STRONG MEDICINE

In-store pharmacies may boost supermarkets' health as consumers embrace "whole health" care. Consumers have gotten proactive in their own health care, and are turning to supermarkets for health information and products. That's got some grocers using the pharmacy as the focal point to drive traffic into other departments.

Three trends will increase the pharmacy's impact on total store sales. First, as consumers age and become more health-conscious, they'll seek more advice from pharmacists. Second, pharmacist referrals are crucial as more prescription drugs convert to over-the-counter and consumers, not doctors, make the purchase choice. Third, supermarkets' share of prescription drug sales is

growing.

Supermarkets are the fastest-growing outlet for prescription drugs, accounting for 12 percent of unit sales and 11 percent of dollar sales in 1999, says Jon Hauptman, vice president of Willard Bishop Consulting, Barrington, Ill. While overall prescription sales rose 9 percent, supermarket sales jumped 17 percent. That's partly because most chains include a pharmacy in new-store formats, Hauptman says, and also because "supermarkets do a very good job satisfying customers." In fact, grocers ranked second only to independent pharmacists?and higher than chain drug stores?in a customer satisfaction survey released in June by caredata.com.

In-store pharmacy sales are up and gross profit margins on prescription drugs have stabilized at an average 20 percent, down from 50 percent in 1990, per FMI's 2000 Report of the Supermarket Pharmacy Survey. Managed-care prescription plans, lower reimbursements, and generic drug substitutions have driven margins down. But grocers have compensated by picking up more prescriptions, filling 357 million in 1999. Grocers' dollar sales jumped 80 percent over five years to a weekly average of $38,321, FMI reports, crediting price increases and increased volume.

If the federal government institutes a prescription drug plan, Rx sales could grow 40 percent per year, says Alan Levin, chairman of the National Association of Chain Drug Stores, Alexandria, Va.

But it's going beyond prescriptions, and moving into whole health, where supermarkets really score. Fully 42 percent of shoppers say supermarkets do the best job providing all of the products they need to maintain their health, according to a Food Marketing Institute survey released in October. And 86 percent of FMI's survey respondents say they want one store to meet all of their food and health needs. Half ranked in-store health and nutrition info and grocery personnel who can answer health-related questions as "highly important."

Supermarkets don't outrank discount stores or drug stores in OTC medicine and vitamins?each channel captures about one-third of OTC shoppers and 26 percent of vitamin purchasers, FMI reports?but grocers beat other channels on other health-related sales. Fully 83 percent of those buying fortified foods get them at the supermarket. Seventy-three percent of people who buy additive/preservative-free foods, and 66 percent of those buying organically grown foods, rely on supermarkets.

Most supermarket execs may not consider produce a healthcare item, but shoppers do. That's the whole point of whole-health solutions, as consumers consider their health with every purchase. FMI's Shopping for Health 2000 study, conducted with Prevention magazine, reports that 95 percent of shoppers say their purchases are affected by some health concern.

A few grocers have been especially proactive. Lund Food Holdings, Minneapolis, teamed with a local health care provider, Fairview Health Services, to bring chiropractic, massage, and other therapies to the HealthWise Lifestyle Center of the Lunds store in uptown Minneapolis. Other Lunds and Byerly's stores have 1,000- to 2,000-square-foot Living Wise centers selling body care, nutraceuticals, vitamins, and herbs, with other whole-health products incorporated throughout the store, flagged with Living Wise signage. Lunds' only HealthWise center opened in September, staffed by Fairview employees. The loft hosts classes (free to $20) on nutrition, health, and lifestyle issues. Lunds will perfect its single center before considering more.

Lunds' pharmacy is "a tentacle" of Living Wise, and pharmacy info refers to Living Wise products, says whole health manager Bea James. "A few years ago pharmacies really were the driver for whole health," but not for hardcore natural foods consumers. "The future of the industry will be blending the pharmacy and natural foods. It won't be 'us and them' anymore."

Upscale grocer Kowalski's, St. Paul, Minn., has a Wellness Department in its suburban Woodbury store. Its second-story The Next Level offers education, nutrition, and lifestyle classes and products. In Kowalski's other three stores, whole-health products are shelved by category such as joint mobility and cardio care. None of Kowalski's four stores has a pharmacy. "Natural foods customers are somewhat distrusting of pharmaceutical companies," says natural foods specialist Debbie Leland. Most pharmacy shoppers buy "on a symptomatic basis," and are more comfortable with OTC medications, she says.



Credibility in a White Coat

The pharmacist is the key to driving whole-health solutions through the pharmacy. Pharmacists have credibility among consumers to recommend non-prescription items, from OTC drugs to fresh produce. "It's every OTC manufacturer's dream to have the pharmacist recommend their products," says Roy White, director of the General Merchandise Distributors Council, which runs a whole-health continuing ed program for grocers. "The role of the pharmacist is evolving to represent the whole store."

But there are obstacles. A shortage of pharmacists?this year pegged at 6,000?drives starting salaries as high as $75,000 to $80,000, a hard sum for many grocers to swallow. Plus, startup costs for a new pharmacy (and its expensive inventory) are high. Third-party payment systems require grocers to deal with insurance companies, and strict payment guidelines restrict profit margins on prescription drugs. Still, most grocers find the effort worthwhile to drive traffic and store loyalty as well as sales.

Pharmacies are also boosting loyalty with disease-management programs. Nearly half (49 percent) of supermarkets offer a disease-management program in at least one in-store pharmacy, up from 40 percent of grocers a year ago, FMI reports. Top issues: diabetes, hyperlipidemia, asthma, hypertension, and smoking cessation.

FMI also found that pharmacies are offering more in-store health services, such as blood pressure testing (90 percent of stores surveyed), flu shots (86 percent), cholesterol testing (61 percent), blood glucose monitoring (53 percent), and store "wellness" tours (53 percent).

Pharmacy media continue to expand. Health Resource Network, a unit of Catalina Marketing, expanded its customized patient newsletter service to 20,000 stores via its June purchase of Healthcare Data Corp., whose Medi-Link info service is similar to Health Resource newsletters. Newsletters, printed individually to accompany a prescription, have info on the drug, related health articles, and product ads from marketers like Bristol-Myers Squibb, Pharmacia, and Smith-Kline Beecham. Newsletters reach four million shoppers each week, Health Resource claims, and are "an extension of pharmacists' ability to counsel" customers eager for information, says Health Resource president Mike McClorey. The system is in about 2,500 supermarkets (compared to about 7,000 chain drug stores) and grocers use Health Resource newsletters to promote non-Rx offerings like produce, nutraceuticals, and classes. Separately, Health Resource signed a two-year deal with AmericasDoctor to include info on drug research and clinical trials in newsletters. Eleven-month-old AmericasDoctor helps drug companies market their brands with input from researchers, hospitals, and marketing experts. Its Web site, sponsored by 100 hospitals, lets consumers chat online with board-certified doctors for free.

Whether online or in-store, shoppers are looking for more medical and whole-health information. Providing it can help keep supermarkets themselves in the pink.