JD.com and Alibaba create indexes to identify Chinese shoppers’ spending trends, which help retailers gain insight.
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Given Walgreen’s 5,000 stores in the U.S. and Puerto Rico, its economies of scale and its prescription pharmacy business targeting insured prescription drugs, it’s obvious Walgreen’s needn’t work to position itself against Drugstore as Drugstore must work to carve out a niche against Walgreen’s. Yet soaring traffic at Walgreen’s.com, up 62% January over January, vs. a 40% gain at Drugstore and 27% at CVS.com, shows the chain is nevertheless out to grow its web traffic. To do that, it goes above and beyond a product offering comparable to the other chains with consumer health content from the Mayo Clinic, detailed health information FAQs and pharmacists on call who will answer confidential e-mail health queries from customers via e-mail. It’s also beefed up site navigation, search and merchandising.
The photo op
CVS.com, too, has buffed up its web offering with several personalization features, allowing customers to order prescriptions for mail order or pick up in a store, schedule refill reminders, check out a prescription price list and read health-related questions and answers on topics written by pharmacists. As at Walgreens.com, visitors can click on CVS.com and see digital versions of the chain’s weekly fliers that enable them to buy the same products online or in a store.
And if one of the web’s jobs for multi-channel retailers is to pull people who order online into the store for pick-up, Walgreen’s is fulfilling that mandate with a new online photo service that gives web users another reason to come to its stores. A relationship with HP Snapfish lets customers upload photos to Snapfish.com for printing and then pick up at a Walgreen’s store an hour later. “Our partnership with Snapfish gives customers a very convenient online photo service at a competitive price,” says John Sugrue, divisional merchandise manager for one-hour photo. The photo service has helped make consumers remember Walgreen’s as place to pick up shampoo, a gallon of milk, or a pack of gum, when their prints are ready, analysts note.
“The online photo service has significantly exceeded Walgreen’s expectations,” says Mark Miller, a retail analyst for investment firm William Blair & Co. Miller notes that a major percentage of customers who upload photos online for processing are in the store to pick them up within two hours. “It’s all about convenience,” he says. Under the same strategy, CVS.com offers a digital photo processing service that lets shoppers pick up their prints in a CVS store.
At less than 1% of Walgreen’s total sales, there’s plenty of upside for Walgreen’s on the web, and CVS is similarly positioned. Though they face little real competition on the benefits-sponsored prescription drug side from Drugstore, which is pursuing a different segment of the prescription market as well as online over-the-counter sales, they do face competition in growing their online prescription fulfillment business from another quarter: pharmacy benefits management companies. These are companies that administer the pharmacy portion of a health insurance plan under contract with the employer or other health benefits sponsor. Pharmacy is a complex and specialized area of health insurance, and PBMs are generally charged by the benefits sponsor with keeping costs in line.
The PBM push
“The majority of prescriptions being sold online are being sold through PBMs,” says Boehm. In fact, at 1.96 million unique visitors in January, pharmacy benefits management company Medco Health had as much traffic as CVS.com. And at 936,000 unique visitors, another PBM, Express-Scripts.com, ranked six in the online pharmacy category that month.
According to Sehgal, much of the growth in the online sale of prescription drugs is coming specifically from PBMs that are actively pushing their mail order business to the online channel, and it’s a natural evolution. “There is a segment of consumers who are okay with the idea of fulfilling prescriptions remotely, whether they do that over the phone or through mail order. This group is moving toward online purchasing,” he says. Sweetening the deal for consumers getting chronic-care medications from PBMs is that PBMs can generally provide a 90-day supply on one co-pay, versus a 30-day supply per co-pay available at a drugstore.
Drugstore chains are well aware of online competition from PBMs, and they’re responding in a variety of ways; for one, meeting them on their own turf. Walgreen’s, for instance, owns its own PBM, as does CVS, and it can provide that capacity in-house to employers and health benefits sponsors. Drugstore has fulfillment relationships with some PBMs. And all are leveraging the combination of online ordering with a brick-and-mortar presence for consumers seeking acute-care medication on a short turn-around. “Walgreen’s and CVS realize what competition from PBMs is taking away, but a lot of their business is from acute drugs, which consumers don’t want to wait for by mail,” says Sehgal.
Ultimately, different segments of the online opportunity will have greater or lesser importance to chains, PBMs and pure-plays depending on their individual strategies, but given the total size of the prescription drug and health and beauty markets, any challenges drugstores face in growing online business won’t be enough to hinder eventual expansion in their chosen direction. According to Sehgal, there’s space for both online and multi-channel models. “If you look at other categories, there is room for an online-only player compared to a brick-and-mortar or a brick-and-clicks player,” he says. “It all depends on how they position themselves.” l
Don’t believe everything you see in your inbox
If the amount of e-mail solicitations that crowd inboxes actually reflected the percentage of consumers’ prescription dollars that were spent at so-called online rogue pharmacies, one might conclude they’ve grabbed the lion’s share of the lifestyle and self-pay prescription drug market. But in fact, it’s a minuscule amount.
Rogue pharmacies-those Internet-only drugstores that seem to pop up out of nowhere-came to attention a few years ago, prior to the recent Medicare Modernization Act which seeks to expand access to drug benefits under Medicare. Pop-up Internet pharmacies from outside the U.S. offered the promise, at least, of pricey prescription drugs at less cost for those who were paying out of pocket. “People were re-importing these medications on web sites from who knows where. It wasn’t safe, so part of the solution was that we needed an affordable drug benefit for individuals who didn’t have drug coverage, and most of them were on Medicare,” says Forrester Research analyst Liz Boehm. The online pharmacies have expanded their offering to include lifestyle prescription drugs.