Rite Aid could be the prescription for Amazon's pharmacy ambitions
Amazon would do well to acquire Rite Aid, which would garner the e-commerce giant state pharmacy licenses and a drugstore infrastructure with pre-cleared regulatory hurdles, according to a note from Cowen & Co. analyst John Blackledge, cited by CNBC. Amazon could obtain pharmacy licenses in 19 states, six distribution centers and 2,575 regulatory-cleared stores through such a move, according to the report.
It would allow Amazon to incorporate pharmacies into its Whole Foods grocery stores as well as into its Prime and Prime Now operations, Blackledge noted. Rite Aid and Amazon each declined to comment to Retail Dive on the notion.
Amazon has reportedly already received regulatory approval from about a dozen states to do business as a pharmacy wholesale distributor, already sells medical devices, employs executives to deal with health care-related regulatory issues, and is said to be exploring how to ramp up its efforts in the pharmacy space.
The merger proposed by Walgreens and Rite Aid more than two years ago was subject to long, drawn-out scrutiny by the Federal Trade Commission, which in the end would only agree to a drastically smaller acquisition of stores and distribution centers.
That leaves Rite Aid available, with Amazon reportedly mulling some serious designs on the drugstore space. Amazon's major foray into brick-and-mortar via its $13.7 billion takeover of grocer Whole Foods has led to speculation that it could make a similar play in pharmacy, and analysts at investment bank Leerink Partners earlier this month said that it's only a matter of time before the move is made.
The idea makes a lot of sense to Blackledge, who also said that any Amazon-run retail pharmacy business in the U.S. could garner 10% market share with some $20 billion in sales in 2019. "Our Cowen proprietary survey data suggests 67% of Amazon Prime members would purchase prescription drugs through Amazon if they were available," wrote Blackledge, according to CNBC's report. "Depending on the pace Amazon would seek to enter the market, an acquisition such as Rite Aid could accelerate the pace and be a relatively low-risk acquisition given that it currently trades at an enterprise value of only about $5 billion."
Most drugstore retailers, including Rite Aid, have shrugged off suggestions that Amazon would enter the space. In July, Walgreens CEO Stefano Pessina expressed doubts that the drugstore and its rivals would have to contend with Amazon's entry into the prescription market.
Sales of prescription drugs provide drugstore chains with a steady stream of customers, but it's a volatile market. Big-dollar corporate and government contracts are won and lost, generic versions of often-prescribed medicines can ding sales and the Affordable Care Act has brought some price pressures to the health care sector in general, bringing costs down for consumers but not necessarily for retailers. Added to the instability is the current political environment, where recent actions by Congress and the Trump administration are poised to disrupt the space further.
It's not just Walgreens or CVS that would be challenged by such a move; Amazon in the pharmacy space would also challenge Walmart, a major pharmacy player with the advantage of a huge physical store fleet and an increased willingness 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, Walmart 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 earlier this year.
But Walmart's new features won't necessarily stop Amazon from bringing its own strengths to the space, which is highly regulated, yet 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."
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