Wal-Mart Pressures Drugstores

NEW YORK CITY-Wal-Mart’s decision to sell generic drugs for $4 per prescription will not cut appreciably into other chains’ prescription drug sales, according to some market analysts who follow the drugstore chain business. Others say the move could be the first salvo in a battle that will change the generic drug retailing landscape.

A report by Lehman Bros. says that many customers of Wal-Mart’s competitors are already paying only $10 or so for prescriptions and are therefore unlikely to switch from the convenient drugstore locations where they now obtain their prescriptions. “A chain drugstore customer will now have to choose if the average out-of-pocket cost savings of $6 per drug is worth the time and energy required to switch a prescription to Wal-Mart and drive the extra distance to a Wal-Mart store,” the Lehman Bros. report says. It also says, “We do not believe the drug retailers will see a meaningful impact” from the $4 prescription price.

Bear Stearns, however, sees that the consequences of the Wal-Mart move ultimately will be “categorically negative for drug retailers” and to a lesser degree for supermarkets with drugstores. It says that “Outsized generic gross margin have afforded Wal-Mart a competitive opportunity,” and it points out that “Wal-Mart, consistent with its history, is assaulting a retail business that possesses outsized margins.”