Why The New Amazon Pharmacy Could Pose A Real Threat To Drugstores

Laveta Brigham

Amazon introduced Amazon Pharmacy on Tuesday, pummeling shares of drugstores CVS, Walgreens and Rite … [+] Aid. (Photo by Silas Stein/picture alliance via Getty Images) dpa/picture alliance via Getty Images In its latest disruptive move, Amazon AMZN on Tuesday unveiled Amazon Pharmacy that would make it possible for customers to […]

In its latest disruptive move, Amazon
on Tuesday unveiled Amazon Pharmacy that would make it possible for customers to buy prescription drugs on its site with Prime members getting unlimited, free two-day deliveries. The news pummelled shares of drugstore chains  CVS Health, Walgreens Boots Alliance
, and Rite Aid

For good reason. 

While nearly 70% of consumers who regularly take prescription medication said they pick up prescriptions at their local pharmacies with 29% saying they get it by mail, almost three-fifths of Amazon Prime members said they would consider having their prescriptions delivered by Amazon if the service was to became available, according to a Cowen & Co.’s
survey of 2,500 consumers in September.

The survey found some 42% of consumers take prescription medication regularly for an ongoing condition. 

Why is that significant? The number of U.S. households with a Prime membership rose to a record 70 million in the third quarter, Cowen said. 

It “indicates a large opportunity for adoption” in the $520 billion U.S. prescription drug industry, Cowen analyst John Blackledge said in a report. “Amazon is likely to be disruptive….Amazon’s focus on price transparency, convenience, and a fully digital transaction with speedy delivery underscores how they are likely to differentiate the Amazon Pharmacy experience.” 

CVS stock fell 8.6% on Tuesday. Walgreens dropped nearly 10% while Rite Aid’s shares slumped 16%. 

Amazon’s move followed its 2018 purchase of online prescription drug delivery service PillPack, which Blackledge said gave Amazon licenses to deliver prescription drugs in all 50 states. PillPack, while now part of Amazon Pharmacy, will remain a separate service, Amazon said. 

The online giant said it also will give discounts of up to 80% off generic drugs and 40% off brand name medications to Prime members when they pay without insurance—levels Blackledge said are similar to what’s currently offered by rival services such as GoodRX. Amazon said the discounts can also be used in more than 50,000 participating pharmacies, including CVS, Walgreens and Walmart
. GoodRX stock tumbled nearly 23%.

Amazon said customers can also compare drug prices, including branded and generic versions, and have phone access to pharmacists 24 hours.

“Consumers are now more willing to order groceries online, digital education is on the rise, and there is now rising acceptance of digital medical offerings,” said Morgan Stanley
analyst Brian Nowak in a report. “These macro behavioral changes increase the likelihood that (Amazon’s) pharmacy product (with competitive price and selection) could gain traction.” 

It could also potentially help Amazon gain new Prime members among those 55 years and older, where the “Prime penetration” is the lowest, Nowak said.

Pharmacy services have been key to helping driving traffic to drugstores especially when studies find their non-pharmacy retail products typically cost more without special discounts or promotions. A case in point: A Profitero online price study between August and October found prices of identical in-stock products in the beauty, health and personal care, and vitamins and supplements categories at either CVS or Walgreens ranged from 18% to 64% higher than at Amazon. 

“Drug retailers have been actively looking for ways to diversify their business models and create moats,” Nowak said. No. 1 U.S. drugstore chain CVS, for instance, bought insurance company Aetna
in 2018 and plans to have by the end of next year 1,500 HealthHUB locations at its stores that provide chronic care and other services. CVS also has introduced same-day prescription delivery service. 

The company said this month it has doubled the number of Covid-19 test sites to more than 4,000 CVS pharmacies. CVS and rival Walgreen also have been selected to administer coronavirus vaccines to long-term care facilities when they become available. 

That “should help (CVS) establish their role as a healthcare services provider,” Nowak said. “The risk of Amazon entering the pharmacy supply chain has weighed on drug retailers’ multiples since Amazon bought Whole Foods
in 2017 and Pillpack and 2018.” 

Another industry shakeup may be in the offing.

Related on Forbes: The jury is still out on Bed, Bath & Beyond’s turnaround plan

Related on Forbes: Home sales data is another sign that consumer behavior might be forever changed

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