On November 17th, 2020, Amazon officially launched its online store Amazon Pharmacy. The year 2020 has brought many surprises to the retail industry, but Amazon entering into the pharmacy business has been a long time coming since their acquisition of PillPack in 2018. So, how does this news impact retailers like Walgreens and CVS Pharmacy?
Amazon’s pharmacy will be immediately available in 45 of the 50 states with plans to enter the five excluded states, Illinois, Minnesota, Kentucky, Louisiana, and Hawaii, in the future. Amazon has already changed how people shop by influencing CVS Health and Walgreens to compete in an arms race and suffocating other retailers by offering lower prices. The e-commerce giant is forcing Walgreens and CVS Health to evolve its pharmacy business. The threat that Amazon poses to pharmaceutical sales lies in the access and benefits it provides to its Prime Members. In the third quarter, U.S. prime membership rose to a record number of 70 million households. This means 70 million households will now receive unlimited free two-day delivery on prescription drugs, and uninsured members can receive up to an 80% discount on certain medications. Amazon will accept most forms of insurance and offer discounts on medications and cheap delivery options for non-prime members. With this being said, Amazon’s impact is not expected to force CVS Health and Walgreens out of the pharmacy business but become a formidable competitor. The real impact Amazon will have is changing the landscape of Walgreens and CVS Pharmacy retail.
The “Amazon Effect” is known as the consequential disruption of e-commerce in the retail market. Walgreens and CVS Health operate 土12,000 square-feet locations that rely mainly on the pharmacy to draw consumers into the store to shop for other items like sundries, cosmetics, and more out of convenience. However, the retail aspect of Walgreens and CVS Pharmacy is no longer “convenient” in a world where everyone orders their items online or picks them up at grocery stores or general merchandise stores like Walmart and Target. So, how will Walgreens and CVS Health maintain their retail footprint and loyal prescription customer base?
CVS Health operates Aetna, one of the largest health insurers in the country. By running the largest pharmacy benefit manager in the U.S. and increasing efficiency in their brick-and-mortar locations, CVS Health is better positioned to take on Amazon in both the retail and pharmacy aspect. CVS Health’s boasts a vertically integrated system. Its stores are becoming healthcare destinations with the introduction of MinuteClinics and HealthHubs, while also offering the convenience of same-day prescription deliveries and drive-thru service. Walgreens, on the other hand, is turning to real estate to solve its inefficiencies. Rather than operating over 9,000 locations nationwide that are 土12,000 square feet, they are looking to develop smaller-store formats. Downsizing stores from 土12,000 to 土2,500 square feet, Walgreens is now opening stores that cut out the sizable retail portion and shift focus to the convenience of drive-thru pharmacy and healthcare-related products. Walgreens has also partnered with Village Medical to integrate doctor’s clinics into a small percentage of their larger stores. Together, the two companies plan to open full-service clinics in 500 to 700 Walgreens locations over the next five years, with plans to expand in the coming years. They began integrating clinics in stores in the Houston, TX area and plan to further expand into other Texas markets, Florida, and Arizona, before expanding to a total of 30 U.S. markets.
So, while CVS Health continues to evolve their company “for your own good,” Walgreens is moving away from “the corner of happy and healthy” and relying on their long-standing name to show customers that while stores might look different, they are still “trusted since 1901.”