Lamar W. Hankins : Price Gouging at Your Corner Drug Store

Product placement! Display at a CVS drug store. Photo by gbeckley /The Consumerist.
Consumer alert!
Price gouging at your corner
convenience drug stores

By Lamar W. Hankins / The Rag Blog / April 22, 2011

The press coverage this past week of the 2007 CVS-Caremark merger that is being characterized as anti-competitive by several consumer organizations -- Consumer Federation of America, Community Catalyst, Consumers Union, National Legislative Association on Prescription Drug Prices (NLARx) and U.S. PIRG -- piqued my interest because I was in the midst of some consumer research about CVS’s high prices for non-prescription products.

Long ago, I stopped using the CVS card that was issued to me and which is used by CVS to track consumer preferences and provide coupons for discounts on certain products, most of which I found had an expiration before I was ready to use them. I decided that I didn’t want CVS tracking my purchases so easily, given the loss of privacy we have generally in this high-tech consumer society.

As it turns out, the merger controversy may have nothing to do with what I discovered in my research, but it is indicative of the tactics of many, if not most, retail corporations to increase their profits.

Most consumers may know that the layout of stores is intended to encourage impulse purchases of items on which the stores enjoy greater profits than on other items. The special displays on rows and aisles, the displays at the ends of aisles, and the special displays at checkout counters are all used to increase sales of those items. Product placement on shelves is also used to encourage purchasing. Distributors fight for noticeable and accessible shelving space, whether at drug stores, supermarkets, or other retail outlets.

In an effort to increase profits through its drug plans, Caremark is accused of steering customers to its retail pharmacies where prescription drugs cost more than through its mail-order service. This behavior, which Caremark has denied, is being investigated by the Federal Trade Commission and 24 state attorneys general. But consumers may want to investigate other marketing practices.

I have been a volunteer consumer advocate for nearly 20 years, mostly relating to all things funeral, but I’ve seldom turned my attention to other consumer pricing issues. Quite by accident, I recently learned a consumer lesson that many people on tighter budgets may know about already.

Because I have arthritis, as do 50 million other Americans, my hands often ache at night, waking me up. When I saw a product -- JointFlex -- advertised with a money-back guarantee, I decided to try it. I stopped off at the CVS store on a corner near my house and bought a tube for $20.99. I thought the price was a bit high, but with a money-back guarantee, I decided to give it a try and hold on to my receipt and the box.

Much to my surprise and relief, the product worked. As my first tube of JointFlex was running out, I remembered to buy another tube while I was shopping at HEB one day. I was shocked to find that the HEB price for the same product and quantity was $11.30.

I took both boxes and receipts to the CVS store and asked to speak to the manager. I asked her why JointFlex was so much higher at CVS than at HEB. She didn’t know. She said that the corporate office tells her what prices to charge and she doesn’t ask questions.

And the winner: HEB ("A Texas Tradition"). Image from Icemancast.com.
That experience gave me an idea. I priced another 11 name-brand items normally found at drug stores and selected at random. After noting the prices at CVS, I went to HEB to price the same items. HEB was significantly cheaper on every item. I decided to check out the prices on the same items at Walgreens and found that Walgreens is about 7% cheaper than CVS for the same items -- still no bargain in comparison to HEB. Here is what I found about the prices at CVS and HEB:

Neosporin (first aid ointment), .5 oz: CVS-$6.39..... HEB-$3.86
Bactine Cleansing Spray, 5 oz: CVS-$8.79..... HEB-$4.96
Visine for Contacts, 1/2 fl.oz: CVS-$4.99..... HEB-$3.62
Band-Aid Plastic Strips, 60 strips: CVS-$3.59.... HEB-$1.96
Johnson’s Body Care Lotion, 14 oz: CVS-$6.49.... HEB-$3.97
Tums, assorted fruit, 150 chewable tablet: CVS-$5.49..... HEB-$3.68
Pepto Bismol-original, 12 oz: CVS-$5.99..... HEB-$4.92
Phillips Milk of Magnesia-original, 12 oz: CVS-$6.29..... HEB-$4.16
Aleve Liquid Gels, 40 gels: CVS-$7.99..... HEB-$6.48
Bayer Aspirin, 100 coated tablets: CVS-$6.46..... HEB-$5.88
Children’s Claritin syrup, grape flavor, 4 oz: CVS-$11.29..... HEB-$9.22
JointFlex arthritis cream, 4 oz: CVS-$20.99..... HEB-$11.30

CVS charges $94.75 for the twelve items. HEB charges $64.01, for a savings of about 33%.

