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The Generic (Dis)Advantage To Drug Stores

|Includes: CVS, Rite Aid Corporation (RAD), TGT, WBA, WMT

The ubiquitous drugstore is a fixture in both the urban and small town landscape. While the general merchandise, health/beauty, over the counter drug segments and other services of a drugstore's revenue is a sizeable piece of the pie in many cases; prescription pharmacy sales are the mainstay of the business. Some of the major drugstores such as Walgreens, CVS, Rite Aid, etc., stand to benefit (and already have to some extent) from the expiration of several big brand drug patents. The introduction of drugs previously under these brand patents as generic brands is an opportunity for margin improvement for these drug stores, as generic brands offer better margins even though their overall price point is lower resulting in lower top line revenue. While this is an opportunity for companies such as Walgreens, CVS and Rite Aid, I think it also opens up doors for fiercer competition from mass retailers such as Wal-Mart and Target. Given that these large retailers are able to utilize economies of scale and great supply chain management to offer generally lower prices on their merchandise, the chance to bring a cheaper generic alternative than the competing drugstores could entice their customers away and be something for them to worry about…

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I am a self taught individual investor and this article expresses my views based on my own research. I am not being influenced or paid by any organization to write this article.