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Doctoring Sales

“The doctor will see you now.”

Don't be surprised to hear that phrase the next time you visit your neighborhood pharmacy. Drugstore chains have joined the growing bandwagon of retailers — including supermarkets, discounters and big-box retailers — devoting space to in-store, walk-in clinics that offer customers pregnancy tests, camp physicals and hepatitis vaccines among a host of other medical services.

The first in-store clinic appeared in 2000 less than a decade ago. Since then, the concept has spread rapidly. Currently, there are more than 600 clinics located at retail venues across the country, according to the Convenient Care Association, an industry trade group based in Philadelphia. By 2012, the association estimates there could be as many as 6,000 of these clinics.

The clinics have flowered in large part because they serve as a convenient and cheaper alternative to a doctor's office or hospital visit — especially for the uninsured, which now number more than 47 million in the United States. Services performed at an in-store clinic are in the $60 range, though prices vary by clinic. For example, at CVS Caremark Corp.'s CVS Pharmacy, the industry leader with more than 316 in-store clinics under its MinuteClinic brand, services range between $49 and $59 apiece or an insurance co-pay.

In contrast, a doctor's visit costs at least twice as much, particularly in urban markets, according to Barry Barnett, a health care consultant for PricewaterhouseCoopers. And prices at in-store clinics are just one-fifth the cost of a trip to an emergency room, where an average visit for minor treatments can set consumers back more than $300, Barnett says.

And the uninsured have flocked to these clinics. According to a survey of patients at Wal-Mart Store Inc.'s clinics, half said they didn't have any insurance. And 15 percent of those said their only other alternative for equivalent care would have been a trip to the emergency room at their local hospital.

While it might seem odd at first to see such facilities at grocers or at Wal-Mart, the clinics have enjoyed immense success. Moving on to drugstores — with their accessibility and the fact that they are already connected to the health care industry — is the logical next step.

“We are a health care-oriented retailer, the clinics help promote our image as a health-care retailer,” says Brian Przyzycki, manager of Take Care Health Clinics, a chain of drugstore-based health clinics owned by Walgreen Co. Last month, Walgreen said it planned to open 100 Take Care Health Clinics by the end of this year and operate 400 in the U.S. by the end of 2008. The Deerfield, Ill.-based retailer currently has 63 Take Care Health Clinics at its more than 6,000 stores located across the country.

And beyond the health care logic, in-store clinics can also boost drugstore sales in other categories by providing cross-selling opportunities. If patients require prescription or over-the-counter medicine to treat their ailment, they are much more likely to fill those needs on site than leave the drugstore and go to a competitor.

“Everybody's trying to get in and get in fast,” says Patricia Edwards, a retail analyst with Wentworth, Hauser and Volich, a Seattle-based money management firm.

Doc in a box

New York City-based Duane Reade Holdings Inc. is one of the drugstores to jump into the fray more recently. Since May, it has opened four DR Walk-In Medical Care clinics. (The DR is both a play off the retailer's initials and the abbreviation for “doctor.”) It has partnered with Consumer Health Services, to provide urgent and non-urgent medical services.

At the DR Walk-In clinics, customers can see a physician seven days a week without an appointment. Its prices range from $95 for a general checkup and $145 for evaluation for multiple conditions to $199 for advanced care procedures including treatment of minor sprains, burns and lacerations. However, unlike some retail competitors' clinics, DR Walk-In clinics are staffed by doctors in addition to the more standard complement of physician's assistants and nurse practitioners.

That strategy may serve Duane Reade well going forward as in-store clinics become more prevalent since it gives it a point of distinction compared with competitors. “It will become imperative for drugstores to develop a commanding position as not only a provider of health and wellness products, but also services and solutions in order to retain their shopper base, draw new shoppers and differentiate from the competition,” says Jennifer Halterman, senior consultant, at Columbus, Ohio-based TNS Retail Forward.

Duane Reade will open two more clinics soon and it has identified five more sites as the next locations among its 247 retail stores. Overall, the company expects to have 40 Walk-In clinics within 18 months, says Jerry Ray, Duane Reade's senior vice president of pharmacy operations.

“It's just another wellness offering that fits in with what we're doing here at Duane Reade,” Ray says. “We are all about convenience and this is convenient.”

Meanwhile, CVS has 293 MinuteClinic locations at drugstores in the United States. (MinuteClinic has 23 other sites at supermarkets, office buildings, corporate and college campuses and as stand alone stores in shopping centers.) MinuteClinic, Inc., a subsidiary of the Woonsocket, R.I.-based retailer, has been a fixture at CVS stores since 2005.

