Bitter Pill

Bitter Pill

After four decades, Lunds & Byerlys exits the pharmacy business for good.

In 1980, legendary Twin Cities grocer Don Byerly built a pharmacy in his new St. Louis Park store—the one with the crystal chandeliers and carpeting that I showed off to my parents when I moved to the Twin Cities in 1981. (I lived in St. Paul, but it was a spectacle that I thought would convince my folks I wasn’t living in a cow town.) It would be the beginning of a four-decade pharmacy flirtation between Byerlys and its successor company, Lund Food Holdings Inc.

That dalliance evolved into a full-fledged operating division, but despite the decades and effort involved, Lunds & Byerlys decided to get out of the pharmacy business in July at the dawn of its fifth decade, to the chagrin of the 1 percent of its customers (including my family) who relied on some of the last remaining pharmacies in the Twin Cities where you could speak to pharmacists without being vetted by gatekeepers.

“We gave it an honest try,” says LFHI CEO Tres Lund, with typical understatement.

After Don Byerly opened his SLP pharmacy, Lunds entered the business in four stores via a 1999 partnership with Fairview that ran until 2004, when the founders of PrairieStone Pharmacy rolled out what Lund calls the “most compact, technically forward pharmacies in the grocery space.” They leased space in most of the L&B stores, but two years later PrairieStone was bought out and LFHI took over those pharmacies and has operated them for over a decade.

We’ve loved being a community pharmacist. We gave it an honest effort. If there was a magic bullet, we would have found it.

—Tres Lund, CEO, Lund Food Holdings Inc.

I’ve lived in the Twin Cities for 38 years and done business with three pharmacies: Bober Drug in St. Paul, Burch Pharmacy in Minneapolis, and Lunds & Byerlys. LFHI is leaving the business because it’s notoriously difficult to make money in the prescription drug game. Independent pharmacies were hit first and hardest, but now it’s a struggle even for diversified grocers that are less focused on scrip profits than on deeper relationships with existing customers and attracting new customers (who will purchase food and higher-margin health and beauty items along with their prescriptions).

Lund says industry estimates were that pharmacy customers spend an additional $1,000 a year with a grocery store. But that didn’t make up for the fact that L&B pharmacies were labor-intensive and dipped in and out of the red from year to year because the business is so volatile.

LFHI purchased the prescription files of two Snyder Drug Stores in 2009 to try to bulk up, bringing Snyder executive Jodi Robinson along to manage the L&B pharmacies in 2010. Robinson places the hardship at the feet of pharmacy benefit manager (PBM) businesses. They decide which drugs insurers will pay for, how much they will pay, and even pioneered $4 generics.

A $4 generic has no margin for a pharmacy, particularly smaller-volume operations like L&B and the handful of remaining indies. PBMs can even “claw back” payments to pharmacies if doctors select drugs PBMs don’t approve of.

“We were trying to be care providers with services,” says Robinson, “but we’d been doing it for free.” Because of HIPAA regulations, LFHI kept its pharmacy and grocery databases separate, so it has rather paltry data on its pharmacy customers’ broader consumer behavior in stores. And when it came time to decide “where to put our strategic time and effort,” says Lund, “the trends in pharmacy were not positive.”

Lunds’ exit from the business appeared rather rushed. News showed up in the media five days before the outlets shuttered, and my family received a notice in the mail post-closure. Lund says LFHI sold L&B’s prescription database to Walgreens because it had the greatest number of local job openings to absorb the several dozen pharmacists and techs working at L&B, and it agreed to interview them and honor their years of service. Walgreens also had locations proximate to many L&B pharmacies.

I decided instead to find an independent pharmacy or one that was small enough where it was simple to talk to a pharmacist without gatekeeping staff. We landed at HealthPartners’ pharmacy in St. Louis Park, figuring an integrated health insurer/care provider will have some staying power and leverage in the business and would lack the impetus to provide big-box-style staffing models that keep customers from pharmacists.

But I can’t say I’m optimistic that we won’t eventually be left with only the big boys, as they have the buying power and leverage to hold their own against the PBMs. CVS even owns one. Amazon and Berkshire Hathaway are also working on disruptive changes to the model, says Lund. It’s another harbinger of change in health care that seems, on its face, less than human-scale.

LFHI still hopes to serve customers interested in homeopathic remedies and “functional” foods, perhaps with an eye on keeping them healthier and off prescription drugs. “We’ve loved being a community pharmacist,” says Lund. “We gave it an honest effort. If there was a magic bullet, we would have found it.”

Adam Platt is TCB’s executive editor.

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