U.S. supermarket chains with large pharmacy sections, including Kroger, Safeway and Supervalu, should see small profit boost in 2012 as generic versions of best-selling prescription drugs reach the market: Moody's

Cindy Allen

NEW YORK , September 28, 2011 (Associated Press) – Moody's Investors Service said Wednesday that supermarkets with big pharmacy sections will get a small boost to their profits in 2012 as low-cost versions of some of the world's best-selling pharmaceuticals reach the market.

Moody's said Kroger Co., Safeway Inc., and Supervalu Inc. will report larger profits because generic drugs, while cheaper than their brand-name equivalents, are more profitable. Analyst Mickey Chadha said the three grocery chains get 8 to 10 percent of their annual revenue from in-store pharmacies.

By the end of 2012 the patents on seven of the world's 20 best-selling pharmaceuticals will expire, allowing generic versions to go on the market. Drugs losing patent protection include Pfizer Inc.'s cholesterol drug Lipitor, which goes generic in the U.S. in November, and Bristol-Myers Squibb Co. and Sanofi SA's anti-clotting drug Plavix, which goes generic in May.

Chadha said the new generic drugs won't have a big impact on profits for the supermarket chains. One reason is that pharmacy benefits management companies, which pay pharmacies to fill prescriptions, will probably "push hard" to reduce the amount they pay for generic prescriptions.

"The overall impact of the upcoming generic-drug wave on supermarkets' bottom line will depend on their ability to manage inflationary pressures, increasing competition from alternative food retailers and operating costs," Chadha wrote.

In midday trading shares of Kroger rose 17 cents to $22.11, Supervalu fell 8 cents to $6.88, and Safeway rose 10 cents to $17.

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