Amazon lowballs CVS and Walgreens on OTC med prices

Discussion
Source: Amazon.com
Jul 09, 2018
George Anderson

A comparison of private label over-the-counter (OTC) remedies sold by CVS and Walgreens with those from Amazon.com finds that the brick and mortar pharmacy giants are charging substantially more than the e-tailer on like items.

A new report by Jefferies Group found that CVS’s prices were 20 percent higher than Amazon’s and that Walgreens sold its private labels at a 22 percent premium to the e-tail giant, which recently announced that it was acquiring the online pharmacy PillPack.  The acquisition promises to put Amazon in direct competition with CVS and Walgreens for share of the prescription medicine market. PillPack, which delivers pre-sorted doses of prescribed medicines in envelopes, is licensed to fill prescriptions in all 50 states.

It’s part of the Amazon playbook to target a category and undercut the competition on prices to gain share. By offering lower prices on OTC medications, Amazon appears to be conditioning consumers, particularly Prime members, to look its way for health needs. The e-tailer, which launched its Basic Care line last August with 35 items, has since expanded the selection to 65, according to a Bloomberg report of the Jefferies Group’s research. Perrigo, the largest manufacturer of private label OTC meds, is behind the Amazon line.

Eight-four percent of Walgreens’ private label items were more expensive than the same drugs sold by Amazon, and the same was true for 72 percent of CVS’s own-brands, according to multiple reports.

CNBC found that a Well at Walgreens bottle containing 500 tablets of 200-milligram ibuprofen cost $17.99 on the pharmacy chain’s site. The same item and size bottle of the CVS private label cost $15.99, while the cost of the Amazon Basic Care SKU was $8.05.

DISCUSSION QUESTIONS: Do you think offering lower prices on over-the-counter medicines will set Amazon up for its push into the prescription drug market? Do you expect CVS and Walgreens to counter Amazon by cutting their own prices, or will they respond in some other way?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"While price is an important consideration for consumers, brick-and-mortar players have the upper hand in immediacy and personal relationships."
"CVS and Walgreens are expensive, period. They get away with it somewhat because they offer convenience."
"If Amazon starts to pick off CVS’s, Rite Aid’s or Walgreens’ core shoppers these retailers can identify it quickly and respond rapidly."

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25 Comments on "Amazon lowballs CVS and Walgreens on OTC med prices"


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Max Goldberg
Guest

Amazon is doing to OTC meds what it did in books and other categories — offering lower prices to bring in orders. This long-term view, and a willingness to endure losses, sets Amazon apart from other retailers. Some may cry foul, but Amazon has shown that the tactic works. CVS and Walgreens can’t win a price war with Amazon, so they should emphasize being in the neighborhood, convenience and service.

Paula Rosenblum
BrainTrust

I have one question: why didn’t they also compare prices at Costco? Walmart?

I don’t think it’s a secret that you can pick up OTC drugs for less at places like Costco or even the local supermarket. Clearly lots of retailers have been hungering to take share from the chain drug stores.

Yet Walgreens and CVS continue to perform. I think we’ll have to wait and see. I’ve been unsure about this one from the get-go.

David Weinand
BrainTrust

I agree Paula — Walgreens and CVS are more expensive for every type of OTC drug compared to Target, Walmart or the warehouse clubs. Amazon can easily disrupt the OTC market for all the reasons already stated — assuming they can access high-quality generics for prescriptions and can leverage their delivery expertise, they will win

Paula Rosenblum
BrainTrust

FWIW, I bought some generic Allegra from Amazon and it was awful. Not even close to formulary.

Seth Nagle
BrainTrust

Great point Paula, I was thinking the same thing. CVS and Walgreens should be higher as they provide a convenience currently unattainable by the big guys. When consumers need OTC remedies they rarely can wait for shipping or long lines and it appears price sensitivity concerns are also ignored.

Dr. Stephen Needel
BrainTrust

Seth — I don’t see how CVS and Walgreens are any more convenient than Target or Walmart. I have two CVSes and Walgreens near me and the same number of Targets and Walmarts. Both of the latter offer self-checkout, so they’re faster and cheaper — no lines.

Paula Rosenblum
BrainTrust

They’re in the Dow somehow, so they seem to be doing well enough.

Phil Chang
BrainTrust

Hopefully Amazon is doing this in a thoughtful and methodical manner. Their carefree attitude of allowing third-party sellers to sell whatever they want is well documented in apparel and just about all other areas of their business.

Drugs are a whole different matter — sourcing and tracking product is part and parcel to being in the industry. Is Amazon simply taking a hit on margin here or are they looking to unproven/unreliable sources for sourcing their product? If I’m CVS or Walgreens, that’s the first question I’m asking. The second thing I’m doing is to ensure that I have the quality of care needed to convince people to come into a pharmacy and learn about the drugs they are taking.

Tom Dougherty
BrainTrust

The online promise has two parts: economics and scope. Consumers expect both from Amazon.

Prescription drugs are not excluded from these two values. So if I can get EVERYTHING I need in medicine (when I need it) and they save me money — well, I’m in.

This is what destination retail is facing. They need to be price-competitive in order to remain viable. But Amazon does not have the same overhead. They have an advantage and they are leveraging it.

This is worrisome for traditional retailers because a trial in a new delivery system quickly becomes a habit.

Dr. Stephen Needel
BrainTrust

Yes and no — it will establish them as a lower-priced option in the OTC market (although it’s interesting to note that Walmart’s prices on the few items I checked are lower than Amazon’s). Shipping time may be an issue for those not on Prime or on their subscription plan; if I need a pain reliever, I need it now, not two days from now. Whether this can translate into Rx is another matter — it’s largely dependent on the cost of the drugs to Amazon. CVS and Walgreens can’t possibly cut their prices that low — they’ll have to emphasize assortment, service and immediacy.

