Saturday, January 03, 2009

Help Buyers with the Right Incentive

When I saw this story Wednesday, I thought, "they've hit the nail on the head."

In the story below, there is a major grocery store chain that is offering FREE generic Rx's during the cold and flu season.

Here's why this is right.

The Price. Can't beat FREE.

The Item. Prescription drugs. One of the biggest expense this time of year and the price battle for generics began last year with discounts from Walmart and Walgreens.

The strategy. Groceries have a low profit margin. Grocers use loss leaders to bring customers into the store and then earn bigger bucks by selling items that are not on sale. This should work.

Here's the story from the Washington Post:

Giant Food to Offer Free Prescription Antibiotics

By Ylan Q. Mui
Washington Post Staff Writer
Wednesday, December 31, 2008; D01

Giant Food stores will give free generic antibiotics to customers with a prescription for the next three months in what retail experts called an aggressive move in supermarkets' heated battle for shoppers.

The company said the program, which will begin Friday and last through March 21, covers several popular antibiotics such as amoxicillin, penicillin and ciprofloxacin. This is the first time that Giant has offered free prescription drugs and it did not estimate the cost or potential popularity of the program.

"Times are tough," said Robin Michel, executive vice president for Giant Food, which is based in Landover. "If this is the way that we can help most people, why not?"

The economic downturn has made it increasingly difficult for many Americans to afford prescription drugs. An October survey by the Kaiser Family Foundation, a nonprofit health policy group, found that 27 percent of people did not fill a prescription in order to save money, compared with 23 percent just six months earlier. About 22 percent reported cutting pills or skipping doses, up from 19 percent.

The pharmacy business has become increasingly competitive since Wal-Mart began offering nearly 300 generic prescription drugs for just $4 in 2006. Its rivals were forced to follow suit, with Giant lowering 90-day supplies of popular drugs to $9.99 this summer. According to consulting firm Willard Bishop, pharmacy sales typically make up about 10 percent of revenue at grocery stores.

"Pharmacy tends to be much more of an additional service that kind of can position the grocery store as more of a one-stop shop," said Jim Hertel, managing partner of Willard Bishop. "It's more of a convenience."

The free prescription drug program also will be offered at Giant's sister chain, Stop & Shop. The medications can be used to treat bacterial illnesses such as ear and sinus infections but not common viral illnesses such as the flu and the cold. Most of those medications, such as Tamiflu, are not available in generic form and are more expensive.

Still, several experts said Giant's announcement yesterday was the first time they had heard of a retailer literally giving away prescription drugs.

"I think it's a gutsy move," said Ron Paul, president of food consulting firm Technomic. "Free is the best price anybody can ask for."

Giant is the largest supermarket chain in the Washington region with 182 stores and more than 160 in-store pharmacies. But it has struggled to recapture market share in recent years after a rocky relationship with Dutch parent company Royal Ahold and the encroachment of competitors such as Wal-Mart and Whole Foods.

According to trade publication Food World, Giant's market share in the Washington region dipped two percentage points to 35 percent in the year ending March 31. Sales totaled $3.3 billion, down from $3.4 billion at 133 stores last year. Safeway ranked second with $2.6 billion in local annual sales, and its market share inched up from 27.7 percent to 27.8 percent.

To revitalize its stores, Giant has spent millions of dollars to remodel its aging locations and unveiled a new logo in August. It also has cut prices across much of the store, from produce to paper products. There are some indicators that those efforts may be paying off: Giant posted its first positive sales figures in six years during its third quarter.

Paul said that the free prescription drug program is likely to breed additional goodwill among its shoppers, particularly at a time when many corporations are filing for bankruptcy and seeking government bailouts.

"Anything you can do to suggest that we do care about more than just, quote, making money is probably good citizenship," he said.

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