FEBRUARY 24, 2020

MPG EVP Dave Van Howe spoke with key stakeholders from drug wholesalers AmerisourceBergen and Cardinal Health to get their opinions on the many opportunities presented by the wholesale drug channel and what they are doing to help independent pharmacies and suppliers take advantage of them.

There is no question that consumer shopping behavior is forcing brick and mortar retailers, e-commerce providers and CPG companies to look for new growth opportunities and ways of providing differentiated shopping and brand experiences. One channel that is growing, and often overlooked, is the Independent Pharmacy channel, at over 22,000 stores strong.

Wholesale Drug Independent Pharmacy sales represent over 6% of total US Drug Dollar Sales (Health, Beauty and Wellness)[1]. The wholesalers that provide these independent pharmacies with products and services have evolved from pharmacy pick, pack and ship service providers to trusted suppliers of products, technology, infrastructure and Health, Beauty and Wellness (HBW) expertise. In the last few years, the Wholesale Independent Pharmacy channel has outpaced the US Drug market, with the 3-year CAGR (HBW) up over 2.5%[2] compared to Total US Drug which is up 1%[3]. That is impressive growth in a very challenging retail environment.

For the sake of this article, we will focus on the wholesaler’s evolution from product providers to shopper-focused, data-rich, solution-rich Category Management teams with a focus on helping their independent pharmacy owners to grow front-end sales and profits. Continued prescription reimbursement reductions and market consolidation have incented the Independent Drug Channel to find other ways to serve their patients/customers’ complete health needs. This presents an equal opportunity for suppliers.

To illustrate how things are changing, we will take a look at 5 Myths (Or Truths) of the Independent Pharmacy channel.

Myth 1 – The role of wholesalers is rapidly evolving from a provider of pick, pack and ship services to a provider of healthcare solutions tailored to meet the needs of independent community and chain pharmacies, hospitals and long-term care and other facilities.

True – The Independent, Regional and Chain accounts are operating in a complex new retail world. Everyone is trying to differentiate and compete with products and offerings that customers can find online versus in-store. According to Naomi Duval, Vice President of Consumer Health at Cardinal Health, “wholesalers are a tool to help our retail partners with this opportunity. The sheer breadth of product and national distribution allow us to get nationally popular as well as niche items, local favorites and tailored assortment to the right place at the right time. We can help all our retail partners meet their localization strategies by being an extension of their supply chain to meet their evolving and diverse shoppers’ needs.” Behind the scenes, the wholesalers have the opportunity to fill in assortment gaps and out of stocks with their national chain partners. AmerisourceBergen’s Senior Vice President of Consumer Products Doug Trueman concurs: “At AmerisourceBergen,” he notes, “many or our pharmacy customers look to us for retail guidance, data, and resources to better compete. Our Category Managers are focused on partnering with our manufacturers and customers to deliver relevant product solutions that enhance the patient care experience and help our customers run smarter, more profitable retail businesses.”

Myth 2 – Once I get my product listed in the wholesaler catalog, it falls into a black hole and I have no way to monitor sales or help them with generating sales.

False – Over the years, the wholesaler community has become more sophisticated and has access to multiple data streams such as point-of-sale (POS) scans, outbound shipments, market basket sizes and cross-channel supply chain inventory. The data is rich, insightful and shared with their supplier partners.

Partnering with the wholesalers to close distribution gaps within the independent channel is a tremendous opportunity for manufacturers. Data shows that over half of the independent community pharmacies are not currently stocking a significant percentage of top-selling items. Yours may be one or more of the products with insufficient distribution. Educating independent community pharmacy owners is a role the wholesalers’ category management teams welcome. It is their way of showcasing how your innovative products and services impact a pharmacy’s bottom line. Along the same lines, many independent pharmacies are now following planograms that are created by the wholesalers’ category management teams.

Myth 3 – Promotion is an important way for me to generate incremental sales with independents.

True – Current data portals open a myriad of in-store promotional activities and many independent community pharmacies participate in the wholesalers’ promotional vehicles to drive incremental sales and inventory turns. In addition to traditional printed circulars, the POS data capabilities allow many independent community pharmacy owners the ability to participate in Temporary Price Reductions (TPRs) and other consumption-based programs. Products participating on TPRs are seeing average unit movement lift of over 35% and for top-selling items, over 50%[4].

Myth 4– Working with the wholesaler is more expensive than dealing with Chain Drug stores.

False – Wholesalers provide an efficient way for manufacturers to drive their brands and connect with the independent community pharmacy customer. At AmerisourceBergen, Trueman states that “we’ve created a very transparent data-centered environment for our manufacturers and Category Managers to collaborate. As a result, we are deliberate about choosing the right marketing opportunities and how we allocate funds to produce positive results.” At Cardinal Health, Duval notes that “suppliers who are capitalizing on this channel have learned to see the wholesaler as an extension of their sales efforts and more and more of them are recognizing the ability to drive distribution, education, awareness and consumer promotions in stores with their brands.”

Myth 5 – The independent community pharmacy channel patient experience is “best-in-class” and wholesalers can be an important partner to help educate consumers on my brand.

True – According to the JD Power 2017 US Pharmacy Study[5], the Customer Satisfaction Index Ranking for brick and mortar chain pharmacies ranks the 3 independent pharmacies, supported by wholesalers, as highest in customer satisfaction. The chains (ranked in order) were Good Neighbor Pharmacy® (AmerisourceBergen), Health Mart (McKesson) and The Medicine Shoppe Pharmacy (Cardinal Health). Additionally, the independent community pharmacist-owners can truly “localize” their store assortments based on the needs of their patients. They work hard to differentiate themselves through the strong, trusting relationships they build with patients, taking the time to fully engage. This engagement extends into opportunities to help them better manage their customers’ whole health in the form of patient care services (immunizations, medication adherence, and medication therapy management) and OTCs.

The wholesalers provide independent community pharmacy owners with a variety of tools to enhance their patient care – from education on current health and wellness trends, new products and adjunct therapy recommendations to tips for creating lasting patient relationships. Michael Kozin, previously Director of Drug Wholesale and Managed Markets for Reckitt Benckiser highlights the value they’ve gained, “Through data analysis and partnership, we found that there were so many untapped opportunities in this space, we launched a dedicated sales force selling directly into this market. By following the 4P principles, we have been able to not only achieve impressive growth in our business, but the stores have also seen incredible category growth.”

The Independent Pharmacy channel and drug wholesalers continue to capitalize on every available opportunity to adjust to changing marketplace needs, strengthen their position as destination of choice, and drive performance. The Drug Wholesaler leadership teams are committed to leveraging data, technology and their business acumen to help their Independents grow. The ahead-of-market growth we see in this channel proves that they are succeeding and that this channel holds substantial growth potential for suppliers that embrace it.

Dave Van Howe is an EVP and Client Lead with Market Performance Group, LLC. Prior to joining MPG 8 years ago, Dave spent over 30 years as a Senior Merchant at several retailers including; Walgreens, CVS and Arbor Drugs.

[1] Retail Insights, LLC and Nielsen

[2] Retail Insights, LLC

[3] Nielsen

[4] Retail Insights, LLC

[5] J.D. Power 2017 U.S. Pharmacy Study℠