Prescription for disruption
It may soon become easier for Americans to buy prescription drugs online. That presents an opportunity for upstarts but a potential body blow for some retailers.
In a world where brick-and-mortar store traffic is in decline, businesses operating pharmacies have held up better than most. The largest pharmacy chains and grocery store operators — CVS Health, Walgreens Boots Alliance and Walmart — operate more than 20,000 stores in the US, generating hundreds of billions in annual sales.
For store operators, the profits from selling prescription drugs are just part of the equation. For example, customers of Albertsons grocery stores who use the pharmacy visit their local store an average of 2.3 times a week and spend $66 on groceries and $26 on prescriptions, according to an investor presentation. Customers who don’t use the pharmacy visit less than once a week and spend just $24 weekly on groceries.
Mail-order drugs have been around for a while, of course. Now, though, the need to visit a physical store for a big chunk of the patient population may be going away for a variety of reasons.
Amazon bought the online pharmacy PillPack last summer for $753 million. Given its huge size and ambition, the online retailer’s entry into a business caused competitors to lose significant market value as soon as the news hit. But the real reasons that changes are coming are structural.
Among the reasons that pharmacies have been slow to change is that they are highly regulated. Meanwhile, the essential nature of their product incentivizes patients to leave their driveways: A customer who might be willing to wait an extra day for a household item to arrive in the mail might not feel the same way about his or her medication. And patients who have been newly prescribed a drug often want to speak with a pharmacist in person.
But changes in insurance plans could put that competitive advantage at risk by increasing the likelihood of a market in which Americans increasingly pay cash to buy medication online.