Will Amazon’s new online pharmacy disrupt the U.S. drugstore business?

Discussion
Photo: Amazon
Nov 17, 2020
George Anderson

Amazon.com announced the launch of Amazon Pharmacy, a new online pharmacy service and another free perk for the e-tailing giant’s Prime members.

The new service offers free unlimited two-day deliveries of prescriptions filled by Amazon and lower prices (up to 40 percent off brand name; 80 percent off generic medications) for members who do not have health insurance. Amazon is also touting that there are over 50,000 pharmacies participating in its program across the U.S., all offering discount pricing, as well.

Consumers who want to use Amazon Pharmacy can go online or use the Amazon app to set up a profile with their insurance and payment information.

“We designed Amazon Pharmacy to put customers first — bringing Amazon’s customer obsession to an industry that can be inconvenient and confusing,” TJ Parker, vice president, Amazon Pharmacy, said in a statement. “We work hard behind the scenes to handle complications seamlessly so anyone who needs a prescription can understand their options, place their order for the lowest available price, and have their medication delivered quickly.”

For years, speculation has circulated over Amazon’s eventual entrance into the retail pharmacy business and its likelihood of success. The e-tail and tech giant’s acquisition of PillPack in 2018 was seen as a key development that would help Amazon navigate the legal and operational complexities of the business. While that service did not seriously disrupt the balance of power in retail pharmacy, it did indicate that Amazon was likely only getting started.

The novel coronavirus pandemic helped create a situation in which Amazon sees as an opportunity to make inroads into gaining market share.

“As more and more people look to complete everyday errands from home, pharmacy is an important and needed addition to the Amazon online store,” said Doug Herrington, SVP of North American Consumer at Amazon. “PillPack has provided exceptional pharmacy service for individuals with chronic health conditions for over six years. Now, we’re expanding our pharmacy offering to Amazon.com, which will help more customers save time, save money, simplify their lives, and feel healthier.”

The added free pharmacy perk just presents another competitive bar that Amazon is setting up for rivals, from CVS to Walmart, to jump over.

CVS, which rolled out its CarePass subscription program across the U.S. last year, offers free delivery on prescription medicines, over-the-counter remedies and other products sold by the chain with no minimum order for an annual fee of $48 or $5 a month. The drugstore powerhouse can not match other perks offered to Amazon Prime members.

The same is true for Walmart+, which offers unlimited same-day deliveries of groceries and general merchandise goods from the retailer’s supercenters for an annual subscription of $98, but not other elements of Amazon’s program.

DISCUSSION QUESTIONS: Does the launch of Amazon Pharmacy mark the beginning of the company becoming a major force in the U.S. pharmacy business? Do you see Amazon expanding Pharmacy’s presence in Whole Foods or other stores it operates? How do you expect rival pharmacies, from national chains to independents, to respond to this development?

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"I really prefer the instant gratification of a drive-thru pharmacy, and the convenience of having preferred pricing from my medical insurance plan at one of the big two."

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33 Comments on "Will Amazon’s new online pharmacy disrupt the U.S. drugstore business?"


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Mark Ryski
BrainTrust

Given the current events of the day — namely COVID-19 — I would say that the launch of Amazon Pharmacy will have greater impact on the industry. There is no question that given Amazon’s position in the market, coupled with the acceleration of online buying caused by the pandemic, that this latest move into pharmacy by Amazon will have a meaningful and sustained impact.

Art Suriano
Guest

I see Amazon Pharmacy being successful; I think it will be a significant disruption to the pharmacy industry. For years, people have complained about prescription drugs’ high prices, and very little has been done about them. For too many people, especially those without medical insurance, their choice is simple: pay the high price or don’t get the drug, and if it is something needed to survive, what choice do they have?

As for the pharmacy industry, there’s no doubt that Amazon will become the leading choice for prescription drugs in time, which will force others to lower their prices. If we think back to the earlier days of Amazon when it seemed that all retail was doomed, things did work out, but it took many years for retailers to learn how to compete. However for the consumer, the benefit was lower prices. I predict we will see a repeat of that.

Bob Amster
BrainTrust

The real advantage of shopping Amazon Pharmacy will be if, somehow, Amazon can undercut the price of the prescription medicine. Other companies can deliver to one’s home, other companies offer a way to coordinate the delivery and the due date of multiple prescriptions (Walgreens) so really, the only advantage to shopping Amazon would be if Amazon can reduce the prices significantly enough for consumers to notice.

