Challenges and Opportunities in the Pharmaceutical Industry strengths and attractivenessTrends in the general environmentPoliticsEconomicSocialTechnologyEnvironmentLegalCompanies in the industry Strongest/weakest positionsKey Success Factors (KSFs)Variations in KSFs by segmentLikelihood of KSFs to vary over timeImplications of this developmentIndustry perspectives for analysis long-term profitability The pharmacy and parapharmacy sector is mainly dominated by a duopoly composed of Walgreens Boots Alliance and CVS Health Corporation, which are increasing their market share by just over 60%. Surprisingly, this industry is becoming more and more competitive due to more profitable competitors such as Costco and Walmart. The threat of entry is also increasing due to an alarming competitor known as Amazon, which could potentially dominate this sector. There is a constant threat of substitutes as consumers shift to healthier lifestyles or convert to self-medication. Industry regulations are becoming more restrictive every year, and the industry is heavily influenced by the increasing implementation of technology and web-based pharmacies as society moves into a new digital era. The primary success factor that propels profitability in this industry is the ability to achieve easy access for consumers so that they can easily access their prescriptions and general health products, without having to turn to competitors . Overall, this sector seems unattractive and current companies should look for ways to improve their position in this sector. Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get the Original Essay Dominant Characteristics of the Industry The pharmaceutical and pharmacy industry consists of three large companies that hold 68% of the market share. Walgreens (34.8%), CVS (28.2%), and Rite Aid (5%) offer very similar products and services aimed at positioning themselves to provide value to their customer segments (Ibis World). CVS positioned itself by attempting to consolidate the vertical integration process through the acquisition of Aetna. This gives CVS customers access to healthcare benefit programs and numerous retail locations as part of expanding business operations. Walgreens maintains its position with additional acquisitions, divestitures and strategic initiatives in recent years (Walgreens 10-K). Rite Aid is also focused on building momentum in key areas of its business, such as its innovative wellness store format, a highly successful customer loyalty program and an expanded pharmacy service offering, all also improving its omnichannel and own-brand offerings to strengthen the company's competitiveness. position and create long-term shareholder value (Rite Aid 10-K). The growth of this industry continues to be positive at a consistent rate each year, placing it in the mature phase of the life cycle. Growth does not manifest itself in a drastic influx but the daily operation maintains the strategic position of each company. Evidence of this growth can be seen in each company's accelerated expansion in purchasing new store locations atover the last 5 years. In December 2015, CVS acquired 1,672 pharmacies and 79 clinics from retail giant Target Corp. for $1.9 billion (Business Insight, 2018). Walgreens Boots Alliance acquired a large portion of the Rite Aid store, which was a major success in growing the market. The remaining Rite Aid store was combined with Albertsons to create an even larger chain while retaining the name (Jaspen, 2018). The pharmacy and parapharmacy sector is experiencing annual growth of 2.8% between 2014 and 2019, with the same forecast of 2.8% between 2019 and 2024 [fnil] (Ibis World). a wide range of products and services focused on prescription and over-the-counter pharmaceutical drugs, cosmetic beauty products, groceries and ready-made meals for customers. All of these companies offer similar products, but different ways of doing business. Each store has its own private label offering, to reduce costs and increase brand appearance, motivated as an alternative to national brands. These private label products contribute to the majority of sales within these companies, says Warren Buffet in Forbes: "The private labels, the private brands, are getting stronger...and they're going to continue to grow," forecasting the successful potential growth of these products (Danziger, 2019).The largest demographic of consumers purchasing prescription and over-the-counter medications is those 65 and older. On the other hand, people aged 44 to 65 account for 35.9% of the market segment's revenue. The market is valued at 2.6 billion and 71.7% of the industry's total revenue comes from the sale of prescription drugs (Ibis World). The majority of customers have third-party assurances such as pharmacy benefit managers, insurance companies and government agencies. These are regulated systems that pay all or part of the cost of a customer's prescription drugs that meet the requirements. Third-party payers represent a significant portion of sales in the retail pharmacy industry (Walgreens 10-K). The industry is extremely dependent on third parties. Manufacturers manage the actual distribution of drugs from manufacturing facilities to drug wholesalers and, in some cases, directly to retail pharmacy chains, mail order and specialty pharmacies, hospital chains, and some health plans (Health Strategies Consultancy, 2005). Any complications in key relationships can have serious consequences for the company's position and negatively impact consumers. Vertical integration and consolidation are widely used in this industry to encourage consumers to reduce the costs of purchasing prescription drugs. Companies in this sector have acquired or expressed interest in working with pharmacy benefit management (“PBM”) solutions. For example, Anthem, CVS Health, UnitedHealth, Express Scripts, Prime Therapeutics, and Walgreens have announced or rumored to increase supply chain relevance and value to end consumers. The right partners and procurement might just enable a more flexible and robust response to what the public sees as too many unconscionable drug price increases and high launch costs for new drugs (Barlas, 2018). The evidence presented in the analysis suggests consistent and continued growth. as new data and innovations become more available. The industry recognizes the shift towards increased demand for itslower cost products and services for segmented consumers, with more convenient delivery. Every company in this industry will take aggressive steps to maintain its competitive position in the market, understanding the potential negative