Fred’s eyes smaller box concept, specialty solution to grow pharmacy business

During Fred's third-quarter earnings call, the company told analysts it was testing a new, smaller format drug-dollar store concept and that its partnership with Diplomat was creating new clinical capabilities for the chain, which still sees pharmacy as a major growth opportunity. 

The more Memphis-area patients continue singing those Delta blues, the more they're going to be scuffling through Fred's doors in their blue suede shoes. Effectively serving that economically-challenged patient is just one reason why Fred's third-quarter call this week should resonate across the industry. Because Fred's is in pursuit of two trends that are critical to its future — a specialty pharmacy solution that gains Fred's entree into the only growth-game in pharmacy, and an answer to its big-box competitors with a small-footprint, dollar-store/pharmacy hybrid. 

According to Centers for Disease Control and Prevention statistics, between 2009 and 2010, the prevalence of two or more chronic conditions for adults ages 45 to 64 years was more than twice as high among those living in poverty as among those at 400% or more of the poverty level. The disparity for those over 65 years was less drastic — 50.9% of seniors living below the poverty level had two or more chronic conditions vs. 39% of seniors at 400% or more of the poverty level. 

But here's the clincher — most patients over the age of 65 will be covered under Medicare plans. For those who aren't, and for low-income patients, they'll be covered under Medicaid. If Fred's is reaching and catering its mix to value-consious shoppers, then they may have greater penetration among a Medicaid patient population, the rolls of which are set to expand in 2014 as part of the Patient Protection and Affordable Care Act. 

So Fred's is engaging a higher-touch, greater-prospective-growth business through Diplomat and more of the company's core consumers may be eligible for specialty pharmaceutical coverage come 2014. 

Fred's, of course, isn't the only forward-looking retail pharmacy operator who realizes the value of having a strong specialty pharmacy acumen — Kroger just last week acquired its own specialty pharmacy in Axium Pharmacy Holdings. And in last week's fix, DSN's Alaric DeArment explained how more retail pharmacy operators are banking on specialty as to where the pharmaceutical money will be. 

Not to be overlooked is Fred's development of a new retail format that will better fit into smaller markets, where Walmart and other big-box retailers likely aren't, and still address the company's value-consious consumer base. While most economically-challenged consumers are considered value-conscious consumers, not all value-consious consumers are economically challenged. That may explain why two-out-of-three shoppers regularly visit a dollar store when they're out and about running their errands, according to a recent SymphonyIRI Group report. 

And Fred's isn't the only value-driven retailer eyeing pharmacy. Dollar Tree has been piloting a third-party pharmacy in Florida under its Deal$ banner and Family Dollar has been increasing its sway in health and beauty care. Can pharmacy be too far behind for Family Dollar? They haven't committed to any public disclosures, but this is what president and COO Mike Bloom had to say in October: "Our customer research indicates that our customers over-indexed in 18 of the top 20 ailments affecting the U.S. population. Many of our customers do not have health insurance, so we are providing them with more solutions to take care of themselves and their families. We are encouraged by the early results in these categories, which typically take longer to ramp up."

What do you think? Can a full-fledged national dollar channel pharmacy be too far behind?