Dive Brief:
- Stater Bros. is selling its in-store pharmacy business to CVS. The grocer says it wants to concentrate on its food business instead, according to a company release.
- The San Bernardino, California-based grocer is expected to close all 22 of its SuperRx stores by Sept. 28. When the deal closes at the end of the month, all inventory and pharmacy records from SuperRx will go to CVS. Stater Bros. will remerchandise the space over the course of the next few months.
- “I’d like to emphasize that Stater Bros. is a strong and competitive company within the Southern California supermarket landscape poised for continued growth,” Stater Bros. CEO Pete Van Helden said in the release. “This business decision will allow the company to grow areas of our core food business that meet the evolving food needs and shifting grocery preferences of our customers."
Dive Insight:
Most supermarkets want to incorporate pharmacies into their business models, and consider them a lucrative asset. Pharmacies drive foot traffic, bringing in consumers who are likely to routinely pick up prescription medications from the same location. According to industry consultant Gary Ellis, every new prescription filled translates to $43 in additional sales across other departments.
But Stater Bros. may have found the burden of managing this additional business too great to bear in the long term. Smaller chains may adopt pharmacies to compete with major supermarkets, but the investment is a risk. In order to fully leverage a pharmacy’s capabilities, retailers must manage costs and effectively promote the department. Despite their beneficial net effect on the store, pharmacies only make up about 3% of most grocer’s sales. The true value of an in-store pharmacy is its ability to promote a grocery store a as health destinations.
The health halos that come with pharmacies have been attractive to grocery heavyweights like Kroger, Publix, Walmart and Hy-Vee, who use these businesses to meet consumer demand for health-focused products alongside better-for-you meals, fresh and organic produce and other offerings. Though the $24 billion merger was canceled due to shareholder opposition, Albertsons' planned acquisition of Rite Aid also reflected this trend.
Stater Bros. isn’t the only retailer to leave the pharmacy business. Just this week, Southeastern pharmacy chain Fred’s completed the sale of its specialty pharmacy business to Walgreens in hopes of eliminating debt. This sale sent the regional chain's shares skyrocketing more than 80%.
Retailers should note that pharmacies are under pressure to keep costs low, and the healthcare industry is extremely volatile — challenges that smaller chains may not be equipped to handle. Stater Bros.' decision to step away from the pharmacy business could signal a turn in the health destination trend for groceries and spur small supermarkets to find new ways to cater to health-conscious shoppers.