effects. Porter's Five ForcesThe Intensity of Competitive Rivalry in the IndustryIn the pharmacy and drugstore industry in the United States, there are three major players: Walgreens Boot Alliance Inc., CVS Health Corporation, and Rite Aid Corporation. The rest of the market segment relies on other smaller players in the industry. Based on 10-K reports provided by the companies as well as total industry revenues provided by IBISWorld, Walgreens Boots Alliance Inc. and CVS Health Corporation constitute a duopoly and hold more than half of the market share, at 34, 8% and 28.2% of the market share respectively. Rite Aid Corporation, the second largest competitor of the one mentioned above, has approximately 5.0% market share. There are other companies that are slowly growing and gaining a foothold in the industry, such as Costco Wholesale Corporation and Walmart Inc. that offer lower-priced solutions for expensive medications, as well as Amazon, which is entering the market through an online platform.thanks to their purchase of PillPack (Angelicalavito, 2018). With new companies entering the market and each of them trying to increase their share and take advantage of the market growth, rivalry in the industry is high. Threat of Substitute Products For the pharmacy and drugstore industry in the United States, there are several substitutes. for prescription medications as well as the convenience that the industry offers. The need for prescriptions can be circumvented by a lifestyle change (Harvard Health Publishing, 2017). According to the Harvard article “Alternatives to Taking Pills,” there is plenty of research that shows you need to eat healthier, exercise more, and implement other positive lifestyle changes. Other research has shown that medical marijuana can replace standard medications and pharmaceuticals, as a study by Keyhani showed that 81% of adults studied believe it has at least one benefit and 66% of patients said that it helps manage pain (Keyhani). In addition to medical marijuana, according to the National Institute on Alcohol Abuse and Alcoholism, alcohol has been used as a substitute for painkillers and successfully reduced pain in humans and animals (National Institute on alcohol abuse and alcoholism). In addition to providing pharmaceutical services, the industry also provides self-care and health products. These self-care and health products could be replaced by a visit to the emergency room or hospital. For example, if someone has an allergic reaction, instead of going to your local pharmacy or pharmacy, you can go to the emergency room and receive appropriate treatment. Overall, the threat of substitute products is high. Threat of New Entrants Barriers to entry for the pharmacy and drugstore industry in the United States are high. Large pharmacies such as Walgreens Boots Alliance, CVS Health Corporation and Rite Aid Corporation already have contracts with major pharmaceutical wholesale distributors. It is extremely difficult for a new entrant to enter the industry and try to establish a similar or profitable arrangement with a wholesale distributor. In addition to the contracts that established market players have with wholesale manufacturers, pharmacy benefit management (PBM) adds to the barriers to entry for new prospects. PMBs “take care of the distribution of medicines for large employers,insurance companies and government programs like Medicare,” according to Feldman’s article “Big Pharma is dismantling the industry that even keeps U.S. drug costs in check” (Feldman, 2016). By consolidating and strengthening their special relationships with pharmacies and drugstores, PBM creates another hurdle for new entrants to the industry to overcome. Although these barriers to entry exist, if the firm attempting to enter has enough money to mitigate the costs of entry, entry is possible. For example, in 2018, Amazon purchased PillPack, an online pharmacy, allowing it to enter the pharmacy industry (Angelicalavito, 2018). With multiple barriers to entry, but these barriers being overcome by a large amount of capital, the threat of new entrants is moderate. Buyer Power In the drugstore and drugstore industry in the United States, buyers have little power in the industry. The growth rate of the population aged 65 and over. The projected rate of population increase is expected to increase from 3.303% in 2019 to 3.368% in 2020 (US Census Bureau, 2017). In addition to the increase in the population of elderly people dependent on medications, the needs for certain medications among different age groups do not change. Although there are various alternatives to prescription medications, some illnesses cannot be treated with a change in diet and increased exercise. For example, strep throat in viral form requires antibiotics to treat (strep infections?). With the population aged 65 and older being more dependent on medications to earn a living and as there is no substitute for medications needed for a specific or unique illness that they or any other demographic may suffer from, buyer power is weak. The Power of Suppliers Pharmaceutical wholesale distributors and manufacturers are the typical suppliers to large drug retailers. However, most drug retailers and pharmacies rely not on a single wholesale manufacturer but rather on multiple wholesale manufacturers that they rely on. However, the cost of changing wholesale manufacturers would be high, as relationships between pharmacy and manufacturers are typically established through contracts. Additionally, manufacturers will experience a decrease in the number of expiring patents over the next few years. According to National Pharmaceutical Services data, from 2018 to 2022, approximately 78 different branded pharmaceutical products will have their patents expire, allowing generic brands of the same drugs to enter the market (National Pharmaceutical Services, 2017). Although this will increase the profit margin as generic brand drugs enter the market, patent expirations are occurring at a decreasing rate, with fewer patents expiring in 2019 compared to previous years. This allows for a slower decline in supplier power, making it still moderate.Summary of Strengths and AttractivenessThere is significant rivalry in the industry between Walgreens' three main competitors Boot Alliance Inc., CVS Health Corporation and Rite Aid Corporation, as well as new market entrants Costco Wholesale Corporation, Walmart Inc. and Amazon. There is a strong threat of substitutes for pharmaceuticals, such as healthy lifestyle changes, medical marijuana, and alcohol. The sector faces a moderate threat of new entrants due to