From...

December 22, 1998
Web posted at: 10:20 AM EST

by Sharon Machlis

(IDG) -- Two new Internet ventures are betting that consumers will replace some trips to the local pharmacy with orders on the Web.

"The drugstore is going to be the next great battlefield in E-commerce," said Kevin Werbach, managing editor of the computer industry newsletter "Release 1.0" in New York.

The ventures are hoping that convenience, pricing and selection will encourage people to order prescriptions -- as well as other medical, health and personal-care products -- online. "It's the sweet spot of the drugstore," said Stephanie Schear, vice president of business development at PlanetRx Inc. in South San Francisco, California.

The challenge lies in persuading consumers to put potentially sensitive medical data on the Internet and give up face-to-face meetings with pharmacists, said Derek Leckow, an analyst at Barrington Research Associates Inc. in Chicago.

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"Customers want to go where they get the highest level of service," he said. "The pharmacist has become an important health consultant for many people."

Few people comparison-shop for prescription medicines, so the market isn't particularly price-sensitive.

Who are the likeliest early adopters? People with chronic illnesses who must refill prescriptions regularly -- and thus don't have any more questions about their medications, Werbach predicted.

Both PlanetRx and Drugstore.com will probably go live on the Web within months. Drugstore.com declined to comment on its plans, but industry watchers expect its site to launch next month. PlanetRx officials said they will go live early next quarter.

Each has attracted some experienced management talent. PlanetRx is headed by Bill Razzouk, a former top executive at Federal Express Corp. and president of America Online Inc. Drugstore.com, based in Redmond, Washington, is led by former Microsoft Corp. vice president Peter Neupert, who helped launch MSNBC and the online magazine Slate.

Demographics are making this market increasingly attractive. Still, with pharmacy retailing expected to boom in the next decade as the U.S. population ages, Leckow said "that translates into opportunities for other niche players." There already are small sites that offer prescriptions on the Web.

Online shoppers will spend only about $8 million this year at health and beauty products sites, according to Jupiter Communications Inc. in New York. However, that's expected to grow to $65.5 million next year as new sites come online.

A number of large companies offer prescriptions by mail, including Merck-Medco Managed Care LLC in Montvale, New Jersey, a subsidiary of pharmaceutical giant Merck & Co. Merck-Medco began allowing prescription refill requests on its Web site in March. Although the company won't release specific figures, a spokeswoman said site use has been growing about 46% per month since July.

Walgreen Co. in Deerfield, Illinois, one of the nation's largest retail drugstore chains, has been offering prescription refill requests on the Internet since January. However, the refills still must be picked up at the local store -- which helps to drive foot traffic and encourage other purchases.

Ordering refills online has been "a little more popular than we thought it would be" and continues to grow, a Walgreen spokesman said. But it remains a "very tiny percent" of its overall prescription business, he said. The company also doesn't disclose figures about its site, but Leckow estimated that 40% to 50% of Walgreen's annual $15 billion sales come from medications.

While Internet ventures are unlikely to make a dent in overall brick-and-mortar drugstore revenue for the foreseeable future, Werbach said the industry nevertheless should pay notice. "If the Web cherry picks off the more lucrative customer, you're in trouble even if you're not necessarily losing a majority of your business," he said.