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A new study by Retail Forward says that while the drug store channel has demonstrated remarkable resilience amid a continued weak economy and intense competitive pressures, sales growth in 2002 was largely attributable to booming prescription drug sales and moderate inflation, largely associated with rising drug prices.

The key driver for continued growth in this channel, according to Retail Forward, is an expanding pharmacy business.

Retail Forward’s five-year forecast calls for drug store sales to grow at a rate of 6.7 percent annually, or 3.5 percent after adjusting for inflation. While projected growth is moderating from the torrid 9.1 percent annual pace of the last five years, the drug store channel is in better shape today than it was a year ago. Improved profits, restructuring activities, and higher gross margins are painting a positive performance picture for the sector.

“It’s a good time to be in the pharmacy business,” said Sandy Skrovan, Retail Forward VP and author of the company’s recently released Drug Channel Industry Outlook report. “Pharmacy sales are growing at a feverish pace and forecasts call for double-digit gains in prescription drug sales over the next five years."

According to the study, drug stores will further leverage their strength in pharmacy to cater to America’s growing health care needs. “Players will continue to explore ways to move pharmacy beyond dispensing drugs into a new realm of integrated patient care and wellness initiatives,” Skrovan said.

In contrast to the booming pharmacy business however, intense competition and pricing and margin pressures continue to threaten the drug store’s front-end categories. “Drug stores remain challenged by sluggish front-end sales,” Skrovan said. "However, players are taking aggressive steps to revitalize the business, drive traffic, and bolster cross-selling opportunities," including the creation of loyalty marketing programs, deployment of category management technologies, marketing to people's lifestyles, and expansion of private label product lines.

“Over the next five years, we expect accelerated store expansion efforts as drug chains seek to capture a fair share of the high-growth pharmacy business,” Skrovan said. “Drug stores will increasingly leverage their pharmacy expertise to establish more consumer touch points and fulfill more of the health and wellness needs of an aging America.”
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