IndexDominant Characteristics of the IndustryPorter's Five ForcesIntensity of Competitive Rivalry in the IndustryThreat of SubstitutesThreat of New CompetitorsBuyer PowerSupplier PowerSummary of Forces and AttractivenessTrends in the Overall EnvironmentPoliticalEconomicSocialTechnologyEnvironmentalLegalCompanies in the Industry Positions stronger/weaker Key Success Factors (KSFs) Changes in KSFs by segment Likelihood of KSFs to change over time Implications of this evolution Industry perspectives for long-term profitability analysis The pharmaceutical and drugstore sector is predominantly dominated by a duopoly made up of Walgreens Boots Alliance and CVS Health Corporation, which account for just over 60% of the market share. Surprisingly, this industry is becoming more and more competitive thanks to more affordable competitors like 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 an ongoing threat of substitutes as consumers turn to healthier lifestyles or convert to self-medicating. Industry regulations continue to become more restrictive each year, and the industry is greatly impacted by the increased implementation of technology and web-based pharmacies as society moves into a further digital age. The main key success factor that drives profitability in this industry is the ability to gain easy access for consumers so that they can conveniently have access to their prescriptions and healthcare products in general, without having to turn to competitors. Overall, this industry seems unattractive and current companies should look for ways to improve their position in this industry. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay Dominant Characteristics of the Industry The pharmaceutical and pharmaceutical industry is made up of three large companies that hold a 68% market share. Walgreens (34.8%), CVS (28.2%), and Rite Aid (5%) have very similar products and services aimed at positioning themselves to provide value to their customer segments (Ibis World). CVS has positioned itself by attempting to consolidate itself through a process of vertical integration through the acquisition of Aetna. This provides CVS customers access to health benefits programs and many retail outlets from expanding businesses. 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 for key areas of its business, such as its innovative wellness store format, a highly successful customer loyalty program, and an expanded pharmacy services offering, as it also enhances its multi-channel and a own brand to strengthen the company's competitiveness. position and create long-term value for shareholders (Rite Aid 10-K). Growth in this industry continues to be positive at a steady pace every year, making it in the maturity stage of the life cycle. Growth does not happen drastically, but daily activity maintains the strategic position of each company. Evidence of this growth can be seen in each company's accelerated expansion of purchasing more stores over the past 5 years. In December 2015, CVS acquired 1,672 pharmacies and 79 clinics from retail giant Target Corp., at a cost of $1.9 billion (Business Insight, 2018). Walgreens Boots Alliance has acquired a large amount of storesRite Aid, which has been a great success in growing the market. The Rite Aid store was combined with Albertsons to create an even larger chain while retaining the name (Jaspen, 2018). The pharmacy and parapharmacy sector records annual growth of 2.8% between 2014 and 2019, with the same 2.8% expected between 2019 and 2024 (Ibis World). This industry has a wide range of products and services focusing on prescription and non-prescription drugs, beauty cosmetics, groceries and convenience foods for customers. All of these companies have similar products just different ways of doing business. Each store has its own private label offering, to reduce costs and increase brand appeal, motivated as an alternative to national brands. These private label products contribute to the majority of sales within these companies, Warren Buffet states in Forbes “Own brands, private label, are getting stronger… and will continue to grow,” predicting growth potential for success with these products (Danziger, 2019). The largest demographic group of consumers who purchase drugs with and without a doctor's prescription are those aged 65 and over; in contrast, individuals between the ages of 44 and 65 represent 35.9% of the revenues of the market segment. The market has a value of 2.6 billion and 71.7% of the total turnover of the sector comes from the sale of prescription drugs (Ibis World). Most clients have third-party insurance such as pharmacy benefit managers, insurance companies and government agencies. These are regulated systems that pay all or part of the cost for a customer's prescription drugs that meet the requirements. Third-party payers account for a significant amount of sales in the retail pharmaceutical industry (Walgreens 10-K). The industry is extremely dependent on third parties. Manufacturers manage the actual distribution of drugs from manufacturing facilities to wholesalers and, in some cases, directly to retail pharmacy chains, specialty and mail-order pharmacies, hospital chains, and some health plans (Health Strategies Consultancy, 2005) . Any complications in key relationships can severely impact the company's position and negatively impact consumers. Vertical integration and consolidation are widely used in this industry to encourage lower consumer costs for purchasing prescription drugs. Companies in this industry 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 are rumored to increase relevance in the supply and value chain for end consumers. The right partners and purchasing might simply enable a more flexible and vigorous response