Walgreens
make them bigger providers of health-care products and other services. They are trying to appeal to customers who want to do more one-stop shopping and take advantage of the vast network of stores that the chains have built.
Drugstores also are shifting to serve the aging baby-boom population and its health needs, as well as the growing number of people who are shopping around for health care instead of using only their family doctors. And the drugstore chains are fending off competition from grocery chains and big retailers such as Wal-Mart that have added thousands of pharmacies to their stores and offer steep discounts on some drugs.
CVS, in fact, is partnering with retailer Target Corp. to run its in-store clinics and pharmacies.
Camp Hill, Pa.-based Rite Aid runs about 4,600 drugstores in 31 states and the District of Columbia. Its combination with Walgreens would create a drugstore behemoth of more than 12,700 U.S. stores. That’s 64 percent more than the next largest competitor, CVS, not counting that company’s still-evolving partnership with Target.
But Walgreens might have to close hundreds of stores to ease federal regulatory concerns about competition. That will depend on how the deal changes the competitive balance in each market.
Both Walgreens and Rite-Aid operate stores in central Ohio, but there isn’t a tremendous amount of overlap. Walgreens has 30 stores in the Columbus area, while Rite Aid has 11, according to their websites.
Even if a merged company closed no stores, there would still be a fair amount of competition in the sector. The WalgreensRite Aid combination would control only 23 percent of the retail drugstore market, according to an estimate from Jeff Jonas, a portfolio manager who follows the industry for Gabelli Funds.
The U.S. still has about 22,000 independent pharmacies, according to the National Community Pharmacists Association. About half are in rural or undeserved areas, spokesman John Norton said. That total includes pharmacies that are part of small, privately held chains and those that serve niche markets such as a hospital or a specialty such as oncology.
Once a Walgreens-Rite Aid deal closes, the company probably would hold a “bit of a beauty contest” with suppliers to see which gives it the best deals on products sold outside the pharmacy, said Paul Keckley, who studies health-care issues as managing director of the Navigant Center for Healthcare Research and Policy Analysis.
“They have more leverage over suppliers the fewer suppliers they deal with,” he said.
For the consumer, that means that the chain’s surviving stores might wind up carrying fewer brands — three kinds of soft drinks instead of five. But it probably won’t translate to lower prices. Those products don’t offer a lot of profit for drugstores, so there isn’t much room to cut prices.
The chain also would try to negotiate better prices on drugs, starting with generics, and consumers might see price breaks as a result. But prescription prices also can depend on insurance coverage and whether a drugmaker is motivated to lower its prices to fend off competition from competing treatments.
Walgreens and Rite Aid expect their combination to close in the second half of next year.
Dispatch Reporter Tim Feran contributed to this story.