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Amazon's new pharmacy may steal market share from CVS, Walgreens amid pandemic

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Amazon's new pharmacy may steal market share from CVS, Walgreens amid pandemic

Amazon.com Inc.'s move to launch an online pharmacy during the pandemic could help it squeeze market share away from competitors, including CVS Health Corp. as the e-commerce giant accelerates efforts to delve further into the healthcare arena, health and company experts say.

The company's new Amazon Pharmacy program, announced Nov. 17, is positioned as an alternative to walk-in service provided by brick-and-mortar pharmacies like CVS and Walgreens Boots Alliance Inc. Under the platform, customers can set up an online pharmacy profile where they input insurance information, manage prescriptions and choose payment options. Amazon's Prime paid subscription members also have access to free two-day delivery on orders.

Amazon's new pharmacy initiative is the company's most recent foray into the fast-growing healthcare space. The e-commerce player purchased online pharmacy PillPack Inc. in 2018 for $753 million and in 2019 launched its Amazon Care clinic, which offers virtual and in-person care for employees. It debuted its Halo fitness device in August. Although Amazon, Berkshire Hathaway Inc. and JPMorgan Chase & Co. just pulled the plug on their highly touted healthcare joint venture called Haven, the three companies said they plan to continue working together "informally" to address their employee's healthcare needs.

Amazon is broadening its healthcare offerings as consumers increasingly shop from home during the pandemic, said Tom Forte, an analyst with D.A. Davidson, in an interview. Amazon's ability to provide speedy home delivery, combined with a convenient and seamless online experience, will likely increase the competitive pressure on pharmacy providers as COVID-19 concerns continue, he and other analysts said. The U.S. pharmacy and drug store market is expected to generate $359.2 billion in revenue by 2025, according to IBISWorld.

"Absolutely, Amazon will take market share," said Forte. "CVS and Walgreens are ripe for disruption."

Major pharmacy retailers like CVS and Walgreens may not see an immediate impact from Amazon's new pharmacy service, health experts say. They both maintain a strong market share in the U.S. and are expected to see significant in-store foot traffic due to COVID-19 vaccine distribution in the U.S. But new competition from Amazon poses longer-term risks for legacy and independent pharmacies, SVB Leerink analyst Stephen Tanal said in an interview. Amazon has already disrupted other industries such as the grocery market when it purchased Whole Foods Market Inc. in 2017.

"When I've watched this all play out in retail, it's like the boogeyman you never see," Tanal said.

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Amazon has always been "spooky" in the healthcare space, said Stephanie Davis, senior research analyst at SVB Leerink, adding that share price drops like the one digital prescription coupon company GoodRx Holdings Inc. experienced after Amazon's online pharmacy announcement are likely a reaction to the money and resources Amazon can throw at the platform.

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Perfect timing

The e-commerce company is launching Amazon Pharmacy at a fortuitous time when Amazon is already benefiting from a surge in online shopping activity during the pandemic.

Amazon's pharmacy is likely targeting consumers on both ends of the spectrum: elderly consumers who are more vulnerable to catching the flu or COVID-19 as well as a younger demographic concerned about healthcare but not necessarily loyal to a specific walk-in pharmacy, said Leslie Lotano-Saba, vice president of pharmacy solutions at AArete, a global management consultancy, in an interview.

The platform is designed to be simple and serve various needs: Consumers can request everyday medications through their secure online pharmacy profile on Amazon to get prescriptions for everything from migraine medication to asthma inhalers. Customers can also create an account with Amazon's PillPack service, which delivers multiple medications per day to customers who live with chronic health conditions such as heart disease or rheumatoid arthritis. "Both experiences are underpinned by our commitment to making it simple for customers to fill their prescription," according to an Amazon spokesperson.

Amazon's convenient online pharmacy services can save consumers an errand that often occurs every 30 days and eliminate the need to wait in line at a store, said Jeffrey Becker, senior healthcare analyst for Forrester, in an interview. "They are bringing multiple different sets of capabilities together to make a simplified customer experience, which is really where Amazon excels —taking complex markets and making them better," he said.

Another big draw is the transparency that Amazon's platform provides, said Davis of SVB Leerink. Under Amazon's platform, consumers can browse medications and see prices without insurance, including any Amazon Prime savings. Amazon Pharmacy also offers prescription savings for people without insurance through a partnership with Express Scripts unit InsideRx.

Prescription coupon companies like GoodRx, which allows users to download coupons and save money on prescriptions through agreements with pharmacy benefit managers, offer similar price transparency, said Kathryn Rauen, principal in the health practice of Kearney, a global strategy and management consulting firm.

"It's not really a new thing that Amazon is offering, but really kind of the ease at which they present it to their customers is something that is new," Rauen said in an interview.

Analysts believe Amazon Pharmacy could be an effort that eventually incorporates physical store locations. Lotano-Saba noted that Amazon may be launching the mail-order pharmacy component as part of bigger plans to eventually open a pharmacy within Whole Foods. Other pharmacy retailers such as CVS and Walgreens, both with over 9,000 retail locations, draw consumers into their stores not only for prescriptions but also for ancillary items.

Amazon declined to comment on the possibility of pharmacies within Whole Foods, but Lotano-Saba said the company could draw foot traffic in a similar way to its brick-and-mortar counterparts if it opened clinics inside grocery locations. "Maybe the mail-order piece is just one step to see how the consumer reacts to it," Lotano-Saba said.

High-touch relationships

Despite inevitable competition from Amazon, legacy brick-and-mortar players have the potential to hold on to their market share due largely to the vast array of services that must be done in person, such as flu shots and vaccines. Pharmacies have also been deemed essential during the pandemic, allowing them to remain open and interact with customers.

"Folks really go to the counters," said Soo Romanoff, an equity analyst at Morningstar, in an interview. "Most of the prescriptions you have, unless they are mail-ordered, you want them immediately and even that one day of waiting for those pills is not really helpful."

CVS and Walgreens did not appear ruffled by the potential competition from Amazon. In emailed statements to S&P Global Market Intelligence, representatives from the companies pointed to all of the other services their brick-and-mortar stores offer outside of just delivering medications.

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A Walmart storefront.
Source: Walmart

Walmart declined to comment for this story. But the company has been taking bold steps into the healthcare arena, including launching a health center at its redesigned superstore in Dallas that offers primary care, labs, X-ray and EKG as well as counseling, dental, optical, hearing, community health and health insurance education. The efforts come as Walmart faces a lawsuit from the U.S. Justice Department over an alleged role in the opioid crisis.

Amazon's online pharmacy should not be a huge concern for the Arkansas-based retailer, which is also doubling down on its own healthcare efforts, said Zain Akbari, an analyst with Morningstar, in an email.

Akbari said Walmart caters to a somewhat lower-income customer less likely to have an Amazon Prime membership, making the company perhaps a bit less exposed to Amazon's entry than some other pharmacies.