Retail Clinics Industry Coming of Age

Retail health clinics cannot be seen as an exotic phenomenon anymore. What was originally just a new business concept, pioneered by Minuteclinic, has become a new category, a new channel for delivering healthcare services.

Media coverage of this new model has trascended the blogosphere and the occasional note in the general press. In the past few weeks we have seen The Economist ("McClinics"), The New England Journal of Medicine ("The rise of in-store clinics...") and Strategy & Business ("Health care´s retail solution") running very positive articles on this emerging industry. It seems that the idea has finally landed in these higher grounds. Retail clinics are now in the spotlight of academics and consultants, who will surely dig into the business fundamentals of the model.

Young as it is, this industry segment is entering a new phase of development. Life cycles in today´s fast paced economy are compressed. Gone are the placid days of just "testing the waters" that were valid in the introductory stage. Each player needs to have a sound, differentiated strategy in order to navigate the rapid growth of today and the transition to a more mature market. So far, we have seen a homegeneity of business models. The collective action of all industry players has contributed to drive primary demand stimulation: the "enemies" were (and still will be for some time) the traditional channels (emergency services, primary care practices). In the near future, we will see more divergence in business models and competitive strategies. Other retail clinics groups will become actual "competitors".

The current business model has indeed proven itself. The economics are compelling:

- Lower labor costs, lower overhead (from limiting the scope of services) and potentially lower unit costs (from learning economies) than traditional channels (i.e. emergency departments).

- Furthermore, a chain of clinics beats the stand-alone physician practice: greater bargaining power vis a vis insurers, efficiencies from economies of scale (spreading fixed costs of IT, advertising, product development) and economies of density (several clinics in the same area achieve advantages from pooling labor and from capitalizing word of mouth). The implications for primary care physicians are significant. Contrary to what some medical associations are proposing, they just cannot compete with retail clinics for minor ailments just by extending their hours of operation or improving their scheduling methods. It would be a lost war, like bank branches trying to compete with ATMs for the cash withdrawal business.

As of today, the leading retail clinic operators are focused on geographical growth, entering new markets and perhaps consolidating those in which they already have a presence. However, in a more competitive environment, they will probably be forced to explore new avenues for growth and value creation (expanding the scope of services, entering new client segments). Growing up, a fact of nature, has these "side effects".