Healthcare Goes Retail

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\"RRSupermarkets haven’t been the first kids on the block to notice the obvious. Here’s one mega-trend supermarkets missed: Americans’ recognition of the strong linkage between what they eat and their health.

For the longest time, mainstream supermarket retailers failed to notice that health concerns were giving rise to consumers’ preference for natural and organic food. So they left a niche for specialty retailers, such as Whole Foods, to have the category all to themselves and to reap some pretty nice profits.

That’s changing now as more and more supermarket chains enter the natural and organic line of business themselves. The big retailers are enjoying rapid success because they offer much lower price points than the specialty outlets. Whole Foods also took a short-term hit because of publicity surrounding product overcharges in New York City. As a result, Whole Foods’ comp sales are dipping into negative territory. In a response of sorts, Whole Foods intends to open a separate off-price banner to lure new consumers.

Far more ominously, the Fresh Market chain of about 180 stores, and something of a Whole Foods knockoff, is seeking to sell out. Similarly positioned specialty retailers such as Mrs. Green’s Natural Market and Fairway Market aren’t doing so well either.

Opportunity Knocks

For traditional retailers another health-related trend is rapidly developing, and this time, supermarkets are stepping up.

Here’s the situation. Now, more than ever, consumers are taking action to proactively manage their healthcare, principally through simple preventative measures such as inoculations. They’re also moving toward seeking immediate treatment of minor maladies, such as colds and the care of minor wounds, which previously they might have ignored. Why? Because they can. The Affordable Healthcare Act has resulted in a significant drop in the numbers of uninsured people. So the opportunity to obtain decent care is a new reality for many consumers.

At the same time, many of these aging and newly insured consumers can’t afford, or don’t want, an expensive personal physician. Worse yet, in many parts of the country there’s an acute shortage of primary-care physicians. That leaves the emergency room as an option, but many don’t want to go there for non-critical situations.

In short, there are plenty of reasons for consumers to look around for alternative healthcare delivery.

That means there’s a big opportunity for retailers to cater to preventative-care customers. Supermarket, drug and mass retailers are moving in that direction by offering in-store, walk-in clinics. These clinics appeal to the new healthcare consumer: they’re readily available, highly visible, affordable and they don’t require an appointment.

Supermarkets As Healthcare Providers

When a trend has a natural synergy, the results can be game changing. Supermarkets, considering their new focus on healthful foods and their long history of operating in-store pharmacies, are uniquely positioned to enter the healthcare business with in-store clinics.

Kroger offers The Little Clinic. Typically these clinics are staffed by nurse practitioners and physicians’ assistants. They offer vaccinations and treatment of common conditions, such as ear infections, strep throat, influenza and the like. The practitioners conduct school and sports physicals, health evaluations and recommend fitness programs. They also write prescriptions.

Kroger is considered to be one of the nation’s largest providers of in-supermarket clinics. And as an indication of the growth potential of the clinic concept, it has just 155 clinics, yet operates more than 2,600 supermarkets.

Many other supermarket chains have at least a few in-store clinics. In most instances, the approach is tentative and intended to test the clinics’ success. Those chains include Shop-Rite, Giant Food, Hy-Vee, Price Chopper, Albertsons, Publix and Roundy’s (Kroger is acquiring Roundy’s).

Some of these clinics are operated by outside vendors. In other cases, the retailer itself operates the clinics, or starts with an outside vendor and later moves to in-house ownership. Kroger followed the acquisition path by acquiring the operator of The Little Clinic. At the time, Publix also operated The Little Clinic branded in-store clinics. After Kroger’s purchase, Publix dropped the affiliation and now offers several services of a clinic in its own pharmacy departments.

In another related venture, Kroger is expanding its footprint with the recent acquisition of vitacost.com, an online retailer of vitamins and supplements.

Safeway’s Misadventure

Using an outside clinic facilitator isn’t always the best idea, as Safeway found out in a big way. About three years ago, prior to the time of Safeway’s recent acquisition by Albertsons, Safeway spent $350 million constructing clinic spaces in 800 of its stores to be operated by Theranos. That healthcare startup claimed the ability to do full blood tests by means of a finger-prick blood spot instead of the traditional vein-draw method. It also claimed to be able to deliver results to clinic clients immediately, on the spot.

Sadly, Theranos over reached. Finger-prick blood tests were said to yield wildly inaccurate results. And they had to revert to the traditional vein-draw method, with results delivered from outside labs. Safeway is now winding down its relationship with Theranos and using the in-store spaces mainly to offer vaccinations. This is quite a disaster. Astonishingly, Safeway spent more than half its entire 2013 profit on construction of these in-store clinics.

The contagion spreads: Walgreens has put its Theranos operated clinics on hold until it can validate and stabilize its methods.

Big Boxes Scale Up

Walmart, as we would expect, offers Care Clinics. Initially, Walmart leased store space to third-party clinic operators. Now, the Care Clinics are transitioning to in-house operation.

Target, meanwhile, has sold all 1,600 of its in-store pharmacies and its 80 in-store clinics to drug chain CVS for $1.6 billion. The pharmacies and clinics will remain in the Target stores, but will be rebranded as CVS.

In yet another health-care permutation, several supermarket chains operate pharmacies in hospitals. Included are Meijer in Michigan, Schnucks in Illinois, ShopRite in Pennsylvania and Albertsons in California. The idea is to migrate pharmacy customers from the one-time hospital use to the supermarket pharmacy.

Urgent Care Retailers

Not all retail-based healthcare facilities are operated by heritage retailers. Some are retail brand owners themselves. Those are the Urgent Care facilities operated by companies such as Concentra, Dignity/U.S. Healthworks, MedExpress, American Family Care/DRX and NetCare, among several others.

These facilities are basically privately operated emergency rooms. Most have at least one full-time physician on staff. In addition to offering similar to in-store clinic services, Urgent Care facilities also treat fractures, sprains, wounds and the like. Imaging is available as needed. No appointment is needed; service generally is rapid.

Retail Healthcare Lessons

The big lesson for retailers who are moving toward clinics — especially retailers selling food — is to be honest about what business you’re really in.

If you’re a watch retailer, are you in the timepiece business or the accessory business? If you’re a wholesale distributor, are you in the business of delivering products, or are you a logistics facilitator? If you’re a sports-apparel marketer, are you promoting a brand or selling a lifestyle?

So for supermarkets and food retailers, are you in the mass-feeding business, or the healthcare business — or some of both?

Alternative healthcare delivery is a huge business. Macy’s is placing 500 Lens Crafters optical stores in its department stores during the next three years. It’s not a huge leap of faith to envision Macy’s and, by extension, other department stores, to trot out a few healthcare line extensions. Clinics perhaps?

On another note, here’s a new trend: Urban Outfitters’ acquisition of the Vetri Family chain of Italian restaurants.

What’s next? Farmers’ markets ensconced in specialty apparel boutiques? Health foods and supplements sold at upscale beauty boutiques?

The lines are blurring. What business are you in?

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