In a panic over Amazon.com’s plan to buy upstart online pharmacy PillPack, shareholders drove down the aggregate market value of CVS Health, Walgreens Boots Alliance and Rite Aid in late June by about $11 billion. Retail real estate professionals and at least one executive from these drugstore brands have displayed a bit more poise.
“I don’t think it’s any surprise that Amazon wants to get into the pharmacy space,” said Randy Blankstein, president of The Boulder Group, a net-lease brokerage based in Wilmette, Ill. “But it’s step one for Amazon, and I think people are questioning what steps two and three are going to be as they get in and learn the business.”
Even before Amazon announced its acquisition of PillPack, net-lease investor demand for drugstores had softened, except for well-located and high-performing properties, Blankstein says. Uncertainties over Walgreens’ acquisition of some 1,900 Rite Aid stores and over the pending merger between Albertsons and the rest of the Rite Aid portfolio were behind that softening. Indeed, Walgreens in March formulated a plan to close some 600 stores over 18 months as part of the integration of the two brands. Meanwhile, the CVS decision to put pharmacies inside some Target stores is giving net-lease buyers pause in cases where CVS and Target stores are located near each other, says Sean O’Shea, managing director of the net-lease division of Los Angeles–based BRC Advisors.
PillPack's app includes an auto-import meds list to ease the hassles of entering prescriptions manually. It also offers the ability to set reminders
During the Walgreens Boots Alliance fiscal third-quarter earnings call, held the same day as the Amazon and PillPack announcement, CEO Stefano Pessina told analysts that the deal did not worry him and that physical pharmacies would “continue to be very, very important in the future.” He pointed out that PillPack was still a small company and that the pharmacy industry was more complex than just delivering pills.
In 2017 PillPack generated about $100 million in revenue — minuscule when compared with the estimated $340 billion U.S. consumers spent on medicine for the year, according to the Centers for Medicare & Medicaid Services. Moreover, if Amazon is to fully immerse itself in the pharmacy industry, it will need to take some additional steps, says Blankstein. Those steps, he explains, include building relationships with the prescription-benefit managers that administer drug plans for health-plan sponsors and which therefore have a say in where consumers buy their prescriptions. Drugstores already have such ties to these prescription-benefit managers, even to the point of owning them outright in some cases, as CVS does. CVS is also acquiring health insurance company Aetna to help secure a pool of customers.
“It’s not a ‘location A versus location B’ debate anymore, because the digital shelf and the physical shelf are the same. It’s a question of delivery systems: Which one is more user-friendly and cheaper?”
But in the event that Amazon is able to work out those details, its formidable expertise in delivering competitively priced products could spell trouble, argues O’Shea, especially given that the younger consumers who have grown up using its e-commerce platform have begun displacing their elders.
“The name of the game is market share, and that’s the tricky part going forward,” O’Shea said. “It’s not a ‘location A versus location B’ debate anymore, because the digital shelf and the physical shelf are the same. It’s a question of delivery systems: Which one is more user-friendly and cheaper? That’s where the ground is shifting.”
By Joe Gose
Contributor, Shopping Centers Today