high entry barriers which can be overcome if the attempting companyto enter the sector has sufficient capital. Purchasing power is low due to people's dependence on medicines and moderate supplier power due to patents on pharmaceuticals expiring at a decreasing rate. Taking all the summaries into account, the pharmacy and drugstore industry in the United States does not look attractive. enrolled in the Affordable Care Act. According to Forbes, “under the Trump administration, Congress last year repealed the tax penalty that must be paid by those without health insurance, effective in fiscal year 2019” (Gleckman, 2019 ). The tax penalty was an incentive to promote the Affordable Care Act. “Depending on which of these assumptions or combination of assumptions is in play, we estimated that approximately 3 to 13 million fewer people would have health insurance by 2020 due to the elimination of the penalty, and that premiums for most individual market plans would likely increase by 3 to 13 percent” (Eibner and Nowak, 2018). Without the convergence of health insurance, the price of medicines would be unaffordable for an individual. Therefore, the pharmacy and drug retail industry will be forced to either reduce the profit margin or maintain the prices of their products in order to retain their customers. EconomicThe household income level generally indicates the consumer's ability to purchase the industry's products. However, need-based prescription drugs are less likely to be affected by a change in discretionary income. In fact, per capita disposable income and consumer spending are witnessing drastic growth in the current year. According to the Wall Street Journal, "consumer spending rose 2.7% on average in the four quarters through September compared with the same period a year earlier, as disposable income rose an average of 2. 7%” (Andriotis, 2018). Thus, the growth in disposable income and consumer spending can be seen as a potential opportunity for the pharmacy and drug retail industry. SocialThe United States expects a sharp increase in the aging population. According to Census.gov, "the national population ages 65 and older is expected to nearly double from 49 million to 95 million people in 2060. As a result, the share of people 65 and older will increase by about 15 percent in 17%. between 2017 and 2020, and by 2060, older people are expected to represent almost a quarter of the population” (Vespa and Medina, 2018). As a result, more baby boomers will be around thanks to Medicare. “The baby boomer generation tends to focus more on their well-being and maintaining good health. More than 60% of baby boomers take a multivitamin or supplement, and about 25% take a calcium supplement” (Smart Retailing Rx, 2014). There is a trend in health consciousness in the United States that is growing day by day. Therefore, the drug retail industry is also strengthening its health and wellness offerings to meet consumer needs. “We have seen the pharmacy network make significant improvements over the past several years to better meet consumers' growing needs for holistic health and wellness, through the addition of in-store pharmacies, health clinics , dietitians, and healthier food and snack offerings” (Rains, 2017).TechnologyIn the pharmacy and drugstore industry, companies have come a long way toward implementing the use of technology (Lightspeed,2019). Pharmacies have been enhancing their digital capabilities, such as their websites and mobile apps, because their customers expect some type of digital service to accompany their in-store experience. Currently, “45% of consumers use a combination of in-store shopping and digital channels to search for or buy what they need” (Mintel, 2019). This spans a multitude of generations, especially since the main users of this industry are the new generation X, baby boomers and older generations. Walgreens reports that nearly 30% of its mobile users are 55 and older. Additionally, the chart below shows the results of a December 2018 survey on consumer attitudes toward pharmacy digital capabilities by generation (Lightspeed, 2019). Additionally, pharmacies and drugstores have access to confidential and sensitive data, such as personal data. health and financial information. Information technology helps keep this data secure and private because these businesses depend on the “willingness” of their customers to trust them with their information. Therefore, businesses must take steps to ensure that this information is protected and kept out of the wrong hands through cybersecurity. (CVS 10-K). But industry players are and have been vulnerable to cyberattacks that can disrupt or damage their systems, which can result in loss of financial and business standing as well as loss of positive consumer perceptions (Rite Aid 10-K). The pharmacy and drugstore industry is "subject to various federal, state and local laws, regulations and other requirements relating to environmental protection, public health and the employee environment, including , for example, regulations governing the management of hazardous substances, cleaning.” of contaminated sites. In other words, rules are in place to ensure that pharmaceutical companies and pharmacies keep the environment safe. Failure to follow these rules may result in fines or other consequences imposed by government officials, as well as the loss of environmentally conscious customers (Walgreens 10-K). Some companies are taking it a step further and creating their own eco-friendly products. For example, Walgreens created its own line of eco-friendly household cleaning products that has been endorsed by Healthy Child World Charity, a company that aims to create healthy environments for children and protect them from harmful chemicals (Mintel GNPD, 2012). The pharmacy and drugstore industry is so heavily regulated, there are a wide variety of laws and regulations that companies must consider and follow at the state, federal, and international levels when operating in this industry. “These laws and rules governing businesses and the interpretations of these laws and rules continue to expand and become more restrictive each year,” without the ability to predict whether current or future legislation will change the laws within the industry, which creates uncertainty and can affect the economy. company activities, financial conditions or market share (CVS 10-K). Regulations, such as Medicare regulations, privacy and confidentiality requirements, reimbursement laws, pharmaceutical and professional licensing and regulations, and state and insurance holding company regulations, contribute to