Wal-Mart has started selling prescriptions priced at $4 for a month’s supply (see article here.) Why? To get more people into the stores, silly. As I’ve blogged before, the world’s biggest retailer has the world’s biggest Lock-in, and they will do anything they can think of to keep their Success Formula unchanged. Now they are looking to drastically cut prescription prices.
This is good news for consumers. But what about Walgreens? After all, they have prescription sales as a central part of their Success Formula. What was their reaction? To say they aren’t worried, because Wal-Mart is a small player in prescriptions. In other words "we’re Locked into our Success Formula, and we don’t intend to change it no matter how large the Challenge." In the face of mounting pressure by insurance companies to force insureds to order medicine on-line, and corporate support for mail-based prescription delivery, and now a frontal assault by the world’s biggest retailer Lock-in allows Walgreens to blithely look the other way.
This is bad for investors in both companies. We now have two large companies planning to club each other to the bitter end in a battle to see who’s Success Formula can survive. Along the periphery of this fight are other retailers, like CVS, Target and KMart each ignoring the Challenge to their future (according to Associated Press [see here]some have said they don’t think this is an issue because customers with insurance only care about the co-pay and not the price) holding their own clubs and planning to defend themselves while putting in a few good licks as they seek to protect their individual Success Formulas.
This is simply bad management. There is nothing but hubris in undertaking such tactics. Smart management sees the Challenges, and reacts early. They avoid the club fight altogether, seeking out new markets where they can prosper. Only competitors who are Locked-in, and would rather take hits and possibly die would take on such a fight. The result of fighting is someone eventually falls into the Whirlpool and is swept away.
Again, for consumers such club fights can be a great cost saving opportunity. But for investors, it’s time to get out of the way! You don’t want to be an idle participant in the latest bloody version of business WWF Crackdown. You’ll most likely come out a bloody mess yourself.
Well I do have to admit it will be good for consumers, but as an investor I think I would run for the hills. I think profits are going to take a big hit in this area. This problem is in the limelight now because of the rising cost of prescriptions. the retired older population will enjoy this battle, but the young investor needs to be very savvy not to get caught up in the battle of the giants. I do not think that Walgreens or WalMart will get hurt because they are counting on the other items in their stores for porfits, this is just a loss leader for them to get people to come in and get their prescriptions, and on the way out pick up a few other items.
With the baby boomer generation coming up to retirement, the potential market for retail subscription drugs seems rather attractive. However, the business model and key success factors that have proved a success for Walgreen in the past might just be their downfall in the future.
Although Walgreen don’t seem concerned with Wal-Mart entering the market with their usual strategy, they should be worried with the growing trend of online-prescription orders. A simple example of their failure to identify this is a simple Google search for online pharmacies. Where does Walgreen appear? Tenth, behind all the other major retailers and new entrants.
Sometimes it isn’t today’s key rivals you have to be worried about; it’s the competitors building for tomorrow’s market that can topple you.