Wal-Mart (WMT) plans a significant expansion of its programs to bring inexpensive prescription drugs to its customers which will almost certainly damage margins as its competitors.
According to The Wall Street Journal, “The discount retailer is offering businesses low-priced drugs if they sign up to buy directly from Wal-Mart’s network of in-store pharmacies, rather than contracting to buy drugs through third parties known as pharmacy-benefit managers.”
It is moving a program which has done extremely well with individuals to companies that want to save money for themselves and their workers which is an almost irresistible combination.
The plan is another in a long series of moves that Wal-Mart (WMT) can make because of its size, huge customer base, and buying leverage with suppliers. Companies including Rite Aid (RAD) and Walgreen may already have relationships with corporate customers, but those relationships will prove inadequate. Wal-Mart can afford to work on very low margins in its drug operation as it picks up market share. It is in so many other businesses that make money that suffering through a profit drought to steal business from the drug store companies which do not have diverse business bases to supplement profits in a price is not a large burden.
As for the pharmacy retailers, they don’t have the balance sheets to keep up.
Douglas A. McIntyre
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