to what the public sees as too many unconscionable drug price increases and high introduction fees for new drugs (Barlas, 2018). The elements presented in the analysis suggest steady and steady growth. as new data and innovation become more available. The industry recognizes the shift towards greater demand for its products and services at lower costs for segmented consumers, with convenience of delivery. Every company in this industry will take aggressive actions to maintain its competitive position in the market, with an awareness of the potential adverse effects. Porter's Five Forces Intensity of Competitive Rivalry in the Industry In the pharmacy and drug store industry in the United States, there are threemajor players: Walgreens Boot Alliance Inc., CVS Health Corporation, and Rite Aid Corporation. The rest of the market segment is based on other smaller players in the industry. Based on 10-K reports provided by the companies and total industry revenues provided by IBISWorld, Walgreens Boots Alliance Inc. and CVS Health Corporation hold a duopoly and own more than half of the market share, at 34.8% and 28% .2% market share respectively. Rite Aid Corporation, the second largest competitor of the previously mentioned company, holds approximately 5.0% of the market share. There are other companies that are slowly growing and gaining traction 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 through the purchase of PillPack (Angelicalavito, 2018). As new companies enter the market and each of them seeks to increase their share and take advantage of the growing market, rivalry in the industry is high. Threat of Substitutes For the pharmacy and drug store industry in the United States, there are several substitutes for prescription drugs as well as the convenience aspect offered by the industry. The need for prescriptions can be circumvented by lifestyle changes (Harvard Health Publishing, 2017). According to the Harvard article "Alternatives to Taking Pills," plenty of research shows that you 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 conducted by Keyhani showed that 81% of adults studied believed it had at least one benefit and 66% of patients reported that it helps in managing of pain (Keyhani). In addition to medical marijuana, alcohol has been used as a substitute for painkillers and successfully reduces pain in humans and animals, according to the National Institute on Alcohol Abuse and Alcoholism (National Institute on Alcohol Abuse of alcohol and alcoholism). In addition to providing pharmaceutical services, the industry also provides self-care and health products. These self-care and health products may be replaced by going to the emergency room or hospital. For example, if someone is having an allergic reaction, instead of going to a local pharmacy or drug store, you can go to the emergency room and receive proper treatment. All in all, the threat of substitute products is high. Threat of New Competitors The barriers to entry for the pharmacy and drug store industry in the United States are high. Big-name pharmacies like Walgreens Boots Alliance, CVS Health Corporation and Rite Aid Corporation have already established contracts with major pharmaceutical wholesale distributors. For a new entrant to enter the industry and try to establish a similar or cost-effective arrangement with a wholesale distributor is extremely difficult. In addition to the contracts that established market players have with wholesale manufacturers, pharmacy benefit management (PBM) adds barriers to entry for new potential customers. PMBs "handle the distribution of drugs for large employers, insurance companies and government programs like Medicare," according to Feldman's article "Big Pharmacies Are Dismantling the Industry That Keeps U.S. Drug Costs Even in Check" (Feldman, 2016). As PBMs consolidate and strengthen relationships with their favorite pharmacies and drugstores, this causes new entrants to the industry to cross another barrier. Although these existbarriers to entry, if the company trying to enter has enough money to mitigate the costs of entry, it is possible to enter. For example, in 2018 Amazon purchased PillPack, an online pharmacy, allowing it to enter the drugstore and drug store industry (Angelicalavito, 2018). With multiple barriers to entry, but the barriers being overcome by a large amount of capital, the threat of new entrants is moderate. The Power of Buyers In the pharmacy and drug store 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 for the demographic will increase from 3.303% in 2019 to 3.368% in 2020 (US Census Bureau, 2017). In addition to the increase in the elderly population dependent on drugs, the need for certain drugs among different age groups does not change. While there are several alternatives to prescription medications, there are some diseases that cannot be treated with a change in diet and increased physical activity. For example, viral sore throats require antibiotics to treat (streptococcal infections?). With the 65 and older demographic becoming more dependent on medications for their livelihood and there being no substitute for medications needed for a specific or unique disease they or any other demographic may have, buyer power is low. The Power of SuppliersPharmaceutical wholesale distributors and manufacturers are typical suppliers to large-scale pharmaceutical retailers. However, most drug retailers and pharmacies do not rely on a single wholesale manufacturer but instead have multiple wholesale manufacturers to rely on. However, the cost of switching wholesale manufacturers would be expensive since the relationships between the pharmacy and manufacturers are usually formed through contracts. Furthermore, manufacturers will have a