Study: Competing for the retail drug market

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Pharmacies still dominate the retail drug market. However, between 1998 and 2005, they lost market share to food and general merchandise stores, according to a new study.

Pharmacies accounted for 84.0% of sales of prescription and over-the-counter drugs in 1998. However, by 2005, this share had tumbled to 76.9%. At the same time, the proportion of drug sales in both food stores and general merchandise stores edged up.

Pharmacies includes drug stores, cosmetics, beauty supplies and perfume stores, optical goods stores and other health and personal care stores.

Drug sales refers to sales of prescription and over-the-counter drugs, vitamins, herbal remedies and other health supplements.

In Quebec, any store incorporated as a pharmacy must be owned and operated by a pharmacist. Consequently, in contrast to the situation in other provinces, Quebec pharmacies located in food and general merchandise stores are included in the pharmacies trade group only. In other provinces, the sales of pharmacies located in another store are included in the host store's sales. As a result, the drug sales of food and general merchandise stores are underestimated at the national level.

For every $100 in drug purchases in 2005, consumers spent $14.10 in food stores, up from $10.30 in 1998. In general merchandise stores, they spent $9.00 on drugs in 2005, up from $5.50.

During this period, drug sales increased at an average annual rate of 6.5% in pharmacies. However, this was only half the growth rate of 13.8% for drug sales in food and general merchandise stores.

Sales of prescription and over-the-counter drugs have exploded in Canada during the past decade or so, with the nation's greying population and the millions of prescriptions now being written each year by physicians.

In 2005, retail sales of drugs surpassed the $20-billion mark for the first time.

This boom in drug sales has been accompanied by an emerging phenomenon in the retail market — the appearance of more and more pharmacy outlets in food and general merchandise stores.

The article "Competing for the retail drug market", published today in the online Analysis in Brief series, looked at this phenomenon, focusing on the competition between pharmacies and food and general merchandise stores between 1998 and 2005 using data from the Quarterly Retail Commodity Survey. It also compared the situations in Canada and the United States.

The growth of drug sales outpaced that of all retail commodities combined. Drug sales grew at an annual average rate of 7.9% between 1998 and 2005, compared with growth of 5.3% for all retail commodities combined.

In the United States, the demand for prescription and over-the-counter drugs grew at about the same pace as in Canada. In contrast to the situation in Canada, however, American pharmacies captured an increasing share of the market for health and personal care products. Food and general merchandise stores lost market share.

The increase in drug sales is probably not entirely the result of rising drug costs. Demand appears to be responsible for most of the growth. The number of prescriptions filled by Canadian pharmacies, including new prescriptions and renewals, has risen sharply during the past decade.

Relative to other products, drugs accounted for a rising share of sales for retailers that sell them.

Definitions, data sources and methods: survey number 2008.

The analytical article "Competing for the retail drug market" (11-621-MIE2006048, free) is now available online in the Analysis in Brief series.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Serge Grenier (613-951-3566), Distributive Trades Division.