Grocers’ Dependence on Pharmacy Sales Proves Troublesome

For many years, pharmacies have been a key feature of American supermarkets, attracting customers inside and boosting grocery sales as customers pick up their medications. Additionally, the presence of a pharmacy can enhance a supermarket’s brand image, associating it with health and wellness amidst a fiercely competitive retail environment. Despite the clear benefits pharmacies bring to the grocery sector, the symbiotic relationship between food and medicine is now facing a challenge. A significant concern is recent legislation designed to lower drug prices, which is now denting the pharmacy revenues of supermarkets.

The new law, the Inflation Reduction Act, has drawn attention to the heavy reliance of supermarkets on their pharmacies for growth. Albertsons, a leading grocery retailer, illustrated this connection when it posted strong pharmacy sales growth in the third quarter of fiscal 2025, contributing to a 2% year-over-year increase in comparable store sales. However, the picture changed dramatically by April with the Inflation Reduction Act implicating a significant decrease in pharmacy business, and thus, dragging the fourth-quarter comparable sales to below 1%. Albertsons also projected flat same-store sales for fiscal 2026, attributing the unspectacular forecast to pharmacy reimbursement pressures.

Albertsons is not alone in feeling the sting. Many other grocers have also identified the Inflation Reduction Act as a cause of their financial woes. The law’s impact was reflected in Weis Markets’ first fiscal quarter report, which noted a decline in pharmacy sales despite an overall revenue increase of nearly 5%. Similarly, Publix acknowledged that its sales were hampered by the drug price law.

Grocers are not only dealing with dwindling pharmacy sales but also grappling with the complex economics of selling medicine. Some supermarkets, such as Schnuck Markets and Lunds & Byerlys, have decided to exit the pharmacy business altogether. Other retailers are wary of the impending fallouts expected in 2027 when prices for another 15 drugs, including popular medications like Ozempic and Wegovy, will come under the jurisdiction of the law.

Further complicating matters, the changes to pharmacy reimbursements are occurring at a time when grocers’ reliance on pharmacy sales has intensified. Albertsons, for instance, saw its pharmacy department account for 7.4% of total sales in 2020, a figure that has steadily increased and almost doubled by the company’s latest fiscal year. While Albertsons’ total revenue in fiscal 2025 grew by 19% compared to fiscal 2020, its pharmacy sales more than doubled over the same period, highlighting the essential role of the pharmacy business.

Similarly, Kroger witnessed a rise of roughly 11% in total sales between fiscal 2020 and fiscal 2025, totaling around $148 billion. Notably, Kroger’s pharmacy sales surged by nearly 60% during that period. Kroger attributed its fourth-quarter comparable sales, recorded at 2.4%, to pharmacy sales, digital and fresh sales. The true impact of the law on its results will be clearer once the company releases its first-quarter earnings.

Looking ahead, the path for grocers is expected to become even more challenging as the Centers for Medicare and Medicaid Services plans to negotiate prices for an additional 15 drugs in 2028. More than four years have passed since the Inflation Reduction Act was enacted, leading to some essential inquiries: with such advance notice, could grocers have better prepared for the potential turbulence in pharmacy sales? And why have they increasingly relied on sales growth from a department that carries so much potential for turmoil?