Traditional drug store chains are feeling the pressure from new digital players such as Amazon and e-pharmacy startups like Capsule and NowRx.
As competition from digital rivals continues to grow, CVS and Walgreens are embracing retail healthcare and expanding their healthcare offerings by adding value-based care and outpatient services, according to a new report from Coresight Research.
Drugstores are going beyond being mere places to fill prescriptions and pick up convenience items, responding to consumer demand for healthcare solutions.
Here are three things the drug chains are doing to compete with digital rivals:
In-store health services
CVS plans to transform 1,500 stores into HealthHUBs over the next two years, after launching the first three stores in Houston in February as a pilot. The updated stores allocate 20% of retail space to health services, including wellness products and personalized care.
In January 2020, the company said 600 of these conversions would be undertaken this year.
HealthHUB stores feature an expanded health clinic, where nurse practitioners provide services such as diabetic screening, blood tests and sleep apnea assessments. CVS’s HealthHUB stores are equipped to deal with chronic conditions such as respiratory illnesses and diabetes, Deborah Weinswig, CEO and founder of Coresight Research wrote in the report.
CVS touted the early success of the Houston stores on its fourth-quarter earnings call, saying they outperform traditional CVS stores in foot traffic, pharmacy script volume, MinuteClinic visits, front store sales, and store margin.
At the annual J.P. Morgan Healthcare Conference in San Francisco in January, CVS Health CEO Larry Merlo said the goal is to offer a "surround sound" experience to consumers.
By devoting more retail space to healthcare services, the company is looking to reduce its reliance on nonpharmacy retail sales as shoppers are increasingly buying nondrug products online or from convenience stores, Coresight Research noted.
CVS has largely depended on the growth-through-acquisition strategy to make its push into healthcare acquisitions—including the late-2018 takeover of health insurer Aetna. Walgreens, on the other hand, has forged a series of partnerships with local health providers and insurance companies to offer in-store health services.
Last year, Walgreens partnered with Chicago-based VillageMD, a national provider of primary care, to open five new primary care clinics next to Walgreens stores in the Houston area, with plans to possibly expand there and in other markets.
The 2,500-square-foot primary care clinics will offer services including chronic care management, annual preventive care, women’s health services, smoking cessation, vaccinations, diagnostic testing and some specialty care. The clinics will be staffed with pharmacists, primary care physicians, nurses and social workers.
The pharmacy giant also has partnered with UnitedHealth Group to place MedExpress urgent care centers at 15 Walgreens locations in six states. It also runs senior health clinics at five locations in collaboration with health insurer Humana.
Prescription drug delivery
The pharmacy retail market is facing significant disruption from e-pharmacy startups like Amazon’s PillPack, Capsule, NowRx, Hims & Hers, Ro and Blink Health. These startups offer consumers low-cost, fast-delivery prescription medication services to patients.
To better compete with its digital rivals, CVS and Walgreens have both launched fee-based subscription programs that offer discounts on eligible prescriptions and expedited delivery to members, according to Coresight Research.
CVS’s CarePass provides members with benefits like free one- or two-day delivery on qualifying prescription drug orders and access to a 24/7 CVS pharmacist hotline, for example.
CVS acquired Target’s pharmacy and clinic business for $1.9 billion in December 2015 and rebranded the stores as CVS Pharmacy. The pharmacy giant is now working with delivery service provider Shipt, a Target company, to offer consumers same-day prescription delivery from about 6,000 pharmacy locations for a $7.99 fee, the report said.
One strategy Walgreens is considering is a leveraged buyout, Coresight Research said.
In November 2019, Bloomberg and Reuters reported that Walgreens was considering a deal to take the company private. It is reportedly in talks with private equity firm KKR & Co. to potentially buy out its shareholders,
"A leveraged buyout would give the company time and flexibility to restructure and transform its stores, potentially relieving some of the quarterly pressures Walgreens faces as a public company,” Weinswig said in the report.
While the drug chain giant has been striking partnership with health systems, grocery stores and beauty companies, the new partnerships appear to be drawing skepticism from some investors and analysts, who argue that these joint ventures will not generate revenues fast enough to compete with rivals and offset falling traffic to its retail stores, the report said.