Dr. Stephen Needel
BrainTrust

The Pillpack acquisition marketed the beginning of Amazon’s entry into this space. Whether they become a major force is going to depend on the price of the prescriptions. I don’t see this as a fit for their Whole Foods stores – aside from remodels, the number of stores isn’t large enough. Rivals will jump on this, even if there is no need to.

David Naumann
BrainTrust

Amazon Prime members are comfortable ordering just about anything form Amazon and adding their recurring prescriptions to their account is a logical next step. This will be a hard hit for U.S. pharmacy businesses.

Brett Busconi
Guest

We will see if this is the start of becoming a “major force” but I think we know enough about some buyers to understand that they are going to take a swing at pretty much everything Amazon adds to their services.
My feeling is that there will not be a big Whole Foods Pharmacy push, at least not initially.

Delivery is a door kicked wide open and Amazon is the market dominator here. They will continue to add a wider variety of products via their existing delivery model. This sentence from the article puts it exactly into the correct perspective:

“The novel coronavirus pandemic helped create a situation in which Amazon sees as an opportunity to make inroads into gaining market share.”

Lisa Goller
BrainTrust

Yes, Amazon’s just getting started in the pharmacy sector. Launching Amazon Pharmacy and prescription delivery adds even more value to Prime membership, boosting loyalty. Prescription delivery is particularly convenient this year, as lockdowns likely lie ahead.

Whole Foods stores would be an ideal fit to serve consumer demand for grocery and pharmacy essentials. Looking ahead, Amazon Pharmacy gives the retailer relevant insights for potential ventures in healthcare and insurance.

Pharmacy rivals suspected this day would come. They may rely on their customer relationships, niche offerings and industry legacies to compete against Amazon.

Paula Rosenblum
BrainTrust

I don’t think Amazon poses a credible threat. I mean, the chain drug industry is in trouble because every store from groceries to Costco are now selling prescriptions. This is just another player. Of course I miss the independent pharmacy, but they are all gone.

I suppose I could be wrong, but I really prefer the instant gratification of a drive-thru pharmacy, and the convenience of having preferred pricing from my medical insurance plan at one of the big two.

Georganne Bender
BrainTrust

I like the instant gratification from a drive-thru pharmacy and the ability to speak right then and there to the pharmacist who filled my order.

Laura Davis-Taylor
BrainTrust

I don’t mean to be alarmist, but let’s see — track my life purchases, track my groceries, track in-home IoT interactions, music, etc. Now track my prescriptions?

I have been waiting for Amazon to get into the health insurance marketplace for years. My personal theory is that users will have to agree to a wearable that tracks their activities and health habits to get it for a bargain. This move is a leading indicator. My belief is that we we’ll fall right in if we have no other viable options.

Oh, what we as a society will do for cheap and easy. As Amazon continues to profit from our data and snuff out established companies, at what point will we embrace the real cost?

Georganne Bender
BrainTrust

Told you, total world domination. lol

Laura Davis-Taylor
BrainTrust

Amen, sister. What’s behind the curtain matters. They give away margin and make it easy to get data, putting others out of business. It’s too big already — and I do hope some oversight comes in at some point.

Kevin Graff
BrainTrust

I couldn’t agree more. Will they succeed with this initiative? Yes. But I wouldn’t trust Amazon with gathering even more personal info. The price we’ll all pay at some point (less competition, less choice) will be exceptionally high.

Neil Saunders
BrainTrust

On the surface, there is nothing particularly revolutionary about a digital pharmacy offer that allows customers to complete their prescriptions online. The major drugstore chains already offer this and so Amazon is simply another addition to the fray. However Amazon has three major advantages in the battle. First, it’s convenient for existing Amazon customers to place prescriptions with the same platform used for other products. Second, Amazon has a lot of tools to help customers understand drug options and pricing. Third, Prime members will get discounts for non-insurance paid prescriptions. I expect Amazon to make further moves into pharmacy and that’s a threat to the likes of Walgreens and CVS – both of which have been too complacent for too long!

Dave Wendland
BrainTrust

Judging from Wall Street’s reaction to this news, most believe this is a significant disruption to the pharmacy landscape. Certainly the ability for Amazon to simplify processes, increase price transparency, and pile on additional benefits makes this move formidable (to say the least).

Rival pharmacies must shore up their unique value propositions by quickly moving beyond the commoditization of the Rx transaction and reinforcing the role of the pharmacist and the outcomes management offered through services, monitoring, and continuum of care.

