Pharmacies Could Be Under Threat From Amazon, What Can They Do About It?

pills

Pharma sales are booming.

In 2015 alone, US pharmacy and drugstore sales amounted to approximately 263 billion U.S. dollars. CVS alone generated about $153 billion that year, with about $52.5 billion of that total generated through the sale of prescription drugs. The size of the market, its growing value, and the many inefficiencies inherent in its supply chain means that it’s an industry ripe for disruption.

As usual, this opportunity hasn’t gone unnoticed by Amazon. As they explore multiple retail verticals to see which are the best candidates for disruption, Amazon is now allegedly eyeing the pharmacy business. According to a review of records by the St. Louis Post-Dispatch, Amazon has received approval for wholesale pharmacy licenses in at least 12 states, including Nevada, Arizona, North Dakota, Louisiana, Alabama, New Jersey, Michigan, Connecticut, Idaho, New Hampshire, Oregon and Tennessee.

pharmacy

As is often the case with Amazon, they seem to be already shaking up an industry they haven’t even entered yet. The Wall Street Journal reported last week that Amazon’s potential entry into the pharmacy-services industry helped spur CVS’s $66 billion bid for Insurance Giant Aetna Inc. Beyond the on-demand revolution, which has seen delivery services explode across the retail industry, the pharmaceutical industry has further strategic relevance. While most prescriptions are still filled in brick-and-mortar pharmacies, patients with chronic conditions are often encouraged by insurers to get their medications through mail-order dispensaries.

Companies such as Capsule Pharmacy (disclaimer: they use Bringg’s delivery logistics solution!) have identified the gap in the market for customer-centric pharmacy services and are growing in an industry which typically lags behind when it comes to on-demand, digital innovation, and customer service. The e-commerce startup, which currently operates in NYC, offers free same-day delivery of prescription medicine and access to its team of pharmacists via text, email, or phone.

Pharmacies generate $275 billion in annual revenue – and only 1% of it is online. Capsule is a prime example of a business driven by the ambition to provide a superior level of customer care and attention. They don’t charge customers on top of what the medicine costs (since prescription prices are set by insurance companies), but they take advantage of the fact that they don’t have physical real estate and all of the related expenses, while offering a level of service that most pharmacies simply can’t match.

While the likelihood of Amazon eventually getting into the pharmacy and pharmacy delivery business is high according to several analysts and a former employee, it’s hard to guess when exactly they will make the move or how aggressive it will be. Nonetheless, businesses in the industry should take note and begin to modernize their supply chain – offering their customers the same level of service they’ve come to expect from other more customer-centric businesses such as food delivery.

The perceived threat of Amazon entering the industry might actually be a blessing in disguise, prompting existing pharmacies and drugstores to step up their game, leverage their know-how, and lead the change before it’s too late. By combining the right technology infrastructure with their existing facilities and clientele, they can become better companies that evolve and leverage innovation so that both profits and customer service can flourish simultaneously.

Raanan Cohen