The Changing Face of Retail

The Changing Face of Retail

Earlier this week Walgreens (NYSE:WAG) announced they would be acquiring Duane Reade a New York based chain with 257 stores for slightly over $1 billion. Also this week CVS/Caremark (NYSE:CVS) announced results from a study published in the current issue of the American Journal of Health-System Pharmacists which according to a press release issued by CVS; “demonstrates the positive impact of a diabetes management program designed to educate and motivate members to engage in their health care.” The results of this study comes on the heels of another from Walgreens who earlier this year announced they too would be launching a program to help educate patients with diabetes.

According to a company issued press release “Walgreens Optimal Wellness™ utilizes our wide range of health care providers and resources to control debilitating and costly chronic care conditions,” said Greg Wasson, Walgreens President and CEO. “Diabetes is one of the most difficult chronic care diseases to manage and the most costly. Through accessible community pharmacies, our program brings patients the tools they need to live healthier and more productive lives.”

It is also well know that retailing giant Wal Mart (NYSE:WMT) is expanding their efforts to enter the health and wellness arena and not surprisingly patients with diabetes are central to this effort.  Although they have yet to announce their “diabetes initiative” the company has partnered with WebMD (NASDAQ:WBMD) to launch their health and wellness initiative.

While Diabetic Investor applauds these educational initiatives let’s be clear about one thing. As great as these initiatives may be they are not driven by an altruistic motive, what these major retailers have discovered is something that Diabetic Investor has been saying all along, health education drives sales. The fact is an educated patient, particularly a patient with diabetes, is more compliant with their therapy regimen and checks their glucose with greater regularity. Simply put an educated patient buys more of the products these retailers sell and refill their prescriptions with greater regularity meaning they are in the store with greater regularity.

Unlike a web site where site traffic is key, in the retail world the exact opposite is true and store traffic is critical.  This is one reason retailers like Wal Mart began offering programs where the customer could order their merchandise on their web site but have their order picked up in person at their local Wal Mart. This is the same reason CVS/Caremark began a program that allowed patients using the Caremark PBM to order their prescriptions online but have them picked up at their local CVS store. What all the retailers understand is patients don’t make impulse buys when they order items online, impulse buys only happen when the customer is in the store.

Given that 80% of their revenue comes from the pharmacy and that the customer with diabetes generates on average $4,500 per year in revenue it’s not surprising that Walgreens and CVS are focusing on the customer with diabetes. The fact is customers with diabetes visit their stores more frequently and buy non-prescription items that carry higher profit margins. Walgreens and CVS also realize that Wal Mart with its huge size advantage can always beat them when it comes to price and therefore they need to find another way to capture and retain the customer with diabetes.

So rather than compete on price Walgreens, CVS and soon Rite Aid (NYSE:RAD) are using education to create a value added service for their customers with diabetes. An effort that is long overdue when you consider that according to nearly 70% of patients with diabetes view their pharmacy as just a place to pick up their prescriptions. What this tells the pharmacy chains, is that in the eyes of the consumer there is no difference between the chains, or put another way no brand loyalty. There hope is by offering these education programs consumers will begin to see their pharmacy as actually helping them manage their diabetes more effectively.

The major question becomes not will education be effective, we already know that education is the most effective tool for improving patient outcomes. The real question is can these chains provide the education cost effectively. Diabetic Investor raises this point as both the Walgreens and CVS diabetes projects are based on the successful Asheville project. According to the study published in the American Journal of Health-System Pharmacists; “the Asheville Project has inspired a new health care model for individuals with chronic conditions.” The only problem with following this model is the cost involved as the Asheville Project involves face to face interventions between the patient and the pharmacist.

Diabetic Investor does not question the role of the pharmacist as the pharmacist is a valued member of the patient’s health care team. The real issue is time and money. The fact is pharmacists cost money and there are only so many hours in the day. Each patient intervention with a patient takes the pharmacist away from their primary function which is filling prescriptions. Additionally even with a pharmacist whose sole function is to educate patients they can only see a limited amount of patients each day. Finally the Asheville Project relies on the patient not only coming into the store but spending additional time in the store for the intervention.

To enhance participation in their project CVS incentivized patients to enroll. According to their press release; “Enrolled members receive co-pay waivers on disease-related medications (generic and preferred brands) as well as related supplies and non-prescription products.

“We wanted to implement a program that would incentivize our employees living with chronic diseases such as diabetes to take an active role in their health care in order to improve their overall health,” said Michael Kushner, Director, Risk Management, Polk County Government.”

Given the outstanding results generated by the Asheville Project Diabetic Investor believes CVS and Walgreens are on the right path. However, to fully capture the benefits of patient education they will need to take a page out of the Wal Mart playbook and enhance their efforts by embracing the power of the internet. As effective as one on one education is, the internet is the most cost effective method for reaching the largest amount of consumers. Combined with a well thought out internet presence, CVS and Walgreens have an opportunity to have a measurable impact on millions of lives.

Even with the limitations of following the Asheville Project Diabetic Investor is overjoyed to see that companies are finally waking up the fact that patient education is not just good for the patient but good for the bottom line too. Perhaps with major companies like Wal Mart, Walgreens and CVS embracing patient education others will jump on the education bandwagon, believe Diabetic Investor when we say there is plenty room on the wagon. We’re off to a good start but still have a long way to go.