Pharmacy sales account for anywhere from 60-70% of total retail sales for drugstores such as CVS, Walgreens and Rite Aid, and scripts are the primary driver of front-end traffic. With the recent expiration of the Express Scripts contract with Walgreens, effective December 31, 2011, where will the customer go… what will the impact be on front end sales? Walgreens is doing its best to keep those customers, but the competition is moving in for the kill.

Although any store with a pharmacy is poised to benefit from the Walgreens/Express Scripts split, CVS, Rite Aid, and Walmart are expected to profit the most.Rite Aid and Walmart have both stepped up their in-store and online marketing, and Rite Aid recently announced that they would be investing in advertising to Express Scripts members in order to gain as much share as possible. CVS is taking a more direct approach by specifically targeting TRICARE, the health care program to military families which uses Express Scripts. Walgreens top competitor has created a special web page for these members to transfer their prescription easily, and will be donating USD 3 to the USO for every person that visits the TRICARE page during the month of January.

Walgreens, on the other hand, seems determined to retain those customers, offering reduced annual membership fees to their prescription savings club during the month of January (which does NOT apply to TRICARE members). Additionally, Walgreens and Duane Reade now have a “patient transition plan” in place to make the change as smooth as possible for Express Scripts members. Walgreens expects to retain about 60% of the prescriptions it fills for Express Scripts, but with approximately USD 5.3 billion in revenue up for grabs (not to mention the additional front end revenue driven by pharmacy traffic), the competition will undoubtedly put up a fight.

With approximately 43% of CVS stores and 33% of Rite Aid stores located within one mile of a Walgreens site, many shoppers will have no problem switching to another nearby pharmacy. What are your expectations for the impact on Walgreens, and competitors’ overall business, especially on the front-end? Are your companies taking these changes into account as you plan for 2012?

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