protect the consumer but continueto weigh on the sales growth of pharmaceutical companies due to the lengthening of FDA approvals. , higher co-pays, drug safety concerns, and reliance on third-party payers (Rite Aid 10-K). Companies in Strongest/Weakest Positions The three largest players in the pharmacy and drugstore industry are Walgreens, the industry leader, CVS, the second leader. , and Rite Aid. Although considered one of the three largest companies in the industry, Rite Aid is significantly behind CVS and Walgreens and is struggling to catch up. So much so that it is starting to disappear and be eaten by other companies, including Walgreens which bought 1,932 stores and 3 distribution centers (Jaspen, 2018). One of the reasons Walgreens is at the forefront of the industry is its high switching cost. Although it is possible to change pharmacies, consumers tend to stick with the original pharmacy because they do not want to have to fill out new paperwork for their insurance and their new pharmacy, as well as to intangible considerations such as relationships with pharmacists (Stoffel, 2019). The pharmacy and drugstore industry is evolving to adapt to current and future issues, such as Amazon's purchase of PillPack. As Amazon prepares to enter the mix, the three largest companies have begun to focus on maintaining their market share once that happens. The three companies are trying to free themselves from their dependence on third parties to offer a more cost-effective solution to customers. CVS has particularly worked on this through the acquisition of Aetna, in which they say they are "working to transform the consumer health experience and build healthier communities by providing care that is local, easier to use, less expensive and putting consumers first. center of their care (CVS Heath, 2018). Another tactic that businesses in this industry are moving towards is the use of an omnichannel system. This means that they are trying to follow the social trend of e-commerce and create a stronger online presence using websites and mobile applications. This would create a type of hybrid experience for the consumer since they shop in-store but use the app to search for the item's location in the store and digital coupons or discounts. Walgreens was able to understand this concept and apply it strategically to achieve maximum impact. Walgreens' senior director of mobile commerce said that through the use of omnichannel, their customers are spending up to six times the amount they would normally spend with an in-store form only. The chart below shows the differences. They do this by combining their products and services with their various channels, such as prescription refills, photo prints and virtual doctor appointments (eTail). And the latest common trend in this industry is the beginning of the use of mail order. With the tech giant soon joining this industry, Walgreens and CVS are trying to beat it before it's even in the game by integrating home delivery services to avoid being "Amazon." According to a survey by Business Insider Intelligence, 65% of Walgreens consumers, 68% of RiteHelp Consumers, and 69% of CVS customers would switch to a pharmacy offered by Amazon. This is why they are deploying delivery services to solve “consumer problems” to stay ahead and be better positioned while they can (Beaver, 2018). FactorsKeys to Success (KSF) In order of prevalence, the 3 key success factors that have the strongest relationship with profitability and success in this industry are obtaining easy access for customers, ability to control available stocks and the availability of experienced labor. Getting easy access for customers is what sets this industry apart from others. Customers can easily get a wide variety of items without having to go to large retailers like Walmart or Target. In addition, companies in this sector such as Walgreens or CVS have numerous locations to be able to reach their customers anywhere, without having to travel very far. Convenience is a key success factor that can generate success for this industry. The ability to control on-hand inventory is vitally important to any industry. Keeping track of inventory allows a business to establish customer satisfaction if products are regularly in stock. Overall, good inventory management ultimately leads to higher sales. An experienced workforce is beneficial in this industry to stand out from competitors. When customers arrive with a particular health concern, an experienced employee can guide them in purchasing the right product. This results in greater customer satisfaction, which translates into increased sales. Maintaining an experienced workforce can keep out competitors, resulting in higher market share and higher profitability. KSF Variations by SegmentAccording to MarketLine, the pharmaceutical and pharmacy industry primarily operates through three business segments: retail pharmacy, pharmaceutical services, and retail pharmacy (MarketLine, 2019). When all the key success factors are taken into account, they do not vary regardless of the different segments. Likelihood of KSF to Vary Over Time Providing easy access to customers in the pharmacy and drugstore industry (which is known for having a multitude of locations nationally and internationally) is exceptionally important. Convenience is the main competitive factor in this industry; however, this could vary over time, with competitors like Amazon able to deliver products within hours. If pharmacies and retail pharmacies constantly update their point-of-sale systems, issues with out-of-stocks or carrying costs related to too much inventory should not arise. Therefore, it is expected that having sufficient stock will not vary much over time. Finally, having an experienced workforce should not vary over time, provided staff are properly trained to accurately assess customers and find the right products. Implications of this development The implications of this development in this sector include businesses finding new ways to improve their convenience levels by improving their mail service and ultimately moving to a more digital-friendly business. They could also improve by staying up to date with POS systems to achieve customer satisfaction through constant stock on hand. Additionally, they could outcompete their competitors by hiring employees with excellent customer service and training them in product knowledge, which is less accessible with online retailers. Keep in mind: this is just a sample. Get a personalized article from our expert writers now. .Get Custom EssayIndustry Insights for Long Term Profitability AnalysisIn.

