopping environment," and they upgrade the store image, he said. There seems to be a consensus that a supermarket pharmacy must dispense 50-100 Rxs per day, with more than 50% new Rxs, in order to be profitable, Kirk asserted. Recent Rx price increases could be of potential concern for stores interested in maintaining a low-price image, Kirk commented. He pointed out that in 1983 Rx drugs and cigarettes were the only two product groups which showed significant jumps. Rx prices in supermarkets increased about 10% in 1983 v. an overall increase in supermarket prices of 2.1%, he said. In his remarks, K-Mart's Propst also commented on recent price increases on products nearing the end of patent lives. He noted that mfrs. have raised prices, often frequently, to maximize the profitability of their products as they begin to face generic competition. However, he urged the mfrs. to consider pricing "from our standpoint, and from the industry image standpoint." Can "you imagine the problems some of our pharmacists are going through and the image the entire industry is beginning to develop with these meteoric prices," Propst declared. "We have to walk out there and say, 'Mrs. Jones [the product] was $6.84 and today it is $8.48'. Mrs. Jones says, 'My Lord, I can't afford it. You know I live on a pension.'" The increases could spur further govt. efforts to control drug prices, he warned. "One of these days we may have a third party, Uncle Sam, to assist us in our pricing and I certainly wouldn't want to see that either," Propst said. Propst, who presides over K-Mart's approximately 1,000 store pharmacies in 32 states, suggested in response to a comment from Kirk, several reasons why some mass merchandisers have withdrawn from the Rx business. Rx depts. in many of the operations that have withdrawn from the area were not managed by pharmacists, he said. "Most of them expected high returns, rapid returns in the absence of a lot of investment," and they did not understand that Rx depts. are labor intensive and require a high level of service.

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