How Does Walgreens Affect The Retail Pharmaceutical Industry?

Introduction In 1901, Charles R. Walgreen Sr. opened a small neighborhood drugstore, one in which he was formerly employed at as a pharmacist. This 50- foot by 20-foot space was the first Walgreens drugstore of many more to come. At that point, in time there were 1500 competing drugstores in the Chicago area. (Walgreens Historical Highlights). Walgreens has thrived in the pharmaceutical industry among many competitors in the 117 years at has done business to become one of America’s most respected companies and the benchmark of the retail drugstore business. (Our Past). Fast forward from 1901 to 2014 and Walgreens has transformed into a worldwide icon by completing a successful merger with Alliance Boots to become the publicly traded company

According to the Center for Medicine and Medical Services the government pays 40% of all prescription drug costs putting additional stress on the federal budget. (Schueth).Currently the way Medicare Part D works is the more a customer has to pay the sooner they reach a more discounted benefit giving no incentive to seek cheaper generic brands or alternative medicines that are just as helpful. The effect of this for all is higher prescription drug costs and higher insurance costs. How this effects the retail pharmaceutical industry is either one extreme or the other. The more expensive the drug the more profit but the higher overall costs in general may reduce the buying power of baby boomers who no longer earn a regular paycheck. The current law requires insurance companies to cover all drugs in certain categories and some in all others which does not persuade insures to favor cheaper drugs. Also, an additional road block for customers of the pharmaceutical industry is the negotiation power of the government, current law Congress prohibits this from happening to establish lower costs for

“In Porter’s five forces, supplier power refers to the pressure suppliers can exert on businesses by raising prices, lowering quality, or reducing availability of their products.” (Wilkinson). When it comes to the drug store industry, pharmaceutical companies dictate the prices causing there to be a high switching costs for Walgreens. According to Bell, 55.7 percent of suppliers feel they are not in an equally beneficial relationship, this is indicative of retail pharmacy buying power. (Bells). Overall, Walgreens would not be affected by the loss of one supplier and therefore there this is a low