In the United States, the words "pharmacy" and "drugstore" are used interchangeably, though the latter label often suggests a store that sells prescription medications and other products. What a business chooses to call itself often depends on what additional products, if any, the business sells besides pharmaceuticals.
Products for Sale
The term "pharmacy," when referring to a business, means a place where medications are dispensed and sold, or both. A drugstore, on the other hand, may be set up as a "convenience store," according to BBC America. Drugstores may sell cosmetics, toiletry items, first-aid supplies and patent medications, such as nonprescription cold medicines. Many drugstores sell greeting cards, gift cards and magazines. In addition, soft drinks, adult beverages, breakfast cereal and milk are common drugstore items.
Not all pharmacies are part of a drugstore. For example, several department store chains have pharmacies, as do several major supermarket chains. Most hospitals and many health clinics have pharmacies on the premises. In a health-care service setting, however, the pharmacy will not typically carry items you would find in a drugstore, such as paperback books, electronics and batteries.
A 2013 investigation by "Consumer Reports" shows that among the major pharmacy chains, generic medication prices vary considerably. Taking into account that independent pharmacies earn approximately 90 percent of sales from prescription drugs, this pricing strategy is critical to the pharmacy owner -- first, so the business avoids pricing itself out of the market and, second, so it earns as much profit as the market will allow. Comparatively, 65 percent of sales come from prescription drugs at large chain drugstores. The other 35 percent comes from sales of retail merchandise. One benefit of operating a drugstore is the ability to diversify product lines. But this means the drugstore business must compete not only with other drugstores in the area but with department stores and supermarkets as well.
Overhead for pharmacies, just in medicine inventories alone, is considerable, and an ample operating margin is required to conduct business in all types of economies. Retail sales of general merchandise in a drugstore are more susceptible to economic downturns than prescription drug sales are. Proper inventory management is crucial, especially for prescription drug inventories, as the biggest customer complaint about the retail drug industry is medication not being in stock and needing to go to multiple businesses to get a prescription filled. This problem is more prevalent in supermarket pharmacies.
In the two decades from 1992 to 2012, gross margin for the drugstore/pharmacy industry was stable, averaging 25.3 percent, according to U.S. Census Bureau data. Larger chain stores did slightly better than independent pharmacies. This is attributed to the ability of larger chains to acquire drugs at lower costs. Profits continued to rise for independent drugstores/pharmacies in 2013, with the independent owner earning an average of $247,000. As Value Line notes, the graying of the baby boomer generation is expected to contribute to ongoing growth in pharmaceuticals.
- BBC America: 6 Differences Between American ‘Drugstores’ and British ‘Chemists’
- Consumer Reports: Best Drugstores
- Drug Channels: Once Again, Government Data Show Rising Drugstore Industry Profits
- Drug Channels: Profits up Again for Independent Pharmacy Owners
- Value Line: Industry Analysis -- Pharmacy Services
- Value Line: Industry Analysis -- Retail Store
Vicki A Benge began writing professionally in 1984 as a newspaper reporter. A small-business owner since 1999, Benge has worked as a licensed insurance agent and has more than 20 years experience in income tax preparation for businesses and individuals. Her business and finance articles can be found on the websites of "The Arizona Republic," "Houston Chronicle," The Motley Fool, "San Francisco Chronicle," and Zacks, among others.