Are CVS and Walgreens in Trouble if Amazon Enters the Retail Pharmacy Market?

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Amazon (NASDAQ:AMZN) already has jumped into the online pharmacy market. Now the e-commerce giant could be looking to elbow its way into the brick-and-mortar pharmacy market by opening retail pharmacy stores. In this Motley Fool Live video recorded on June 2, Motley Fool contributors Keith Speights and Brian Orelli discuss whether or not CVS Health (NYSE:CVS) and Walgreens Boots Alliance (NASDAQ:WBA) could be in trouble if Amazon competes head-to-head with them.

Keith Speights: Now there’s another tech giant that’s making waves in healthcare as well, Amazon — ticker there is AMZN. Business Insider reported last week that Amazon is thinking about jumping into the retail pharmacy market, and not just online pharmacy, but actual stores, retail pharmacies. This news caused the stocks of CVS Health, Walgreens Boots Alliance, both to tumble. Do you think CVS and Walgreens are potentially in trouble if Amazon decides to jump into the retail pharmacy space?

Brian Orelli: I think it probably depends on what strategy Amazon ends up taking and from the article it sounded like they have been pondering this for a while, so they certainly don’t seem like they’ve made up their minds. But if they go to building out stand-alone pharmacies, that route, it will probably take quite a while to be a formidable foe against the larger chains that have hundreds and hundreds of sites. I’m not sure that would really hurt them all that much, certainly not in the near term.

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Another option is would be to put the pharmacies within Whole Foods, and now they have a base of a whole bunch of stores, and so that would certainly be faster. It’s worked well for CVS. They have mini clinics inside a lot of their stores.

I’m not sure how well it would actually work to build out a spot out of Whole Foods. You’re going to end up losing sales for Whole Foods, so you have to factor that in. Is the benefit of having a pharmacy within the Whole Foods going to help, going to result in more profits than the loss of the Whole Foods sales that they could have for that same space. I think the biggest worry for the chains is if Amazon actually acquired another chain.

If they bought, let’s say, the Rite Aid, that’s probably the smallest of the three. I think if they did that, that would allow them to ramp up really quickly. Obviously, if they just rebranded them as Amazon stores and then they can also integrate package pickups and returns into the store and that will get people into the store. I think that would be the biggest worry for the pharmacy companies.

Speights: Yeah. I would think CVS and Walgreens would probably be able to hold their own but Amazon is a formidable rival in any market it decides to enter. And I think what you’re mentioning, Brian, the possibility that they could integrate small pharmacies into Whole Foods stores. That might be the route the company would take, and I think Amazon could be a big player in this retail pharmacy market over the next decade.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.



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