Dive Brief:

• CVS Pharmacy will acquire 99 pharmacy locations from Schnucks Markets along with the prescription files from 11 other locations, the companies announced this morning. Terms of the deal, which is expected to close at the end of the second quarter, were not disclosed.
• The acquired Schnucks locations will all be rebranded under CVS Pharmacy, with in-store changes taking place over several months following the closing of the transaction. The 11 Schnucks pharmacies transferring files to CVS will close, the St. Louis Business Journal reported. Schnucks operates 112 stores in Missouri, Indiana, Iowa, Wisconsin and Illinois.
• “As Schnucks continues to expand our emphasis on health and wellness, this collaboration with CVS is an opportunity for us to align with a company that has a similar focus,” said Todd Schnuck, chairman and CEO of Schnucks. “This partnership allows us to continue to provide quality pharmacy services to our customers in a manner they've come to expect.”

Dive Insight:

Schnucks joins a string of regional grocers that have closed or sold off their pharmacy business in recent years. With prescription reimbursement rates falling and chains lacking the size to negotiate better deals, and with more and more consumers getting their prescriptions via mail, the economics of the business have become increasingly difficult.

Grocers are also struggling to compete with national chains CVS and Walgreens, which collectively account for around 40% of U.S. prescription revenues. In addition to offering better rates, these chains are remodeling their stores to offer enhanced clinical and specialty services for customers, particularly those with chronic health conditions.

Schnucks has also built enhanced pharmacies. Last spring, the company opened a specialty pharmacy that catered to a range of conditions, from cancer to genetic disorders. But this was just the Midwest chain's ninth specialty location.

Last fall, Raley's closed 27 of its 96 pharmacies, while Minnesota grocer Lunds & Byerlys closed all 14 of its locations. In 2017 Marsh Supermarkets, now owned by SpartanNash, closed all of its pharmacies.

Large retailers like Kroger have also struggled with pharmacy sales. Kroger's executives, however, noted in the company's latest earnings call that the business is improving and that the company plans to further integrate its grocery and health business. In addition, CVS acquired Target's pharmacy business in 2015, in a deal that included more than 1,600 locations across 47 states. 

Grocers built up their pharmacy business over the past few decades as a way to drive store traffic and deepen customer loyalty. Surveys show grocery pharmacies have a high level of shopper satisfaction, but chains are closely scrutinizing their operations these days as competition tightens and margins come under pressure.  

In Tuesday's release, Schnucks touted CVS' breadth of health services and streamlined systems as a benefit for its shoppers. The grocer's pharmacy staff will have to reapply for positions at the CVS locations, with the pharmacy chain saying it will interview all Schnucks pharmacists and pharmacy technicians that apply.