Essay / Challenges and Opportunities in the Pharmaceutical Industry strengths and attractivenessTrends in the general environmentPoliticsEconomicSocialTechnologyEnvironmentLegalCompanies in the industry Strongest/weakest positionsKey Success Factors (KSFs)Variations in KSFs by segmentLikelihood of KSFs to vary over timeImplications of this developmentIndustry perspectives for analysis long-term profitability The pharmacy and parapharmacy sector is mainly dominated by a duopoly composed of Walgreens Boots Alliance and CVS Health Corporation, which are increasing their market share by just over 60%. Surprisingly, this industry is becoming more and more competitive due to more profitable competitors such as Costco and Walmart. The threat of entry is also increasing due to an alarming competitor known as Amazon, which could potentially dominate this sector. There is a constant threat of substitutes as consumers shift to healthier lifestyles or convert to self-medication. Industry regulations are becoming more restrictive every year, and the industry is heavily influenced by the increasing implementation of technology and web-based pharmacies as society moves into a new digital era. The primary success factor that propels profitability in this industry is the ability to achieve easy access for consumers so that they can easily access their prescriptions and general health products, without having to turn to competitors . Overall, this sector seems unattractive and current companies should look for ways to improve their position in this sector. Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get the Original Essay Dominant Characteristics of the Industry The pharmaceutical and pharmacy industry consists of three large companies that hold 68% of the market share. Walgreens (34.8%), CVS (28.2%), and Rite Aid (5%) offer very similar products and services aimed at positioning themselves to provide value to their customer segments (Ibis World). CVS positioned itself by attempting to consolidate the vertical integration process through the acquisition of Aetna. This gives CVS customers access to healthcare benefit programs and numerous retail locations as part of expanding business operations. Walgreens maintains its position with additional acquisitions, divestitures and strategic initiatives in recent years (Walgreens 10-K). Rite Aid is also focused on building momentum in key areas of its business, such as its innovative wellness store format, a highly successful customer loyalty program and an expanded pharmacy service offering, all also improving its omnichannel and own-brand offerings to strengthen the company's competitiveness. position and create long-term shareholder value (Rite Aid 10-K). The growth of this industry continues to be positive at a consistent rate each year, placing it in the mature phase of the life cycle. Growth does not manifest itself in a drastic influx but the daily operation maintains the strategic position of each company. Evidence of this growth can be seen in each company's accelerated expansion in purchasing new store locations atover the last 5 years. In December 2015, CVS acquired 1,672 pharmacies and 79 clinics from retail giant Target Corp. for $1.9 billion (Business Insight, 2018). Walgreens Boots Alliance acquired a large portion of the Rite Aid store, which was a major success in growing the market. The remaining Rite Aid store was combined with Albertsons to create an even larger chain while retaining the name (Jaspen, 2018). The pharmacy and parapharmacy sector is experiencing annual growth of 2.8% between 2014 and 2019, with the same forecast of 2.8% between 2019 and 2024 (Ibis World). a wide range of products and services focused on prescription and over-the-counter pharmaceutical drugs, cosmetic beauty products, groceries and ready-made meals for customers. All of these companies offer similar products, but different ways of doing business. Each store has its own private label offering, to reduce costs and increase brand appearance, motivated as an alternative to national brands. These private label products contribute to the majority of sales within these companies, says Warren Buffet in Forbes: "The private labels, the private brands, are getting stronger...and they're going to continue to grow," forecasting the successful potential growth of these products (Danziger, 2019).The largest demographic of consumers purchasing prescription and over-the-counter medications is those 65 and older. On the other hand, people aged 44 to 65 account for 35.9% of the market segment's revenue. The market is valued at 2.6 billion and 71.7% of the industry's total revenue comes from the sale of prescription drugs (Ibis World). The majority of customers have third-party assurances such as pharmacy benefit managers, insurance companies and government agencies. These are regulated systems that pay all or part of the cost of a customer's prescription drugs that meet the requirements. Third-party payers represent a significant portion of sales in the retail pharmacy industry (Walgreens 10-K). The industry is extremely dependent on third parties. Manufacturers manage the actual distribution of drugs from manufacturing facilities to drug wholesalers and, in some cases, directly to retail pharmacy chains, mail order and specialty pharmacies, hospital chains, and some health plans (Health Strategies Consultancy, 2005). Any complications in key relationships can have serious consequences for the company's position and negatively impact consumers. Vertical integration and consolidation are widely used in this industry to encourage consumers to reduce the costs of purchasing prescription drugs. Companies in this sector have acquired or expressed interest in working with pharmacy benefit management (“PBM”) solutions. For example, Anthem, CVS Health, UnitedHealth, Express Scripts, Prime Therapeutics, and Walgreens have announced or rumored to increase supply chain relevance and value to end consumers. The right partners and procurement might just enable a more flexible and robust response to what the public sees as too many unconscionable drug price increases and high launch costs for new drugs (Barlas, 2018). The evidence presented in the analysis suggests consistent and continued growth. as new data and innovations become more available. The industry recognizes the shift towards increased demand for itslower cost products and services for segmented consumers, with more convenient delivery. Every company in this industry will take aggressive steps to maintain its competitive position in the market, understanding the potential negative effects. Porter's