Drug Stores Industry Overview

  • SIC Code5499
  • NAICS Code446110

Industry Excerpt

Companies in this industry sell prescription drugs, over-the-counter medications, health and beauty products, and general merchandise from physical retail locations. Major companies include Walgreen Co, CVS Health, and Rite Aid (all based in the US), along with Rexall (part of Canada's Katz Group) and Shoppers Drug Mart (also from Canada), China Nepstar (China), AS Watson (Hong Kong), Matsumoto Kiyoshi (Japan), Celesio and Dirk Rossmann (Germany), and Walgreen-owned Boots the Chemists (UK).

Competitive Landscape

Demand is driven by the aging of the US population, awareness of health issues, and advances in medical treatment. The profitability of individual companies depends on access to medical insurance groups. Large companies have economies of scale in purchasing and in access to large groups of customers. Small companies can compete effectively through convenient locations or special merchandising. The US industry is highly concentrated: the four largest companies generate about 70% of revenue.

Products, Ops & Technology

Drug stores sell two main types of products: prescription drugs and "front-store" products, including over-the-counter (OTC) drugs, health and beauty aids, greeting cards, photo-finishing services, and general merchandise. Prescription drugs draw customers to the store, and stores focus their efforts on the number of new prescriptions they fill. The larger drug store chains typically generate about two-thirds of their sales from prescriptions; front-end items account for a third. The number of front-store items has increased in recent years, as stores have started to offer a wider variety of items to customers, including groceries and beer and wine.
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