Wal-Mart Goes Generic

Though I've found the whole Hewlett-Packard story interesting, I find the seemingly more mundane announcement that Inside Value selection Wal-Mart (NYSE: WMT  ) will begin selling 291 prescription drugs for $4 a month more fascinating -- mainly because of the domino effect it could have.

The plan Wal-Mart has laid out will offer 291 generic prescription drugs for $4 a month to anyone with a prescription that visits one of the company's stores in the Tampa, Fla. area. In January the company plans to roll the program out to all of its stores in Florida and will continue to roll it out to as many stores as possible next year. Perhaps the best angle of the program is that $4 is the price whether a customer is insured or not. All you need is a prescription.

This is an obvious boon for both senior citizens and the uninsured. The program will, of course, benefit Wal-Mart by creating additional traffic in its stores, which should lead to additional sales of its other products. However, I don't think there will be much in the way of extra profits from the sales of the prescription drugs themselves.

Initially this should hurt some of Wal-Mart's direct competitors, though I expect Target (NYSE: TGT  ) and Costco (Nasdaq: COST  ) will soon follow suit (Wal-Mart is offering the program in its Sam's stores as well). The biggest pain should be felt by Walgreen (NYSE: WAG  ) , CVS (NYSE: CVS  ) , Rite-Aid (NYSE: RAD  ) , and other drug stores, as most of them derive 60% to 70% of their total revenue from pharmacy operations. This announcement only effects the generic portion of the pharmacy business, but I know I'll be asking my doctor if a generic prescription is an option next time around.

The other interesting angle in the press release is Wal-Mart playing up how good of a corporate citizen it is. I know this is a divisive topic, so I won't dwell on it for long, but selling stuff cheap and selling a lot of it is what Wal-Mart does best, and we all benefit from it in one way or another. That doesn't mean everyone has to love Wal-Mart, but in the big scheme of corporate citizenship I can name many far worse. Whether you agree with the company or not, you can expect it to continue to play up its positive role in our society.

All we can do now is see how the program shakes out and look for reports on increasing traffic to Wal-Mart's Tampa-area stores. Though the program only includes 291 drugs to start, it's reasonable to assume that other generics will be added if the program is successful. This move could change the game for a number of retailers over the next few years, especially the pharmacies.

Wal-Mart is a Motley Fool Inside Value recommendation. Costco is a Stock Advisor selection.

At the time of publication NathanParmelee owns shares in Costco and has a beneficial interest in shares of Wal-Mart. The Motley Fool has an ironclad disclosure policy.


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9/30/2014 4:03 PM
WMT $76.47 Up +0.39 +0.51%
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