Five ForcesThe Intensity of Competitive Rivalry in the IndustryIn the pharmacy and drugstore industry in the United States, there are three major players: Walgreens Boot Alliance Inc., CVS Health Corporation, and Rite Aid Corporation. The rest of the market segment relies on other smaller players in the industry. Based on 10-K reports provided by the companies as well as total industry revenues provided by IBISWorld, Walgreens Boots Alliance Inc. and CVS Health Corporation constitute a duopoly and hold more than half of the market share, at 34, 8% and 28.2% of the market share respectively. Rite Aid Corporation, the second largest competitor of the one mentioned above, has approximately 5.0% market share. There are other companies that are slowly growing and gaining a foothold in the industry, such as Costco Wholesale Corporation and Walmart Inc. that offer lower-priced solutions for expensive medications, as well as Amazon, which is entering the market through an online platform.thanks to their purchase of PillPack (Angelicalavito, 2018). With new companies entering the market and each of them trying to increase their share and take advantage of the market growth, rivalry in the industry is high. Threat of Substitute Products For the pharmacy and drugstore industry in the United States, there are several substitutes. for prescription medications as well as the convenience that the industry offers. The need for prescriptions can be circumvented by a lifestyle change (Harvard Health Publishing, 2017). According to the Harvard article “Alternatives to Taking Pills,” there is plenty of research that shows you need to eat healthier, exercise more, and implement other positive lifestyle changes. Other research has shown that medical marijuana can replace standard medications and pharmaceuticals, as a study by Keyhani showed that 81% of adults studied believe it has at least one benefit and 66% of patients said that it helps manage pain (Keyhani). In addition to medical marijuana, according to the National Institute on Alcohol Abuse and Alcoholism, alcohol has been used as a substitute for painkillers and successfully reduced pain in humans and animals (National Institute on alcohol abuse and alcoholism). In addition to providing pharmaceutical services, the industry also provides self-care and health products. These self-care and health products could be replaced by a visit to the emergency room or hospital. For example, if someone has an allergic reaction, instead of going to your local pharmacy or pharmacy, you can go to the emergency room and receive appropriate treatment. Overall, the threat of substitute products is high. Threat of New Entrants Barriers to entry for the pharmacy and drugstore industry in the United States are high. Large pharmacies such as Walgreens Boots Alliance, CVS Health Corporation and Rite Aid Corporation already have contracts with major pharmaceutical wholesale distributors. It is extremely difficult for a new entrant to enter the industry and try to establish a similar or profitable arrangement with a wholesale distributor. In addition to the contracts that established market players have with wholesale manufacturers, pharmacy benefit management (PBM) adds to the barriers to entry for new prospects. PMBs “take care of the distribution of medicines for large employers,insurance companies and government programs like Medicare,” according to Feldman’s article “Big Pharma is dismantling the industry that even keeps U.S. drug costs in check” (Feldman, 2016). By consolidating and strengthening their special relationships with pharmacies and drugstores, PBM creates another hurdle for new entrants to the industry to overcome. Although these barriers to entry exist, if the firm attempting to enter has enough money to mitigate the costs of entry, entry is possible. For example, in 2018, Amazon purchased PillPack, an online pharmacy, allowing it to enter the pharmacy industry (Angelicalavito, 2018). With multiple barriers to entry, but these barriers being overcome by a large amount of capital, the threat of new entrants is moderate. Buyer Power In the drugstore and drugstore industry in the United States, buyers have little power in the industry. The growth rate of the population aged 65 and over. The projected rate of population increase is expected to increase from 3.303% in 2019 to 3.368% in 2020 (US Census Bureau, 2017). In addition to the increase in the population of elderly people dependent on medications, the needs for certain medications among different age groups do not change. Although there are various alternatives to prescription medications, some illnesses cannot be treated with a change in diet and increased exercise. For example, strep throat in viral form requires antibiotics to treat (strep infections?). With the population aged 65 and older being more dependent on medications to earn a living and as there is no substitute for medications needed for a specific or unique illness that they or any other demographic may suffer from, buyer power is weak. The Power of Suppliers Pharmaceutical wholesale distributors and manufacturers are the typical suppliers to large drug retailers. However, most drug retailers and pharmacies rely not on a single wholesale manufacturer but rather on multiple wholesale manufacturers that they rely on. However, the cost of changing wholesale manufacturers would be high, as relationships between pharmacy and manufacturers are typically established through contracts. Additionally, manufacturers will experience a decrease in the number of expiring patents over the next few years. According to National Pharmaceutical Services data, from 2018 to 2022, approximately 78 different branded pharmaceutical products will have their patents expire, allowing generic brands of the same drugs to enter the market (National Pharmaceutical Services, 2017). Although this will increase the profit margin as generic brand drugs enter the market, patent expirations are occurring at a decreasing rate, with fewer patents expiring in 2019 compared to previous years. This allows for a slower decline in supplier power, making it still moderate.Summary of Strengths and AttractivenessThere is significant rivalry in the industry between Walgreens' three main competitors Boot Alliance Inc., CVS Health Corporation and Rite Aid Corporation, as well as new market entrants Costco Wholesale Corporation, Walmart Inc. and Amazon. There is a strong threat of substitutes for pharmaceuticals, such as healthy lifestyle changes, medical marijuana, and alcohol. The sector faces a moderate threat of new entrants due to high entry barriers