The pharmacy and drug store industry, encompassing outlets retailing prescription and over-the-counter medications, health products, and everyday consumable goods, has seen a positive trajectory in revenue growth. This upswing is largely attributed to a high number of individuals with private health insurance and an aging population in need of chronic medication. Expected to surge by an annualized rate of 3.7% to $569.8 billion in 2023, with a 2.9% increase projected within the year, the sector anticipates a profit margin of 3.9%.
The COVID-19 pandemic, while presenting challenges, ultimately played a role in bolstering the industry. Pharmacies, deemed essential services, remained operational amidst widespread lockdowns of nonessential businesses. This allowed them to continue serving their clientele and meet increased demand for healthcare products and essentials, diversifying their product offerings to include groceries and cleaning supplies.
Looking ahead, the industry is poised for continued expansion despite a rise in competitive pressures. Expected to grow at an annualized rate of 3.7% to $683.8 billion by 2028, the sector is set to benefit from broader service offerings, including preventive care, and greater access to prescription medications due to an increase in insured individuals. This expansion is anticipated to drive both industry revenue and profitability upward.
Driving Forces Behind Industry Growth
Despite facing stiff competition, the pharmacy and drug store industry has maintained robust growth. This is thanks in part to an increase in the insured population and a growing elderly demographic requiring ongoing medication, ensuring a steady demand for pharmaceutical services.
However, the rise of online pharmacies and big-box retailers has intensified competition, prompting traditional pharmacies to broaden their services. Many have introduced preventive care, health screenings, and vaccinations to their service repertoire, enhancing their appeal to health-conscious consumers.
Pandemic Resilience Among Leading Enterprises
Essential business status during the pandemic allowed pharmacies to maintain operations, adapting quickly to new health and safety protocols. Major chains implemented measures like social distancing, drive-thru testing, and comprehensive employee support programs, ensuring their ability to serve the public safely.
Conversely, smaller pharmacies faced challenges adapting to these new norms, with many operating at reduced capacities, affecting their revenue and stability during the pandemic's peak.
Adapting to Consumer Price Sensitivity
With consumers becoming more price-conscious, particularly in prescription medication, the industry has seen a shift towards generic drugs and bulk purchasing options like 90-day refills. This trend towards cost-saving measures has been met with a mixed response from pharmacies, with some offering discounts and loyalty programs to retain customers amidst generic drug price competition.
Consolidation in Response to Competitive Pressure
The competitive landscape has led to increased consolidation within the industry, with larger chains expanding their market share. To counteract competition from online retailers and big-box stores, many have ventured into e-commerce and mail-order services, alongside expanding their health service offerings to position themselves as comprehensive health and wellness destinations.
For example, CVS's introduction of HealthHUB locations represents a move towards becoming a holistic health service provider, offering specialized equipment and a range of health services to meet consumer needs.
As the industry evolves, pharmacies and drug stores are increasingly integrating their operations with pharmacy benefit managers (PBMs) to streamline costs and improve service delivery, highlighting the sector's adaptability in meeting the changing health care needs of the American population.