Suresh Chaganti
BrainTrust

Healthcare costs have the least transparency. It is a shocking difference between what you pay as a part of insurance vs. buying with coupon from GoodRx (or now potentially from Amazon Pillpack). It is less than even a copay in most cases.

I also hope they get into other consumer areas – diagnostic tests, lab tests, etc., where for non-urgent care, consumers can shop around. A determined consumer can get those savings even today, but someone like Amazon can make a significant difference in making it easy.

Camille P. Schuster, PhD.
BrainTrust

If Amazon can offer prices that compete with the lowest in the marketplace, it will have a huge impact. Consumers do not enjoy having to go to all the local pharmacies to find a good price and set up an account with each one. Having to do this with every prescription every time is annoying, time consuming and frustrating. Having to pay extra for delivery, even a monthly fee that includes delivery, is an extra expense if you already have Amazon Prime. This could be a very big deal.

George Anderson
Staff

Charlie O’Shea, Moody’s retail analyst covering Amazon, offered the following assessment in an email to RetailWire.

“Similar to its foray into food, Amazon will find itself facing formidable, deeply-embedded competitors with voluminous store networks that are currently being heavily-leveraged to support drive-thru pick-up and home delivery,” said Mr. O’Shea.

“That said, given Amazon’s patient shareholder base, the company will be able to absorb whatever costs necessary to grow this segment into a meaningful competitive position.”

Raj B. Shroff
BrainTrust

Yes, the launch of this marks the beginning of Amazon being a major force in pharmacy. I do think leveraging their physical presence makes sense — why not? There is little downside and it helps to raise awareness of the offer.

I think rival pharmacies should bring their pharmacists and pharmacy offer closer to the front of their stores. They should focus on CRM efforts and leverage their physical presence like they have been, getting into preventative medicine and stepping into urgent care centers.

My bigger curiosity is around what Amazon is thinking about three or four steps down the road. Their first step usually gets people in a frenzy but is hardly the real plan; aggregate data capture leading to ailment prediction and futuristic ideas. Amazon is pulling us into the future they envision.

This move aligns with the Bezos philosophy to focus on what won’t change. At this point, he must think everyone will get old and need medicine. I hope he is still incentivized to fix that.

Gene Detroyer
BrainTrust

This may be a category where Amazon does not shake up the market. Walmart was not able to do it. After years and years, they have less than a 5 percent share of prescription drugs.

On the other side of the discussion — I was in a Duane Reade (Walgreens) yesterday to get a flu shot. The pile of prescriptions waiting to be delivered (not picked up) was astounding. I am guessing there were hundreds. That has to represent a significant change in behavior.

Amazon will have one big thing going for it — PRICE. But will there be discomfort by the customers getting their drugs on time?

Lee Peterson
BrainTrust

Considering the fact that pharmacy is up to 80 percent of the profit recorded by CVS and Walgreens, this is a major deal. You don’t have to look too far to check the damage Amazon has done to just about every sector of retail to get an idea of what will most likely happen here — especially when you take out the pure expense of have literally thousands of physical spaces and apply that to price. The big store pharmacy guys have to be scrambling at this announcement — watch for one-day delivery from all of them soon. Just like in the other categories Amazon invaded: this is a consumer paradise, here we go!

Gary Sankary
BrainTrust

Amazon can disrupt a market just by expressing interest. This is no exception.
They are entering a crowded market here, and what Amazon is offering is not new or particularly innovative. There is lots of competition out there. But they are Amazon and betting against their success usually is a bad idea. The value proposition for Amazon is ease of use and access to Amazon’s perks, enough to make this compelling for many customers. When you add account management tools and seamless billing, this will be a win. I expect that we’ll see competitors change the way they offer prescriptions by mail, and we’ll see more retailers eliminate shipping or annual service fees to better compete with Amazon.

Bindu Gupta
BrainTrust

The launch of Amazon Pharmacy hits all key transactional elements that any consumer will care about – free and quick delivery, lower price and hassle-free experience. Now the real question is, how comfortable would consumers be sharing this data with Amazon on top of everything else they know about them? It comes down to trust.

Mohamed Amer
BrainTrust

Prescriptions run into two categories, the initial script that has time-sensitive fulfillment and the highly predictable repeat refill business. Amazon’s challenge is getting the initial prescription, as the company should excel in the repeat part of the business (think of chronic diseases). If Amazon’s prices are competitive and it can provide free same-day deliveries on the initial prescription, then Amazon will have a significant impact on the U. S. drugstore industry by capture of the initial intake and securing the predictability of the refill business.