which can be overcome if the attempting companyto enter the sector has sufficient capital. Purchasing power is low due to people's dependence on medicines and moderate supplier power due to patents on pharmaceuticals expiring at a decreasing rate. Taking all the summaries into account, the pharmacy and drugstore industry in the United States does not look attractive. enrolled in the Affordable Care Act. According to Forbes, “under the Trump administration, Congress last year repealed the tax penalty that must be paid by those without health insurance, effective in fiscal year 2019” (Gleckman, 2019 ). The tax penalty was an incentive to promote the Affordable Care Act. “Depending on which of these assumptions or combination of assumptions is in play, we estimated that approximately 3 to 13 million fewer people would have health insurance by 2020 due to the elimination of the penalty, and that premiums for most individual market plans would likely increase by 3 to 13 percent” (Eibner and Nowak, 2018). Without the convergence of health insurance, the price of medicines would be unaffordable for an individual. Therefore, the pharmacy and drug retail industry will be forced to either reduce the profit margin or maintain the prices of their products in order to retain their customers. EconomicThe household income level generally indicates the consumer's ability to purchase the industry's products. However, need-based prescription drugs are less likely to be affected by a change in discretionary income. In fact, per capita disposable income and consumer spending are witnessing drastic growth in the current year. According to the Wall Street Journal, "consumer spending rose 2.7% on average in the four quarters through September compared with the same period a year earlier, as disposable income rose an average of 2. 7%” (Andriotis, 2018). Thus, the growth in disposable income and consumer spending can be seen as a potential opportunity for the pharmacy and drug retail industry. SocialThe United States expects a sharp increase in the aging population. According to Census.gov, "the national population ages 65 and older is expected to nearly double from 49 million to 95 million people in 2060. As a result, the share of people 65 and older will increase by about 15 percent in 17%. between 2017 and 2020, and by 2060, older people are expected to represent almost a quarter of the population” (Vespa and Medina, 2018). As a result, more baby boomers will be around thanks to Medicare. “The baby boomer generation tends to focus more on their well-being and maintaining good health. More than 60% of baby boomers take a multivitamin or supplement, and about 25% take a calcium supplement” (Smart Retailing Rx, 2014). There is a trend in health consciousness in the United States that is growing day by day. Therefore, the drug retail industry is also strengthening its health and wellness offerings to meet consumer needs. “We have seen the pharmacy network make significant improvements over the past several years to better meet consumers' growing needs for holistic health and wellness, through the addition of in-store pharmacies, health clinics , dietitians, and healthier food and snack offerings” (Rains, 2017).TechnologyIn the pharmacy and drugstore industry, companies have come a long way toward implementing the use of technology (Lightspeed,2019). Pharmacies have been enhancing their digital capabilities, such as their websites and mobile apps, because their customers expect some type of digital service to accompany their in-store experience. Currently, “45% of consumers use a combination of in-store shopping and digital channels to search for or buy what they need” (Mintel, 2019). This spans a multitude of generations, especially since the main users of this industry are the new generation X, baby boomers and older generations. Walgreens reports that nearly 30% of its mobile users are 55 and older. Additionally, the chart below shows the results of a December 2018 survey on consumer attitudes toward pharmacy digital capabilities by generation (Lightspeed, 2019). Additionally, pharmacies and drugstores have access to confidential and sensitive data, such as personal data. health and financial information. Information technology helps keep this data secure and private because these businesses depend on the “willingness” of their customers to trust them with their information. Therefore, businesses must take steps to ensure that this information is protected and kept out of the wrong hands through cybersecurity. (CVS 10-K). But industry players are and have been vulnerable to cyberattacks that can disrupt or damage their systems, which can result in loss of financial and business standing as well as loss of positive consumer perceptions (Rite Aid 10-K). The pharmacy and drugstore industry is "subject to various federal, state and local laws, regulations and other requirements relating to environmental protection, public health and the employee environment, including , for example, regulations governing the management of hazardous substances, cleaning.” of contaminated sites. In other words, rules are in place to ensure that pharmaceutical companies and pharmacies keep the environment safe. Failure to follow these rules may result in fines or other consequences imposed by government officials, as well as the loss of environmentally conscious customers (Walgreens 10-K). Some companies are taking it a step further and creating their own eco-friendly products. For example, Walgreens created its own line of eco-friendly household cleaning products that has been endorsed by Healthy Child World Charity, a company that aims to create healthy environments for children and protect them from harmful chemicals (Mintel GNPD, 2012). The pharmacy and drugstore industry is so heavily regulated, there are a wide variety of laws and regulations that companies must consider and follow at the state, federal, and international levels when operating in this industry. “These laws and rules governing businesses and the interpretations of these laws and rules continue to expand and become more restrictive each year,” without the ability to predict whether current or future legislation will change the laws within the industry, which creates uncertainty and can affect the economy. company activities, financial conditions or market share (CVS 10-K). Regulations, such as Medicare regulations, privacy and confidentiality requirements, reimbursement laws, pharmaceutical and professional licensing and regulations, and state and insurance holding company regulations, contribute to protect the consumer but continueto weigh