Cathy Hotka
BrainTrust

Max is right. Amazon can use revenues from AWS to subsidize OTC drug prices and make a splash with customers. Imagine what they could do with a similar program for prescription drugs!

Lyle Bunn (Ph.D. Hon)
Guest

Physical retail warrants a premium price for the immediate fulfillment and possible advice that it provides. But online pricing is a battlefield of narrowing margins and consumer confusion. The hydra that is Amazon will not be satisfied until it has moved into every area where their online shelves can connect suppliers with consumers. Their price discounting and online cross-promotion can only be overcome by other areas of value including service, community appeal, health education and true convenience.

Dr. Stephen Needel
BrainTrust

It’s not about the physical store, Lyle – Walmart is cheaper than Amazon.

Shep Hyken
BrainTrust

I’m surprised that this is a question. The combination of value pricing and high convenience has been Amazon’s model from the beginning. The question is, how are CVS and Walgreens going to compete and thrive throughout the potential disruption? Amazon is becoming a player in the retail drug market and that includes both OTC and prescription drugs.

Susan Viamari
BrainTrust

While price is certainly an important consideration for consumers, brick-and-mortar players definitely have the upper hand in immediacy and personal relationships. Pharmacists are increasingly expert advisors in the journey to health, and this is a unique value proposition for brick-and-mortar retailers that they must continue to elevate. Many of the long-standing store brands also have strong brand equities — consumers know what they are looking for and they know what they will get. With newer brands, that confidence is just not as strong.

Certainly, Amazon is well-positioned in the marketplace and has demonstrated fantastic momentum. But the brick-and-mortar retailers are certainly not down for the count.

Celeste C. Giampetro
Guest

I agree, Susan. CVS has launched MinuteClinics in many of its locations to provide immediate walk-in care for locals. Most consumers seek advice from their pharmacists when purchasing OTC drugs and it will be hard to replace that human connection. Cheap isn’t always the answer.

Michael La Kier
BrainTrust

Amazon’s strategy is to undercut the competition on OTC medications and start conditioning shoppers to think of them more for healthcare needs (in fact, they want to be seen OVERALL as a provider for day-to-day needs). This will be interesting, however, as the drug category has some of the most sophisticated loyalty and CRM programs. I’m not sure Amazon has faced off against a retail category as intimate with their customer. If Amazon starts to pick off CVS’s, Rite Aid’s or Walgreens’ core shoppers these retailers can identify it quickly and respond rapidly.

Seth Nagle
BrainTrust

The question comes down to price elasticity across the category, do shoppers treat OTC remedies like coffee and will they buy them regardless of the price? Or will they treat them like pasta and search for the lowest price on the shelf?

Gene Detroyer
BrainTrust

If Amazon is lowballing at $8.05, then what is Walmart doing for the same dose and count at $6.98? Maybe CVS and Walgreens are highballing? Let’s not read too much into deep strategic thinking here. Maybe it is just a matter of competition?

Joel Rubinson
BrainTrust

I would guess there is little connection in consumers’ minds between OTC and Rx so the answer to the question asked is no, this will not help Amazon establish an Rx business.

Furthermore, Amazon doesn’t just sell stuff, they provide disruptive models. there is nothing disruptive to the Rx space about offering less expensive Motrin. On the other hand, I WOULD expect something disruptive from them in the Rx area as a separate initiative.

James Tenser
BrainTrust

Very well observed, Joel. Amazon may offer many OTC remedies as commodity items, but that won’t be an on-ramp to filling prescriptions.

Neil Saunders
BrainTrust

CVS and Walgreens are expensive, period. They get away with it somewhat because they offer convenience. However, it also makes them ripe for picking off as shopping habits change.

Sterling Hawkins
BrainTrust

Amazon has a playbook and they’re very good at stepping into new markets with lower prices. They’re also a trustworthy source having gained consumer confidence and awareness nearly across the board. I wouldn’t be surprised if they start opening physical drug stores after they squeeze CVS and Walgreens to the point of no return. Big drug stores should be looking to leverage the specific consumer health data they already have to create a personalized experience making price less of a factor.

Bill Hanifin
BrainTrust

Amazon does bring value to the general consumer population by pushing imcumbent brands like Walgreens and CVS to sharpen their pencil and lower prices as needed. Amazon has a unique ability to cast transparency into the market, and the ensuing competition is good for consumers.

That said, there is much more value to brick-and-mortar pharmacy than just picking up and Rx. About 85 percent of prescriptions filled are related to refills. For the balance of 15 percent, people are likely to have a more immediate need for the drugs and therefore place value on a visit to a local store. Thinking about the other items sold in a pharmacy, the value of a neighborhood store should remain strong for consumers for the foreseeable future.

Min-Jee Hwang
Guest

The low prices Amazon is offering on over-the-counter medicines will ultimately give the company a significant advantage in the drug market. Amazon is offering its medicine at a substantially lower price, which will keep shoppers coming back to purchase the medication they need. Amazon’s customers are loyal because they can get everything they may need on one site. CVS and Walgreens won’t be able to compete with Amazon’s low prices at the end of the day, so they will need to reassure customers of their brand value by emphasizing proximity, convenience, and customer service.

wpDiscuz
Braintrust
"While price is an important consideration for consumers, brick-and-mortar players have the upper hand in immediacy and personal relationships."
"CVS and Walgreens are expensive, period. They get away with it somewhat because they offer convenience."
"If Amazon starts to pick off CVS’s, Rite Aid’s or Walgreens’ core shoppers these retailers can identify it quickly and respond rapidly."

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