Convenience drug stores appear to be much like convenience grocery stores. They may have a few low prices to get you in the store, but most other items are overpriced as compared to a supermarket (or, at least, some supermarkets). Of course, if you are willing to pay more for the convenience, which all of us are occasionally, we have to give up some money to get that convenience.

The moral of my research project may be this: buy your prescriptions wherever you please, but be aware that other drug store products are likely to be overpriced at the corner convenience drug store.

As I am approaching living on a fixed income as a retiree, I have become more concerned about costs. You can be sure that I won’t be making any more convenience drug store purchases unless I’m in a real hurry.

[Lamar W. Hankins, a former San Marcos, Texas, city attorney, is also a columnist for the San Marcos Mercury. This article © Freethought San Marcos, Lamar W. Hankins.]

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Economy : Nearing a Tipping Point

Those Greenspan bubbles a'bursting...
By Roger Baker / The Rag Blog / July 16, 2008

It looks like the US economy has gotten itself into a 'liquidity trap'; the blowback from Greenspan's bubbles and banking deregulation.

If we try to avoid a deepening depression, the fed would normally try to inject enough liquidity by lowering interest rates to reflate the economy and stimulate spending, according to classic Keynesian principles. The income tax rebates were supposed to do the same thing, but were too little too late. But once the psychology of cutting back on the non-essential spending sector of the economy gets started, it tends to be reduce business profits for a large part of the total GNP and to become a self-reinforcing recession, depression, whatever.

Since the financial panic is centered in the finance industry, "Helicopter Ben" is trying to avoid bank runs by bailing out the big guys, including Freddie Mac and Fannie Mae. The unregulated hedge funds who have borrowed from the giant investment banks like JP Morgan have to get bailed out too as part of the same process.

But all the new dollars and taxpayer IOUs that Ben Bernanke uses to bail out the banks and their wealthy investors has to go somewhere. This liquidity would be stupid to go into parts of the consumer economy that are doing poorly, so it will go into the parts of the economy that have a solid spending base like food and oil and commodities. So the bailout dollars get recycled into bidding against the Chinese for a limited world supply of oil and all the fruits thereof, which naturally increases their price, which shows up as the inflation we see now.

But we are nearing a tipping point where T-note holders worldwide see how stupid it is to hold dollars that are losing value, due to inflation not paying as much as their T-note value, and so dump massive amounts of dollar liquidity into the international economy to buy Euros, gold, etc. So the dollar plunges and the cost of oil in dollars leaps upwards, raising the cost of nearly all necessary commodities. If you think inflation is bad now wait until the whole world dumps their dollars.

Its a new version of the stagflation of the oil crisis of the early 1970s and 1980s. Then economic shock therapy by Paul Volker plus Arab oil led to recovery, but this time things look a lot more serious because the economy is so highly-leveraged so that a lot of banking debt on the books is worthless and also because there is no more cheap oil to hold down commodity prices that depend on an oil-addictive economy designed to benefit financial interests with the short range investment focus that flourished under Greenspan's watch

U.S. economy: Consumer prices up 5% to 17-year high
By Shobhana Chandra and Timothy R. Homa / July 16, 2008

U.S. consumer prices surged 5 percent in the past year, the biggest jump since 1991, just as households struggled with falling home values and the credit crunch.

Spiraling expenses for food and fuel spurred the increase in June, the Labor Department said today in Washington. The cost of living rose 1.1 percent from May, more than forecast and the second-largest rise since 1982. Separate figures showed industrial production rose more than estimated because of the end of a strike at American Axle & Manufacturing Holdings Inc. and increased electricity output.

Price gains accelerated last month even after stripping out energy and food, underscoring the challenge for Federal Reserve Chairman Ben S. Bernanke as he attempts to steer the economy through the slowdown and credit crisis. Treasuries fell.

"This is a problem for the economy; it's even worse for the Fed," said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania.

"Inflation numbers are high enough that under different circumstances the Fed would be hiking rates."

Excluding food and energy, so-called core costs climbed 0.3 percent in June from the previous month and 2.4 percent from a year before.