decrease in patents expiring in the coming years. Based on data from the National Pharmaceutical Services, from 2018 to 2022, approximately 78 different pharmaceutical brands will see their patents expire, allowing generic brands of the same drugs to enter the market (National Pharmaceutical Services, 2017). While this will allow for an increase in profit margin as branded generic drugs enter the market, patent expiration is occurring at a decreasing pace, with fewer patents expiring in 2019 than in previous years. This allows for a slower decay of supplier power, making it still moderate. Summary of Strengths and Attractiveness There is high rivalry in the industry among the three major competitors of Walgreens Boot Alliance Inc., CVS Health Corporation and Rite Aid Corporation, along with new entrants of Costco Wholesale Corporation, Walmart Inc. and Amazon in the market . There is a high risk of pharmaceutical substitutes such as healthy lifestyle changes, medical marijuana and alcohol. The industry presents a moderate threat of new entrants due to high barriers to entry which can be overcome if the company attempting to enter the industry has sufficient capital. Buyer power is low due to people's dependence on drugs and moderate supplier power due to patents for pharmaceutical products expiring at a decreasing rate. Taking all the summaries into consideration, the pharmacy and parapharmacy sector in the United States does not appear to be attractive. Trends in the General Political Environment As of early 2019, a political trend has emerged regarding repealing the tax penalty for those who are not enrolled in the Affordable Care Act. According to Forbes, “underthe Trump administration, last year Congress repealed the tax penalty that must be paid by those without health insurance, starting in fiscal year 2019” (Gleckman, 2019). The tax penalty was an incentive to push 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 million people 13% less” (Eibner and Nowak, 2018). Without the convergence of health insurance, the price of drugs would be unaffordable for an individual. Therefore, pharmacies and the drug retail industry will be forced to reduce the profit margin or maintain the prices of their products to retain their customers. EconomicThe level of household income usually indicates the consumer's ability to purchase products in the sector. However, need-based prescription drugs are less likely to be affected by a change in discretionary income. In fact, per capita disposable incomes and consumer spending are experiencing dramatic growth this year. According to the Wall Street Journal, “consumer spending increased by an average of 2.7% in the four quarters through September compared to the same period a year earlier, while disposable income increased by an average of 2.7%” ( Andriotis, 2018). Therefore, growth in disposable income and consumer spending can be seen as a potential opportunity for the pharmaceutical and drug retail market. Social The United States expects a sharp increase in the aging population. According to Census.gov, “The nation's population age 65 and older is expected to nearly double, from 49 million to 95 million people in 2060. As a result, the percentage of people age 65 and older will grow from about 15% to 17". percentage between 2017 and 2020, and by 2060, older adults are expected to make up nearly a quarter of the population” (Vespa and Medina, 2018). So, more Baby Boomers will be available with Medicare. “The boomer generation tends to focus more on their well-being and maintaining good health. Over 60% of boomers take a multivitamin or supplement and approximately 25% take a calcium supplement” (Smart Retailing Rx, 2014). There is a trend in health awareness in the United States that is growing day by day. Therefore, the pharmaceutical retail sector is also increasing its health and wellness offerings to meet consumer needs. “We have seen the drugstore channel make significant improvements in recent years to better meet consumers' growing needs for holistic health and wellness, through the addition of in-store pharmacies, health clinics, dieticians, and healthier food and snack offerings” (Rains, 2017). Technology In the pharmacy and drug store industry, companies have come a long way towards implementing the use of technology (Lightspeed, 2019). Pharmacies have improved their digital capabilities, such as websites and mobile applications, 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 purchase what they need” (Mintel, 2019). This spans a multitude of generations, especially since the primary users of this industry are the incoming Generation X, Baby Boomers, and older generations.Walgreens reports that nearly 30% of its mobile users are 55 or older. Additionally, the following diagram shows the results of a survey conducted in December 2018 on consumer attitudes toward pharmacies' digital capabilities by generation (Lightspeed, 2019). Additionally, pharmacies and pharmacies are privy to confidential and sensitive data, such as personal health and financial information. Information technology helps keep data secure and private because these companies depend on their customers' "willingness" to trust them with their information, therefore, companies must take steps to ensure that such information is protected and kept out of the wrong hands through cybersecurity (CVS 10-K). But industry players are and have been vulnerable to cyber attacks that can disrupt or damage their systems, resulting in the loss of their financial and business position, as well as the loss of positive consumer perception (Rite Aid 10-K). The pharmaceutical and parapharmaceutical industry is “subject to various federal, state, and local laws, regulations, and other requirements