The clinics have increased traffic at its stores, company officials say, but they declined to provide a specific estimate. But if CVS is mirroring the industry at large, more than 50 percent of the clinic customers are not regular visitors, according to Deborah Weinswig, managing director at New York City-based Citi Investment Research.

That's important because bringing in new customers can boost business at drugstores' pharmacies as well as in their genernal merchandise aisles. Quick clinic customers typically fill prescriptions on-site after visits and then make additional purchases while in the drugstores ranging from personal-care items and household supplies to food, Edwards says. “If you go into an in-store clinic and you feel pretty bad, you're not going to go any further to get the prescription filled. And, while waiting for the prescription they rationalize, ‘Why don't I pick up a few things?’” she says.

For example, since 2005, Take Care Health clinics have generated $11 million in revenues for Walgreen and treated more than 200,000 patients at the 63 clinics operating so far, according to company reports. “If it increases customer count either directly or indirectly, we would hope to see additional sales,” Przyzycki says. Overall, two-thirds of Walgreen's sales come from its pharmacy and that number jumps to three-quarters when over-the-counter medication is included.

Each clinic should generate $600,000 in service revenue, Weinswig estimates. That means that by the end of 2008, clinics at 400 Walgreens stores could generate $240 million in annual service revenues. Assuming each patient fills a prescription at the store, that's another $240 million. And that's on top of any rent the clinics pay since they typically sublease space from the drugstore.

Industry leaders

Of the drugstore retailers, CVS and Walgreens dominate the in-store health clinic market. “Both have made their intentions clear that they want to be the leader,” Halterman says. “Wal-Mart has also taken a stance.”

The world's largest retailer announced plans to open as many as 400 in-store health clinics by 2010. It currently operates 76 clinics within Wal-Marts in 12 states. In April, its president and CEO Lee Scott told the World Health Care Congress if current market forces continue by 2014 it could have as many as 2,000 clinics.

“We think the clinics will be a great opportunity for our business,” said Scott, who later acknowledged “yes, this is about economics. But, most importantly, they are going to provide something our customers and communities desperately need … affordable access at the local level to quality health care.”

The clinic expansion is the latest move by the Bentonville, Ark.-based retailer to provide consumers with access to affordable health care that includes $4 generic prescription drugs. Introduced in September 2006, $4 prescriptions account for more than 35 percent of all prescriptions filled at Wal-Mart.”

Since Wal-Mart introduced its $4 generic drug program both CVS and Walgreens say they have seen very little impact from the program; losing one prescription per store per day compared to the 250 filled per store per day. “Wal-Mart's generic drug program is designed to service cash-paying customers,” says Weinswig, “CVS and Walgreens report cash customers represent just five percent of their overall prescriptions.”

Shop till you drop

Medical Marts opened in three Illinois Meijer supercenter stores in September. And, it has plans to open two clinics in Kmart stores located in Rockford, Ill., this month. The three-year-old Las Vegas-based retail clinic's goal is to open 400 locations in retail outlets across the country by 2010.

Medical Marts look just like typical doctor's offices, with each housing three exam rooms, a procedure room, a physician's office and washroom, a nurses' station and a reception area. But, unlike at a typical doctor's office, the reception area is intentionally designed to not let you get too comfortable as a way of encouraging patients to walk around the store rather than sit and leaf through magazines.

“The reception areas are purposely small,” says Medical Marts vice president and chief medical officer Dr. Kenneth Richmond. “Should the physician be occupied, patients are given a pager, given time to shop and paged when the physician is ready.”

Many of the in-store clinics' waiting areas are positioned near health and beauty aisles so customers are enticed to purchase items while waiting to see doctors or getting prescriptions filled.

“If you can sell something that has a 15 percent margin, that's not bad,” Edwards explains. “Health and beauty aids have nice margins and they are growing faster than any other segment.”

Cutting back?

The move to integrate in-store clinics does raise a sticky question for drugstore operators: If you're going to make room for it, what do you cut back? The space has to come from somewhere.

For example, Duane Reade's Walk-In clinics vary in size between 250 square feet and 300 square feet.

But most retailers declined to discuss what product categories they cut back or eliminate when considering clinics. “First we have to have the space,” Ray says. “And even if we have the space, we have to ask what are we going to give up.”

Logically, the lowest profit margin items get cut first, Edwards says. So one thing is for sure; drugstores won't cut food, which is a major traffic generator.

As consumers are increasingly pressed for time, industry executives and observers agree the number of retail-based clinics will grow providing non-emergency medical services that continue to attract customers from a large pool because of their affordability, speed and convenience.

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