E-retailer Amazon has already shaken up the retail trade for books, consumer goods and groceries. Now, it is stepping up its aggressive push into a new frontier: the $4 trillion pharmacy industry.
This time, the fight could have ripple effects across as many as 22,500 brick-and-mortar drugstores as well as pharmacy space in the big-box retail sector spanning the United States.
Two years after its $753 million acquisition of the PillPack online subscription service, the Seattle-based company officially rolled that initiative out as a base for its online pharmacy that will home deliver one-time prescriptions as well as medications needed to manage chronic illnesses.
A customer’s entire pharmacy transaction will take place on a desktop computer or mobile device through the Amazon app. And the company’s Prime members will get significant discounts through cash purchases rather than using insurance claims.
“As more and more people look to complete everyday errands from home, pharmacy is an important and needed addition to the Amazon online store,” Doug Herrington, senior vice president of Amazon’s North American consumer division, said in a statement. CoStar News reached out to Amazon for additional comment but did not immediately hear back.
Though Amazon Pharmacy’s existence was announced early Tuesday, its move into the industry is hardly a surprise. Through PillPack, it is already available in almost every state except for Hawaii, Illinois, Kentucky, Louisiana and Minnesota.
But the latest step pits Amazon in head-to-head combat against the big players of the drugstore business, Walgreens and CVS, at a time when consumer shopping is shifting online and away from brick-and-mortar stores. However, drugstores have long boasted of their one-to-one relationships with their customers who look to their pharmacists for advice and counsel — something an online dispensary cannot easily achieve.
“Can Amazon change consumer behavior and can it move share to online?” Raymond James analyst John Ransom asked on CNBC. “I think that’s the big unknown.”
On Tuesday, Amazon’s stock price rose slightly, while Walgreens and CVS shares fell by almost 9% at midday. Rite-Aid's stock was down almost 16%.
There was no announcement of a brick-and-mortar Amazon Pharmacy store yet, though its track record in groceries and discretionary shopping suggest that a real-life version is probably on the horizon.
However, Amazon has a long way to go before it reaches the level of penetration that the nation’s largest pharmacies command in the fast-growing marketplace. Walgreens and CVS operate more than 9,000 stores each in the United States. Rite Aid adds another 2,500, and Kroger has nearly 2,300 pharmacies in its grocery stores.
That’s 22,500 U.S. locations where consumers can pick up their prescriptions as well as greeting cards, cosmetics and mouthwash. And that doesn’t even take into account the other grocery store chains and specialty and independent pharmacies dotting the country.
And then there’s the battle against the e-commerce giant’s biggest rivals, the big-box behemoths Walmart and Target, both of which have in-store pharmacies and clinics. Target’s is operated through CVS, which bought its proprietary pharmacy and clinic operation ClearRx in 2015.
Drugstores have long had prescription drive-thru services and, like other retailers across the country, have stepped up their curbside and contactless delivery as well as "buy online, pick up in store," or BOPIS, options that have gained traction during the pandemic.
Though industry experts expect to see the number of physical stores decline in coming years, the industry pacesetters are evolving into overall healthcare providers that goes well beyond simply dispensing prescriptions.
CVS’ $68 billion acquisition of Aetna put it on a path to add healthcare services such as clinical care, testing stations and in-store doctors and nurses. Walgreens has done some of the same as well as introduced a number of partners and services aimed at providing more of a total well-being experience.
Raymond James’ Ransom, for one, doesn’t think Amazon will put a big gash in the brick-and-mortar pharmacy business any time soon. “I’m less convinced they’ll move a ton of retail share,” he said. “People have a lot of reasons for going to the drugstore to get their script,” a short reference to prescriptions.
“There are lot of acute scripts — if you have an earache you’re not going to wait” for a delivery, he said. People on multiple medications tend to visit stores more often, he added, noting that 34% of prescriptions are consumed by the elderly.
“We’re less convinced that they’re going to eat dramatically into the existing retail traffic,” he said.
Ditto from Henry Blodget, the research analyst-turned-businessman who highly recommended Amazon shares when they were trading at $40 each some 14 years ago. Today, they’re exchanging hands at more than $3,150 a piece.
“This is not a winner-take-all game,” he said also on CNBC. “You can have many companies succeed. It doesn’t just have to be one of them, but obviously some will lose a little bit.”
Amazon Pharmacy’s corporate address is in Austin, Texas, at an industrial park purchased over summer by San Francisco-based Stockbridge Capital Group and an undisclosed buyer, according to CoStar’s research notes from the time. Over July, August and September, the same buyer and seller also executed deals for four other properties around the country: in Jacksonville, Florida; Smyrna, Tennessee; Forney, Texas; and Columbus, Ohio.
Beyond its PillPack purchase, Amazon, which has embarked on a growth spurt since 2019, has made several moves suggesting that it may take a more hands-on role in basic healthcare services.
In April, it created its own coronavirus testing labs intended only for employees. Then in July, it opened a network of in-house clinics, again saying that the services were an extension and enhancement of its employee benefit package.