Walgreens is the second-largest pharmacy store chain in the United States, with over 9,000 locations dispensing prescriptions and selling convenience products. Despite its ubiquity, Walgreens is consistently ranked as one of the most expensive places to fill prescriptions and buy everyday goods. A recent price comparison by Consumer Reports found that Walgreens charged the highest prices for common medications, with prices up to 55 times higher than those at discount pharmacies. So why exactly is Walgreens so expensive? Here are ten key reasons.
1. Lack of Government Regulation Allows Price Gouging
Unlike many other developed countries, the U.S. federal government does not regulate prescription drug prices. An analysis by the RAND Corporation found that American drug prices are 2.56 times higher than those in 32 other countries. Without price controls, pharmacies like Walgreens are free to set exorbitant prices, especially for brand-name medications that lack competition from generics. The only government oversight comes through programs like Medicaid and Medicare, which can negotiate discounted rates. But for the millions of uninsured Americans, Walgreens faces no limitations on how much it can upcharge.
2. Customers Pay a Premium for Convenience
One of Walgreens‘ biggest selling points is convenience. 78% of the U.S. population lives within 5 miles of a Walgreens, and most locations are open 24 hours a day, 7 days a week. By saturating the market and offering round-the-clock service, Walgreens has made itself the default option for many pharmacy customers. However, this convenience comes at a cost. Walgreens knows that customers will pay more for easy access and short wait times. "Convenience has a price, and Walgreens is not convenient by accident," said GlobalData Retail analyst Neil Saunders. "They put a lot of money into that convenience in terms of location and long opening hours, which inevitably means they have to charge higher prices to make it work."
3. The Uninsured Subsidize the Insured
Walgreens‘ sky-high prices hit the uninsured hardest. While insurance companies negotiate discounted rates for their members, those paying out of pocket bear the full brunt of Walgreens‘ markups. A U.S. PIRG Education Fund analysis found that uninsured patients pay up to 14 times more than the federal government for prescription medications at Walgreens. These inflated cash prices essentially subsidize the cheaper rates insurers have leveraged, allowing Walgreens to preserve its margins. "Walgreens and other pharmacies are able to hide behind the insurance companies and say, ‘At least you didn‘t pay full price,‘" said U.S. PIRG consumer watchdog Adam Garber. "But what they don‘t say is that they are making the uninsured pay an extremely high price to make up the difference."
4. Loyalty Program Locks In Customers
To offset its high baseline prices, Walgreens heavily promotes its Balance Rewards loyalty program, which offers points and discounts for frequent shoppers. Members earn 10 points per dollar spent on most purchases, redeemable for up to $50 off future orders. Walgreens also regularly offers Balance Rewards promotions like bonus points or $5-$10 off coupons. While these deals provide some savings, their real purpose is to keep customers continuously coming back to Walgreens, even if competitors offer lower prices. "The higher prices at Walgreens are baked into the Balance Rewards model," said retail analyst and author Georganne Bender. "You may get 5,000 points for filling a prescription or bonus points for buying certain items, but those discounts are built into the higher starting prices."
5. Lack of Purchasing Power Compared to Specialists
Outside of the pharmacy, Walgreens is essentially a general store, carrying everything from groceries to electronics to office supplies. But in these non-pharmacy categories, Walgreens lacks the purchasing power of more specialized retailers. Stores like Best Buy can leverage bulk discounts from electronics manufacturers by ordering larger quantities than Walgreens ever could. The result is that Walgreens pays more to stock the same products as the specialists, forcing it to charge higher prices to preserve its margins. A 2019 Deutsche Bank analysis found that a basket of typical Walgreens goods was 37% more expensive than the same items at Walmart.
6. Supply and Demand Allows Price Hikes
For prescription drugs that treat chronic conditions, customers often have no choice but to pay whatever price Walgreens sets. Medications for diabetes, asthma, and heart disease are daily necessities that patients cannot skip or substitute, regardless of cost. Walgreens takes advantage of this inelastic demand by hiking prices on name-brand drugs that face little competition. A 2019 GoodRx analysis found that a 30-day supply of top brand-name prescriptions cost 19-31% more at Walgreens than other major pharmacies. In many cases, these in-demand drugs had higher out-of-pocket costs than the total cash price at discount pharmacies.
7. Prices Matched to Competitors, Not Undercut
While Walgreens‘ prices are high across the board, they are often specifically calibrated to match nearby competitors. Rather than attracting customers through discounts, Walgreens relies on its brand recognition and convenience to justify prices equal to or slightly higher than other pharmacies. "Walgreens‘ strategy is not ‘we‘re going to be the cheapest on the market,‘" said Pembroke Consulting CEO Adam Fein. "Their strategy is to make sure they have comparable prices to CVS or other pharmacies within their geographic area." This focus on price matching rather than undercutting also disincentivizes competitors from lowering their own prices.
8. Value-Added Services Bundled Into Prices
Along with filling prescriptions, Walgreens offers a suite of ancillary pharmacy services, including automatic refills, 24/7 pharmacist consultations, pill packaging, and prior authorization assistance. These value-added services are bundled into Walgreens‘ prescription prices, even for customers who do not use them. "Walgreens views itself as more than a pill dispenser," said Jefferies analyst Brian Tanquilut. "It wants to be seen as a healthcare provider that improves medication adherence and outcomes. But that extra level of service and attention is ultimately reflected in higher price points." While some customers surely benefit from and appreciate these bonus offerings, those who just want the lowest possible price on their medication end up overpaying.
9. Sale Prices Subsidized By Regular Prices
Like most retailers, Walgreens entices customers with weekly sales and promotions. But these deals are carefully crafted to avoid sacrificing overall margins. For every product sold at a discount, Walgreens has dozens more at full price making up the difference. In many cases, Walgreens will hike prices shortly before putting an item on sale, so the "discount" hardly differs from the regular price at other stores. "Walgreens relies on impulse purchases to subsidize lost margin from discounted items," said Profitero senior VP Keith Anderson. "So for every person coming in to get a good deal on toothpaste or vitamins, they‘re banking on also selling a snack, toy, or beauty product at twice the price of Amazon or Walmart."
10. Investors Demand High Margins
As a publicly traded Fortune 500 company, Walgreens faces immense pressure from investors to deliver continuously growing profits. With competitors like Amazon and Costco encroaching on the pharmacy space, Walgreens has doubled down on preserving its industry-leading margins, even at the cost of customer goodwill. In 2021, Walgreens reported a gross profit margin of 24.11%, compared to 18.8% for CVS and 16.8% for Rite Aid. On a 2022 earnings call, CEO Rosalind Brewer said that Walgreens was "firmly committed to…expanding adjusted operating margin over the long term." This emphasis on financials over affordability means that Walgreens is more likely to raise prices than lower them.
Conclusion
While there‘s no single reason why Walgreens is so expensive, a combination of factors allows the pharmacy chain to consistently charge some of the highest retail prices in the United States. Government regulations, or lack thereof, enable unchecked markups, while the allure of convenience makes customers accept those inflated costs. Price discrimination places an undue burden on the uninsured, while Walgreens‘ well-advertised loyalty program obscures the underlying price tags. As a jack-of-all-trades retailer, Walgreens can‘t match more specialized competitors on scale or efficiency. So it turns to exploiting customer demand, creative accounting, and a reputation for premium service to preserve a market-leading profit margin. But as consumer advocates sound the alarm on Walgreens‘ predatory pricing, customers are wising up and seeking out cheaper alternatives. The question is whether public pressure will ultimately force Walgreens to rethink its approach, or if the pharmacy giant will continue to prioritize stockholders over sick patients.
