Amazon's reported interest in pharmacy business hurts CVS, Walgreens

Dive Brief:

  • Shares of CVS Health, Walgreens Boots Alliance and pharmacy benefit companies fell Wednesday after a CNBC report broke news that Amazon is getting more active in moving into the pharmacy business.

  • Amazon has long contemplated entering the space, but has recently taken more concrete steps to explore the idea, including hiring a general manager to lead a team to formulate a strategy, people familiar with the matter told CNBC. Amazon did not immediately return a request from Retail Dive for further details.

  • While pharmacy sales are complex and highly regulated from a retail persecutive, Amazon already sells medical devices and employs executives to deal with health care-related regulatory issues, according to CNBC.

Dive Insight:

Sales of prescription drugs provide the likes of CVS Health, Walgreens and Wal-Mart with steady streams of customers, but the space is often volatile. Big-dollar corporate and government contracts are won and lost, introductions of generic versions of often-prescribed medicines can ding sales, and the Affordable Care Act has brought some price pressures in the health care sector in general, bringing costs down for consumers but not necessarily for retailers.

While investors responded to a direct, if still hypothetical, effect on drugstore retailers, a move by Amazon into the pharmacy space would also challenge Wal-Mart, a major pharmacy player with the advantage of a huge physical store fleet and a retailer increasingly willing to go head-to-head with Amazon in e-commerce.

With new features added to its mobile app for pharmacy and money services customers, including new ways for shoppers to skip regular checkout lines, Wal-Mart is looking to differentiate the shopping experience by offering the same level of convenience as Amazon while continuing to leverage its physical footprint, Stephan Schambach, founder and CEO of mobile platform NewStore, told Retail Dive in an email. (Schambach is also the founder of e-commerce platform Demandware, which recently sold to Salesforce).

But Wal-Mart's new features won't necessarily stop Amazon from bringing its own strengths to the space. And, sure, the space is highly regulated, but it's also highly lucrative, he noted. "Though challenges may arise in entering a regulated market, breaking into a multi-billion market opportunity for the e-commerce company can lead to huge success," he said. "Speedy delivery options and lower drug prices is the next step for Amazon in addressing the massive demand for a simpler, faster, overall more convenient shopping experience."

Follow on Twitter

Filed Under: E-commerce
Top image credit: Anthony92931