on the sales growth of pharmaceutical companies due to the lengthening of FDA approvals. , higher co-pays, drug safety concerns, and reliance on third-party payers (Rite Aid 10-K). Companies in Strongest/Weakest Positions The three largest players in the pharmacy and drugstore industry are Walgreens, the industry leader, CVS, the second leader. , and Rite Aid. Although considered one of the three largest companies in the industry, Rite Aid is significantly behind CVS and Walgreens and is struggling to catch up. So much so that it is starting to disappear and be eaten by other companies, including Walgreens which bought 1,932 stores and 3 distribution centers (Jaspen, 2018). One of the reasons Walgreens is at the forefront of the industry is its high switching cost. Although it is possible to change pharmacies, consumers tend to stick with the original pharmacy because they do not want to have to fill out new paperwork for their insurance and their new pharmacy, as well as to intangible considerations such as relationships with pharmacists (Stoffel, 2019). The pharmacy and drugstore industry is evolving to adapt to current and future issues, such as Amazon's purchase of PillPack. As Amazon prepares to enter the mix, the three largest companies have begun to focus on maintaining their market share once that happens. The three companies are trying to free themselves from their dependence on third parties to offer a more cost-effective solution to customers. CVS has particularly worked on this through the acquisition of Aetna, in which they say they are "working to transform the consumer health experience and build healthier communities by providing care that is local, easier to use, less expensive and putting consumers first. center of their care (CVS Heath, 2018). Another tactic that businesses in this industry are moving towards is the use of an omnichannel system. This means that they are trying to follow the social trend of e-commerce and create a stronger online presence using websites and mobile applications. This would create a type of hybrid experience for the consumer since they shop in-store but use the app to search for the item's location in the store and digital coupons or discounts. Walgreens was able to understand this concept and apply it strategically to achieve maximum impact. Walgreens' senior director of mobile commerce said that through the use of omnichannel, their customers are spending up to six times the amount they would normally spend with an in-store form only. The chart below shows the differences. They do this by combining their products and services with their various channels, such as prescription refills, photo prints and virtual doctor appointments (eTail). And the latest common trend in this industry is the beginning of the use of mail order. With the tech giant soon joining this industry, Walgreens and CVS are trying to beat it before it's even in the game by integrating home delivery services to avoid being "Amazon." According to a survey by Business Insider Intelligence, 65% of Walgreens consumers, 68% of RiteHelp Consumers, and 69% of CVS customers would switch to a pharmacy offered by Amazon. This is why they are deploying delivery services to solve “consumer problems” to stay ahead and be better positioned while they can (Beaver, 2018). FactorsKeys to Success (KSF) In order of prevalence, the 3 key success factors that have the strongest relationship with profitability and success in this industry are obtaining easy access for customers, ability to control available stocks and the availability of experienced labor. Getting easy access for customers is what sets this industry apart from others. Customers can easily get a wide variety of items without having to go to large retailers like Walmart or Target. In addition, companies in this sector such as Walgreens or CVS have numerous locations to be able to reach their customers anywhere, without having to travel very far. Convenience is a key success factor that can generate success for this industry. The ability to control on-hand inventory is vitally important to any industry. Keeping track of inventory allows a business to establish customer satisfaction if products are regularly in stock. Overall, good inventory management ultimately leads to higher sales. An experienced workforce is beneficial in this industry to stand out from competitors. When customers arrive with a particular health concern, an experienced employee can guide them in purchasing the right product. This results in greater customer satisfaction, which translates into increased sales. Maintaining an experienced workforce can keep out competitors, resulting in higher market share and higher profitability. KSF Variations by SegmentAccording to MarketLine, the pharmaceutical and pharmacy industry primarily operates through three business segments: retail pharmacy, pharmaceutical services, and retail pharmacy (MarketLine, 2019). When all the key success factors are taken into account, they do not vary regardless of the different segments. Likelihood of KSF to Vary Over Time Providing easy access to customers in the pharmacy and drugstore industry (which is known for having a multitude of locations nationally and internationally) is exceptionally important. Convenience is the main competitive factor in this industry; however, this could vary over time, with competitors like Amazon able to deliver products within hours. If pharmacies and retail pharmacies constantly update their point-of-sale systems, issues with out-of-stocks or carrying costs related to too much inventory should not arise. Therefore, it is expected that having sufficient stock will not vary much over time. Finally, having an experienced workforce should not vary over time, provided staff are properly trained to accurately assess customers and find the right products. Implications of this development The implications of this development in this sector include businesses finding new ways to improve their convenience levels by improving their mail service and ultimately moving to a more digital-friendly business. They could also improve by staying up to date with POS systems to achieve customer satisfaction through constant stock on hand. Additionally, they could outcompete their competitors by hiring employees with excellent customer service and training them in product knowledge, which is less accessible with online retailers. Keep in mind: this is just a sample. Get a personalized article from our expert writers now. .Get Custom EssayIndustry Insights for Long Term Profitability AnalysisIn.

Navigation

« Prev 1 2 3 4 5 Next »

Get In Touch