Wal-Mart scores big with $4 generic prescription offer

Few recent developments in retail pharmacy have had the impact that Wal-Mart Stores’ $4 generic drug price promotion achieved. Judging from the results thus far, the program looks like it’s here to stay.

Wal-Mart first unveiled the $4 offer in a market test in Tampa, Fla., last September, but jumped its own expansion timetable for the program and rolled it nationwide by November, months ahead of schedule.

The discount program—now offered on more than 330 generic drugs in 26 therapeutic classes—unleashed a torrent of mostly positive press for the chain, a flood of new business and a price-cutting frenzy among Wal-Mart’s discount-store and supermarket pharmacy competitors as chains like Target, Kmart, Kroger, Publix and H-E-B matched the $4 offer or struck back with their own promotional variations.

A few, like Meijer and Giant Eagle, even began offering some pediatric medications, like cough syrup, free of charge.

The promotion quickly struck a chord with millions of consumers. By early this year, 25 percent of consumers polled by Wilson Health Information for the 2007 WilsonRx/Boehringer Ingelheim Pharmacy Satisfaction Digest said they had purchased a $4 generic from either Wal-Mart or one of its rivals. And 23 percent indicated that their own pharmacy of choice offered the $4 price on a selection of multisource medications.

Thanks in large part to Wal-Mart’s generic discounting, out-of-pocket spending for prescriptions actually declined among mass merchant customers, according to the Digest, dropping from a reported average of $55.50 in 2006 to $53.54 in early 2007.

The long-term impact of the generic price drop appears profound—both for Wal-Mart and for retail pharmacy overall. By June, just six months after the program went nationwide, Wal-Mart was reporting that 38 percent of the prescriptions filled at its 3,400 pharmacies were $4 metoo medications.

Thanks to the generic promotion, “The business is up 50 percent in prescription units in some of my pharmacies,” one Wal-Mart pharmacy district manager told Drug Store News. “We’re seeing a nice increase in our OTC business as well.”

That spells trouble for the chain’s food-store pharmacy rivals. In the words of Bill Simon, Wal-Mart’s executive vice president of professional services, the generic discount program “drove our competitors to meet our $4 price.”

On a larger scale, the $4 offer roiled the nation’s pharmacy market, shifted market share to Wal-Mart and spurred the increasing commoditization of the low-end prescription drug business, opening new inroads for price-oriented pharmacy competitors like Costco.

Even though most drug store chains and independents refused to match the offer, its impact has been undeniable. Even gold-standard operators like Walgreens have felt the ripple effect at their pharmacy counters.

“The impact of new, lower-cost generic drugs, which slowed pharmacy sales growth by 5.1 percentage points and total sales growth by 3.4 percentage points in the quarter, continued to affect expense ratios,” Walgreens reported in its third-quarter financial statement for the period ending May 31, 2007.

Simon predicted the program’s long-term effect would be a billion-dollar-a-year reduction in the nation’s health care costs.