Has Wal-Mart's $4 drug program begun to lose gas?

Posted Dec 26th 2006 10:21AM by Douglas McIntyre
Filed under: Competitive Strategy, Wal-Mart (WMT), Walgreen Co (WAG), CVS Corp (CVS)

Walgreen (NYSE:WAG) and Rite Aid (NYSERAD) both turned in excellent results for the last quarter. Part of the message sent by both companies is that Wal-Mart Stores, Inc. (NYSE:WMT) $4 generic drug program is not hurting them. But Wal-Mart said its November pharmacy sales were up sharply.

Some part of this does not make sense. Some analysts say that the Wal-Mart drug buyers as consumers without insurance who were not going to any store while the mainstream pharmacies cater to patients who are insured. Rite Aid and its large competitors keep more generic drugs stocked in its stores, and their prices are not very different from Wal-Mart's.

If there is a surge in the purchase of generic drugs that is fueling growth at both Wal-Mart and Walgreen, that would be a problem to Big Pharma companies whose patent drug sales are being eroded by generics already.

Again, that answer would be too simple. Some data still appears to be missing.

While the mystery of both Wal-Mart and Walgreen both doing well is still open, one piece of data does appear to be clear. CostCo took a shot at $4 generics and lost money. They moved the price point to $10.

Lost money? Can Wal-Mart be making any at $4? If not, one of Wal-Mart's biggest initiatives could be a bust.

Douglas A. McIntyre is a partner at 24/7 Wall Street.

Tags: Costco, generic drugs, pharmacies, prescription drugs, Rite Aid, Wal-Mart, Walgreen, Walgreens

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Reader Comments (Page 1 of 1)

12-26-2006 @ 1:53PM

Biily F. Martin said...

Hey Guys, Lets give this a little more time because Wal-Mart can afford to contine the $4 generic drugs a long time. This will also be good PR for WMT if the others go up on theirs. We once called this a "lead" item to be made up by the purchase of other items in the store. I don't know. I'm sure Lee Scott knows?
Billy Martin Henderson,Tex

1-03-2007 @ 4:34PM

r. noonan said...

The only gas the Wal-mart program had was on the PR end. If you look closely, they never disclose how much lift they got from the generic program. They simply use vague statements like "it's very successful" and "sales are sharply higher". If it quacks like a duck...

As for the concern that increased sales of generics could be hurting the pharma companies - well, yes, but no more than predicted or already known. If Wal-mart is selling generics to people who were not even taking drugs before this program (you assertion, not mine), then these do not represent lost sales of brand-name items to the pharma companies.

Something like 12 states have already put the kibosh on WMT's $4 prescriptions - essentially determining that they were selling below cost. If there was any question about it, just read Costco's statement. They are a low cost operator, so if they can't do it at a profit, neither can Wal-mart. In other words, Wal-mart is guilty of predatory pricing, and before long, the regulators will probably shut down this program.