May 31, 2001, 12:00 AM

The online pharmacies seek an Rx

Consumers have been slow to buy their prescriptions online—and the chains have been slow to leverage their brands online.

By Mary Wagner

The death in March of PlanetRx.com wasn’t just a story of another failed dot-com retailer. It also was a story of consumers’ resistance to having their prescriptions filled online.

 

The brave new world of Internet retailing wasn’t just about books, electronics and videos-it had a place for pills, diapers and cosmetics, too. The ease of online shopping would, some believed, forever end long lines at the drugstore check-out counter, eliminate embarrassing price checks on personal items and make hauling bulky paper goods home a thing of the past.

 

But the web’s early advocates misjudged how quickly people would change their habits and embrace the web for their drugstore needs. Web enthusiasts with their eye on the medium’s seemingly limitless prospects focused on what was technically possible. But as any psychologist-as well as PlanetRx and MotherNature.com-will tell you, human behavior is difficult to change.

 

It turns out that shoppers accustomed to making their drugstore purchases in-store so far perceive little benefit to buying health care products online. Evidence: almost 70% of online users have never purchased health-related products online-significantly more than the 40% average across other retail sectors, Jupiter Media Metrix reports.

 

Why all the foot-dragging on switching drugstore purchases to more convenient online sources? For one thing, it may not be so convenient. In fact, 50% of consumers in the Jupiter survey said it’s easier to shop offline. Buying heart drugs on the Internet is a lot more complicated than buying the latest Harry Potter. “The pharmacy business doesn’t follow the same ‘consumer is king’ rules that other online retailers have exploited,” observes Liz Boehm, an analyst with Forrester Research. “Third-party payers and physicians both must authorize a prescription before the product ships, and drug histories must be coordinated across channels to ensure patient safety.”

 

For now, doctors must still call in their approval or patients must present a written prescription. Until the use of electronic prescribing tools that put physician, patient and insurer on the same platform becomes widespread, authorization will remain an issue when filling new prescriptions online.

 

Who’s your pharmacist?

 

And shoppers may not care who ships them books and CDs as long as the packages show up as promised, but they want to know who their pharmacist is. “We’re not talking about checking out at the supermarket here,” says George Thompson, an analyst who covers retail pharmacies for Prudential Securities. “We’re talking about someone who is providing you with something potentially injurious if it’s not filled properly.”

 

So what about that lipstick-or razors, or hairbrushes, or any of the other so-called “front-of-store” goods that drugstores offer in addition to prescription medicines? Do they sell online?

 

Some of these items provide higher margins than prescription drugs that cost the consumer more because health benefits providers have beaten down the margins on branded prescription drugs. And much as in the offline world, online pharmacies offer sundries to boost the basket size of shoppers who come to the store to fill prescriptions. But as an extension rather than the main event, they tend to contribute a smaller percentage of revenues. Thompson estimates that at CVS, for example, one of the country’s largest fillers of prescriptions, front-of-stores sales are only 35% of total revenues across all channels. At Walgreen’s, which also has an online channel, they’re about 43% of total sales.

 

Though online pharmacy players like Drugstore.com seek to offset smaller Rx business with the heavy promotion of higher-margin front-of-store goods, for most online drugstores, prescription drugs remain the core of the business and the road to revenues.

 

The barriers to executing a successful drugstore business online are high-high enough to have knocked some sector pioneers such as PlanetRx.com and MotherNature.com into oblivion. Even so, Americans bought $105.5 billion in branded prescription drugs last year, and with a prize that lucrative at stake, plenty of drugstore companies are making determined efforts to scale the walls and capture the web’s share of those sales.

 

That share is still small, but it’s growing. Estimated at $600 million today, or less than 1% of offline consumer health spending, sales at online drugstores are expected to increase to $14.4 billion by 2005, predicts Jupiter. Forrester’s projections are similar-$15 billion in 2004. In the near term, say analysts, growth in online sales will most likely come from new customers and new products and services than from any mass migration to the web of consumers now accustomed to mail order or in-store purchasing.

 

In trends that mirror other retail sectors, the web arms of brick-and-mortar drugstores could be the biggest winners in the long run. They’re able to leverage their offline brand presence into online sales and offer what’s emerged as consumers’ overwhelming desire to pick up in a store the pharmacy goods they order online. More than 90% of the prescription drugs ordered online are picked up in-store, Thompson estimates. And a quarter of consumers surveyed by Jupiter said the option of ordering online and picking up in-store would be compelling enough to make them switch drugstores.

 

Slow-moving

 

Nevertheless, the national chains have moved slowly to capitalize on their advantage. While some of them have very good sites-Walgreen’s for example has a link to Mayo Clinic health care information, keeps a history of prescriptions and e-mails refill reminders to customers-they don’t rank very high in the traffic department. CVS.com had only about half the visitors in March that pure-play pharmacy webRx.com had, while offline giant Walgreen’s website drew less than a third of the visitors of Drugstore.com, notes Stacey Rich, an analyst with Jupiter. “Traffic doesn’t necessarily translate into purchases, but it’s a good indicator of consumers’ awareness of a site,” she says.

 

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