I’ve been thinking a lot about what’s behind Walmart’s push for cheap generics. They’re clearly feeling some sort of pressure from the neighborhood drugstores, which have been expanding rapidly and not just due to an aging population as the article suggests. In my neighborhood in downtown Dallas, there are 5 or more drugstores within a mile radius. On Lemmon Ave, there are two CVS stores less than a mile away from one another. I think as more people move back into city centers, or remote burb-claves and cocooning trends continue due to things like: cable TV, Netflix, and the Internet that keep us cooped up inside, the big-box stores will have to compete with a raft of smaller, neighborhood-type stores. This is fine except it requires massive, centralized companies like Walmart to get nimble. The other problem is that they’re getting more competition in the affluent suburbs from companies like Target and Kohl’s.
Beemer thinks Wal-Mart’s threat is indeed significant, despite the fact that its program so far only covers about 300 generic drugs out of thousands on the market. Because the company is largely using its pharmaceutical business to leverage up its store traffic in the hope that customers will buy other goods in its stores, expanding the $4 price to cover more drugs is likely. At a certain price, people will forego the convenience of the local Walgreen or CVS to make a longer drive to Wal-Mart.
Four dollars “is an incredible price point for Wal-Mart. I think there is no question they will expand it,” he says.
Key to its strategy is luring 55-plus, low-to-middle income shoppers that Wal-Mart isn’t getting right now and that could well be important to the company’s future. Indeed, the goal of all pharmacies is to become the one-stop shop for customers who buy multiple drugs each month. By luring buyers with promises of a few low-price, even below-cost generics, they can either retain or expand their base of customers who may buy other brand-name drugs at considerably higher prices and higher profits.
“Wal-Mart is basically saying, ‘I’m stabbing the head off my drugstore competitors,'” Beemer says.
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