relating to employee safety and security, public health, and the environment, including, for example, regulations governing the management of dangerous substances, cleaning of contaminated sites”. In other words, there are rules in place to ensure that pharmaceutical companies and pharmacies keep the environment safe. Failure to comply with these rules can result in fines or other consequences from government officials, as well as the loss of environmentally conscious customers (Walgreens 10-K). Some companies go a step further and create their own environmentally friendly products. For example, Walgreens created its own line of eco-friendly home cleaning products that were approved 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 pharmacy industry is so heavily regulated, there is a notable variety of laws and regulations that companies must consider and comply with at the state, federal, and international levels when operating in this industry. “These laws and regulations governing businesses and the interpretations of these laws and regulations continue to expand and become more restrictive each year,” without the ability to predict whether pending or future legislation will change the laws within the industry, the that creates uncertainty and may affect the company's operations, financial condition or market share (CVS 10-K). Regulations, such as Medicare regulations, privacy and confidentiality requirements, reimbursement laws, pharmaceutical and professional licensing and regulation, and state and insurance holding company regulation, help protect the consumer but continue to put The growth in sales of pharmaceutical companies caused by longer FDA approvals is a tough test. , higher copayments, drug safety concerns, and reliance on third-party payers (Rite Aid 10-K). Companies in the Strongest/Weakest Positions The three largest players in the pharmacy and drug store industry are Walgreens, the industry leader, CVS, the second leader, and Rite Aid. Although considered one of the top three companies in the industry, Rite Aid significantly lags behind CVS and Walgreens and is struggling to catch up. So much so that it is starting to disappear and be devoured by other companies, one including Walgreens which purchased 1,932 stores and 3 distribution centers (Jaspen, 2018). One reason Walgreens is at the forefront of the industry is its high switching cost. While it is possible to switch, consumers tend to stick with the pharmacyoriginal because they don't want to deal with the hassle of filling out new paperwork for their insurance and new pharmacy, as well as intangible considerations such as relationships with pharmacists (Stoffel, 2019). The pharmacy and parapharmacy sector is changing to adapt to current and future problems, such as Amazon's purchase of PillPack. With the news that Amazon is preparing to enter the mix, the three major companies have begun to focus on maintaining their market share once that happens. All three companies are trying to break free from dependence on third parties to provide customers with a more convenient solution. CVS in particular has worked on this through its acquisition of Aetna, in which it says it is "working to transform the consumer healthcare experience and build healthier communities by offering care that is local, easier to use, less expensive and empowering. consumers at the center of attention". center of their care (CVS Heath, 2018).” Another tactic that companies in this sector are adopting is the use of an omnichannel system. This means 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 as 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 derive maximum impact. Walgreens' senior director of mobile commerce said that through the use of omnichannel, customers are spending up to six times the amount they would normally spend with an in-store-only form. The following graph breaks down the differences. They are able to achieve this by connecting their products and services with their different channels, such as prescription refills, photo printing and virtual doctor appointments (eTail). And the latest common trend throughout this industry is the initial use of mail order. With the tech giant soon to join this industry, Walgreens and CVS are trying to beat it before it's even in play by integrating home delivery services to avoid being "Amazon." According to a survey conducted by Business Insider Intelligence, 65% of Walgreens consumers, 68% of RiteAiuta consumers and 69% of CVS customers would switch to a pharmacy offered by Amazon. Therefore they are implementing delivery services to solve “consumer pain points” to stay ahead of the curve and be better positioned while they can (Beaver, 2018). Key Success Factors (KSF) In order of prevalence, the 3 key success factors that have the strongest relationship with profitability and success in this industry are easy access for customers, the ability to control inventory available and the availability of an experienced workforce. Getting easy access for customers is what differentiates this industry from others. Customers can easily get a wide variety of items without having to go to large retailers like Walmart or Target. Additionally, companies in this industry such as Walgreens or CVS have numerous locations to ensure they can reach customers anywhere, without having to travel far. Convenience is a key success factor that can generate success for this industry. The ability to control available inventory is vital to any industry. Tracking inventory allows a business to determine customer satisfaction if products are consistently in stock. Overall, proper inventory management ultimately generates more sales. An experienced workforce is helpful in this industry to stand out from the crowd.