Friday, September 22, 2006

Wal-Mart's $4 Plan Has Double Silver Lining

Wal-Mart announced a plan to offer a long list of generic drugs at the low cost of $4 beginning with a test market in Florida. The TV news coverage has focused mostly on Mr. & Mrs. Average American, talking about how much they will save. Generic drugs generally retail at $10-$30.

It is unclear if Wal-Mart has negotiated a lower price with it's suppliers, or if this is a loss leader to clean up it's tarnished image and bring more customers to it's pharmacies.

Little attention has been paid to the effect this will have on Wal-Mart's competitors. Many independent pharmacies, who are hanging on by a thread, will likely suffer from this move if it is instituted across the country.

The Washington Post reports immediate repercussions for chain pharmacies:

Wal-Mart's announcement roiled the retail drug industry. Shares of Walgreen Co. and CVS Corp., two large drugstore companies, fell more than 7 percent and 8 percent, respectively.

The end result of such a program could be to drive the majority of pharmacy competitors out of business, thus making Wal-Mart the supreme retailer. Has a nice ring, doesn't it?

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