May 31, 2001, 12:00 AM

The online pharmacies seek an Rx

(Page 2 of 3)

While the remaining pure plays don’t have the offline customer base of chains to draw from, they’re competing by promoting higher-margin front-of-store goods, as well as prescription drugs and nutritional supplements not covered by insurance for which consumers pay out of pocket. And they’re finding ways to boost their offline presence. Drugstore.com, for example, has an agreement with national pharmacy chain RiteAid in which items ordered online at Drugstore.com can be picked up in RiteAid’s 4,000 stores. Local, independent pharmacies and smaller regional chains, meanwhile, aren’t throwing in the towel. They’re seeking to turn what was initially perceived as the competitive threat of the web into an opportunity by working with partners to develop strategies and access infrastructure that will give them a foothold online.

 

As relative newcomers to the online channel-at least in comparison to the likes of Drugstore.com-the major chains are still feeling their way and are little inclined to ballyhoo web initiatives. A number of national drugstore chains including Walgreen’s and CVS declined to be interviewed for this story. In fact, Walgreen’s gave as a reason for declining an interview that its executives were too busy building stores.

 

Yet the chains stand to be the biggest gainers from the web if they can harness its power as a research tool that drives consumer spending in their stores. Web influenced-health spending-that is, medicine and other health-related products researched and even ordered online but picked up in-store-is expected to dwarf online health spending by three to one in the next five years, predicts Jupiter. By 2005, web-influenced health spending will leap to more than $50 billion a year. “More than a quarter of this will be reaped from consumers who never purchase health items online, therefore representing market share and wallet share impossible for online-only retailers to tap,” says Jupiter’s Rich.

 

Darwin at the drugstore

 

To fully leverage their advantage, though, the chains will have to boost functionality at their web storefronts with store location information, detailed product data-even compliance programs organized around different medical conditions that encourage patients to stick with their regimens by checking in with them online. They’ll also have to accept more health insurance plans and expand options to pick up online orders in-store, says Rich. As with their brick-and-mortar counterparts in other retail sectors, “Companies that create a seamless cross-channel brand identity and flexibility will win in the long term,” she adds.

 

As national pharmacy chains like Walgreen’s continue to grow, more than a few local and independent pharmacies have folded their tents. But others have fought back against the offline competition, even using the web they once regarded as competition to their own advantage. “There was a lot of survival of the fittest going on,” says Tom Menighan, president of the American Pharmaceutical Association, the leading professional association for pharmacists. He’s also CEO of SymRx, a venture-backed company that provides services and solutions for independents, regional drugstore chains, and specialty pharmacies seeking to expand online.

 

SymRx supports pharmacies with two branded programs. One, Cornerdrugstore.com, offers web sites and services for independents. The Cornerdrugstore.com site provides store location information by ZIP code and city for participating pharmacies in the user’s area, as well as a link to the store’s own site. Cornerdrugstore builds those store sites to order, using a basic template it’s developed for that purpose.

 

In addition to offering online ordering and delivery of prescription drugs, independents can add to their hosted site a prefab web store also developed by the company. The store features 5,000 pre-selected front-of-store items, fulfillable out of the pharmacy’s own store, that can be priced at any of five different tiers set by SymRx.

 

SymRx recently launched a second brand, ChainRx, on a different technology platform. ChainRx offers regional drugstore chains with greater in-house IT capacities more flexibility to create their own look and feel as well as price structure on the hosted site.

 

Independents and specialty pharmacies pay SymRx $60 to $75 a month per store; currently, pharmacies pay no set-up fees for the service. The per-store price for regional chains is slightly lower. Consumers pay a transaction fee of 25 cents to $2.

 

Eye on the future

 

Some 1,900 independents ranging from a small pharmacy in rural North Dakota to a 100-store regional chain in Iowa are Cornerdrugstore.com participants. Among them are the two retail stores of Green Brothers Pharmacy, a family business operating in Stockton, Calif., since the 1930s. Green Brothers has annual revenues of about $8 million, 90% of it in prescriptions, of which 88% is paid for by health insurers.

 

Green Brothers has been online for about a year, and it’s at the opposite end of the spectrum from the heavily financed and aggressively promoted pure-plays. While Drugstore.com partners with Amazon to pull in traffic that numbers in the tens of thousands, Green Brothers is just getting around to printing its URL on its store bags. “We’re lucky if we get one or two web orders a month, because we’ve done little so far to drive it,” CEO Charles Green says. But Green’s not in it for the short term, and his belief in the Internet’s eventual importance to his business shows a bedrock understanding of the web’s increasing power.

 

“Drugs are primarily consumed by older people, and they’re not the ones who tend to use computers,” he says. “But we need to have a web presence now, because a younger and more computer-literate bunch will make more use of the web in the future.”

 

Green is a firm believer that the Internet will only grow as a place of commerce. “Right now, it’s still just as easy for consumers to pick up a phone. But in five, 10, or 15 years the web will be a routine, practical way of doing things. So having our site up now is one of the ways we move into the future,” he says. “I’m betting on the Internet.”  

 

 

mary@verticalwebmedia.com

 

 

 

 

A different approach from the corner drugstore

 

While national chains already tied into health benefits providers work to integrate those relationships into their new online channels, Drugstore.com is taking another approach. Most of its prescription business involves drugs not covered by health insurance. And it actively promotes its brand online, with prominent placement on the health and beauty tab on Amazon.com.

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