Like retail at large, retail pharmacy is evolving and restructuring. Many large chains are closing stores, scaling back primary care services, and struggling to keep relevant front-of-store offerings beyond prescriptions. Exhausted pharmacists are staging walkouts, further affecting customer experience.

Long gone are the golden days of 2010 to 2015, when large pharmacy chains were adding stores and enjoying 25% to 30% gross margins and steady profit growth. Today, retail pharmacy economics are under significant pressure. While pharmacy benefit managers (PBMs) have recently been less aggressive on rate negotiation, pharmacy gross profits are not keeping pace with revenue growth. Consider GLP-1 drugs, the largest contributor to retail pharmacy revenue growth in the last three years—most retail pharmacies source GLP-1s at a higher cost than PBMs reimburse, meaning they lose money with each prescription filled.

Retail pharmacies are not disappearing. Customers still value their relationship with their pharmacist, the ability to pick up prescriptions right after their doctor’s appointment, and the reliability of the in-store experience, Bain research has found. The winning retail pharmacies will be those that master the "trust-convenience-affordability" equation for their customers.

We believe large grocers and mass merchants are well positioned to increase their market share from 30% today to around 40% by 2029. However, not all grocers will actively pursue this market share growth, given the challenging economics of pharmacy operations. Some may benefit passively as customers look for new ways to fill prescriptions due to store closures and disappointing experiences at major drug chains.

Store rationalization and a rebalance of power

In 2023, nearly 50% of retail pharmacy prescriptions were filled by the three largest chains: CVS, Walgreens, and Rite Aid.

We expect the “rightsizing” of chain store footprints to continue over the next five years and beyond, while the rest of the market remains relatively stable (see Figure 1). Long-term leases will constrain the rate of store closure, however, and store rationalization should not be mistaken for irreversible decline. Shrinking and refocusing on delivering a relevant experience to customers is likely chain stores’ best shot at rebuilding a successful business for the long term.  

Mass merchants and grocers battle Amazon for pharmacy share

So, who is best positioned to capture the market share that will be up for grabs?

Our proprietary NPS Prism^® data shows that customers have been more satisfied with independent pharmacies, grocers, and mass merchants (see Figure 2).  

We would expect this NPS^® gap to widen as large grocers and mass merchants invest to further strengthen their pharmacy value proposition.

Walmart customers can already use the Walmart app or website to order new prescriptions, refills, and general merchandise, and have them all delivered in a single order within hours, or 30 minutes with express service. Insurance plans are applied exactly as they would be for in-store pickup.

To further position itself as a health destination, Kroger Health is continuously improving its nutrition guidance program, OptUP. In addition to the FoodHealth Score introduced last year to rate food based on nutrient density and ingredient quality, Kroger launched a free coaching program offering 30-minute virtual sessions with registered dietitians.

Independent retail pharmacies also continue to play a critical role, particularly in underserved areas, and have found ways to adapt to a changing market. Both historical analysis and our recent research suggest that this segment is resilient.

What about Amazon and digital pharmacies? Despite their efforts, these companies hold minimal market share today and are struggling to reach viable economics. Amazon Pharmacy is investing in pharmacy locations to provide same-day delivery in densely populated areas but remains constrained by a limited PBM network and mail order reimbursement. As a smaller operator, it doesn’t get volume discounts, making it that much more challenging to turn a profit.

These challenges are part of why we believe grocers and mass merchants are in the best position to gain share to the detriment of the big three (see Figure 3).

What will set retail pharmacy winners apart?

1. Omnichannel pharmacy. Successful retailers will design experiences that ensure consumers can reliably obtain their medication—within an hour or every 90 days, in-store or through delivery—while preserving their relationship with their pharmacist.
2. Affordability. Consumers are worried about the cost of their medication and are proactively searching for the most affordable option. Discount cards have proven popular, and Mark Cuban Cost Plus Drug Company has built a loyal user base. Retail pharmacies that are transparent about drug prices and help their consumers pay the lowest price available in their plan will continue to generate loyalty.
3. Technology and automation. Retail pharmacy winners will continue to streamline pharmacy operations with automation and centralized prescription fulfillment. Done right, this won’t be a threat to pharmacy staff; rather, it will reduce repetitive tasks and enable pharmacists to refocus on their patients, improving their overall experience and protecting them from burnout.  
4. Relevant in-store experience. Attempts to convert pharmacies into full-on primary care destinations have been a costly and losing bet for retailers. Like their Canadian and European counterparts, successful retailers will refocus on offering a reliable pharmacy experience, a set of targeted clinical services such as immunizations and testing, and an appealing health and beauty assortment.

By focusing on these four elements, retail pharmacies can adapt to their changing environment and thrive. Are you ready for the ride?