Yields Jump

Benchmark 10-year note yields rose to 3.93 percent at 4:20 p.m. in New York, from 3.82 percent late yesterday. The Standard & Poor's 500 Stock Index advanced 2.5 percent to close at 1,245.36, after earnings from Wells Fargo & Co. topped analysts' estimates.

Consumer prices were forecast to rise 0.7 percent, according to the median estimate of 79 economists in a Bloomberg News survey. Projections ranged from gains of 0.2 percent to 1.1 percent. Costs excluding food and energy were forecast to rise 0.2 percent, the survey showed.

Bernanke told lawmakers in semiannual testimony on the economy yesterday and today that inflation risks have "intensified." At the same time, he dropped his June assessment that risks to the economic expansion had diminished, indicating policy makers aren't ready to raise interest rates to contain expenses.

"We don't think they're going to raise rates now -- until June next year now is our forecast -- until basically the economy starts to get some footing," Beth Ann Bovino, senior economist at Standard & Poor's in New York, said in an interview with Bloomberg Radio. "Right now the beast is what's going to happen with the economy."

Exceeding Forecasts

Prices were forecast to climb 4.5 percent in June from a year earlier, according to the survey median.

A separate report today said confidence among U.S. homebuilders dropped to 16 this month, a record low. Readings for current sales, expected sales and buyer traffic in the National Association of Homebuilders/Wells Fargo sentiment index also were at all-time lows.

``The magnitude of the housing bubble was unprecedented, and the corrective process promises to be a long and painful one,'' Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said in a note to clients.

The Fed said today that production at factories, mines and utilities increased 0.5 percent last month after dropping 0.2 percent in May. Capacity utilization, which measures the proportion of plants in use, rose to 79.9 percent from 79.6 percent.

Strike's Resolution

The resolution of a three-month strike by General Motors Corp.'s largest axle supplier, American Axle, probably helped lift auto output. Excluding autos, factory output fell 0.1 percent for a second month.

Wholesale costs rose 1.8 percent in June, the most in seven months, the Labor Department reported yesterday. From a year ago, prices climbed 9.2 percent, the biggest surge since 1981.

Companies, unable to fully recover ballooning raw-material costs by raising prices, have cut staff and reduced equipment purchases as profits shrink.

Kimberly-Clark Corp., the maker of Huggies diapers and Scott paper towels, said earnings for this year will trail its previous forecast as expenses rise more than twice as fast as predicted,

"Inflation has outpaced our ability to offset higher costs in the near term through price increases, cost reductions and other measures," Thomas Falk, the Dallas-based company's chief executive officer, said this week in a statement.

Price Increase

Procter & Gamble Co., the maker of Tide detergent and Head & Shoulders shampoo, last week said it'll raise prices as much as 16 percent due to higher costs for plastic, energy and paper. The increases start in September and are the Cincinnati-based company's steepest in at least 18 months.

Energy expenses jumped 6.6 percent, the biggest gain since November. Gasoline soared 10.1 percent and fuel oil jumped 10.4 percent.

The cost of fuel will continue stoking price pressures. Crude oil futures reached a record $147.27 a barrel on July 11 and have risen almost 90 percent in the past year. Regular gasoline, which topped $4 a gallon for the first time in June, kept rising this month, AAA figures show.

The consumer price index is Labor's broadest gauge of costs. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.

Food Expenses

Food prices, which account for about a fifth of the CPI, increased 0.8 percent, driven by the biggest gain in the cost of vegetables in almost four years.

The report showed that food and fuel weren't the only items on the rise. Costs for airline fares jumped 4.5 percent, the most since 2001.

Rents which, make up almost 40 percent of the core CPI, also accelerated. A category designed to track rental prices rose 0.3 percent after a 0.1 percent gain in May.

Today's figures also showed wages decreased 0.9 percent in June after adjusting for inflation, the biggest drop since September 2005, and were down 2.4 percent over the last 12 months. The decline in buying power is one reason economists forecast consumer spending will slow.

Americans trimmed purchases of automobiles, furniture and restaurant meals last month as the cost of gasoline soared, a Commerce Department report showed yesterday.
Retail sales rose 0.1 percent, less than forecast, a sign the boost from the tax rebate checks is already fading.

Source. / Bloomberg

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