JANUARY 2024 IN
RICK ASTER’S WORLD
It’s no secret that the U.S. pharmacy sector has been struggling for years, but the current Rite Aid bankruptcy has put the exclamation point on this trend.
In a way, the state of the pharmacy sector is a repeat of the Radio Shack story. Why are there so many stores? Investors in Radio Shack were counting on consumers always having a need for the cables to plug one thing into another. To the investors, the prospect for growth in this area looked like a sure bet. The trend toward more gadgets had been building for a lifetime. It was two countertrends in product design — standardization and durability — that left the stores so empty that they eventually had to close.
In a similar way and around the same time, pharmacy looked like a sure thing to many investors. The country would have more old people than ever, and old people were taking more and drugs at higher and higher prices. The surge of pharmacy growth around the 1990s was intended to position retailers ahead of this trend.
Yet defying expectations, pharmacy sales are actually declining, and hundreds of locations have been forced to close. Life expectancy is also declining in many population groups.
What is happening is a cultural split in the view of health. One group is taking charge of their health and lifestyle, exercising more, eating better, reducing life stress, and looking for their own solutions to health concerns before things get serious enough to seek medical attention. This group is also starting turn away from some of the more toxic food ingredients that had been mainstays of U.S. food manufacturing since 1980 and a cause of much of the chronic illness among adults during that period. This first group is living longer, as investors expected, but they are not reliable consumers of drugs.
The other group is focusing on distraction rather than lifestyle improvement. This group is experiencing more illness and taking more drugs, as investors expected, but they are not living longer. The combined toxic load of lifestyle and drugs has them dying, on average, at a younger age than their parents, a trend reversal previously never seen in U.S. history.
The investor error was in combining the trends of longer life and greater illness. It wasn’t the most sensible expectation in hindsight. By ordinary logic, multiple chronic illnesses generally don’t lead to the kind of healthy life that allows a person to live a long time.
The impressive thing is how much power the lifestyle trends have on people’s health. If you ask a consumer whether they are living a healthy lifestyle, many will say no — yet they might have reduced their body weight by 4 percent and stopped consuming beer, fries, and cigarettes. Or they have taken up running, but run for only 20 minutes a week. They feel like they have not done enough, yet these small changes could be enough to sidestep two decades of inflammatory illnesses and the associated drug purchase.
Rite Aid will likely be closing another 100 locations during its current bankruptcy. More locations will close across the pharmacy category until the sector has shrunk to a size that consumers can support. As long as more consumers are taking charge of their own health, the scale of the pharmacy sector will have to keep shrinking.
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