Will Amazon Affect Independent Community Pharmacies?
By now everyone knows that the giant web-retailer Amazon has announced its intention of entering the prescription marketplace. As reported by CNBC in May of this year, Amazon is actively engaged in getting into the multi-billion dollar prescription industry. It actually seems that the same reasons that Amazon is so interested in gaining a share of this lucrative space may actually be the same reasons that the rise in new independent community pharmacies is occurring: The rise of high deductible insurance plans and a national trend showing an increased number of consumers paying for their health care services. Additionally, the recent report released by IMS Holdings (the largest health care information company) that prescription spending over the next 5 years is expected to rise by over 22% is leading many industry analysts to believe that there is plenty of room for the independent pharmacy to flourish and thrive.
Independent Community Pharmacies Have a Competitive Edge
Many feel that the local independent pharmacies actually have a competitive edge to both Amazon and the big drug chains such as Walgreens and CVS. They base this on four primary reasons:
1. Service –
According to several recent consumer surveys, customers are more willing today to pay for customer service than ever before. Especially consumers in the senior citizen population segment. Can anyone name a chain store or supermarket based pharmacy that is willing to deliver your prescriptions to your house? Several of the large chains do “promise” home delivery services, but let’s look at the “fine print”. Using Walmart as our example, take a good look at Walmart’s Home Delivery page:
– First and foremost they are basically offering a mail-order solution to their pharmacy patients.
– “Home Delivery” service equates to “mail order” as they use the US Postal system and it takes 7 to 10 days for your medications to arrive. Additionally, if you have an emergency and desperately need your prescription medication, you then will immediately understand that their home delivery service is a sham. According to the “fine print”, you need to “have your prescription called in and filled at a Walmart retail pharmacy location; there’s no option to expedite shipping for the Pharmacy Home Delivery service at this time”. If you check Walgreens and CVS you will find the same scenario.
As a basis for comparison, a quick search of “home delivery pharmacy in Orlando, Florida” on Google resulted in over a dozen (18 total) independent retail community pharmacies that were willing to deliver to a patient’s home the same day.
2. The “Community” Aspect –
Prescription sales comprise roughly 95% of the average independent’s gross revenue. Compare this to the large retail chains that average about 50% and make most of their profit on non-prescription items and front-end merchandise. Studies of the retail industry as a whole have shown that people would rather shop at stores that are local and familiar, plus where they know the employees and feel welcomed when the staff recognizes them and even knows their names. Like it says in the old Cheers TV show theme song: “You wanna be where everybody knows your name”.
Additionally, the wait time in the large chain stores is usually extremely long and as consumer surveys have shown “very stressful” to many patients. This is even more true for elderly consumers and patients. In other words, “there is an hour wait time to fill your prescription. So please wander around the store and purchase a bunch of items that you didn’t come in the store to buy and that we make a lot of profit on selling to you”. Many times a patient is extremely ill and an hour or more wait can seem like an eternity to them. Most independents are able to fill a prescription in as little as ten to fifteen minutes. Plus they are able to “push” the sick person’s Rx to the front of the queue due to the decreased prescription volume normally seen. Additionally, there are normally less patients actually waiting inside the pharmacy area, and isn’t it frequently the case that a waiting customer will say “go ahead and fill their’s ahead of mine” when someone is really sick?
3. New drugs and biologics –
The advancement of new prescription medications is increasing exponentially. Thus the emergence of specialty pharmacies. The large chains and perhaps, even Amazon, simply cannot meet the demand for these. Nor can they replace the community pharmacist when it comes to consulting on the complicated scenarios that the biologics present to dispensing.
4. An aging population –
People are living longer than ever before and that means more prescription sales. In the US alone, projections estimate that the number of citizens 65 and older will more than double from 46 million today to over 98 million by 2060. Even more significant are the projections that the senior citizen (65 and older) age group’s share of the total population will increase from the current 15% to a staggering 24%. As noted previously, with prescription sales comprising roughly 95% of the average independent’s gross revenue, the future of this aging population translates into both stability and profitability for the independent retail pharmacy.
Is Amazon Serious About Entering the Prescription Market?
The answer is that no one really knows for sure. As noted previously, CNBC reported that Amazon is actively engaged in getting into the multi-billion dollar prescription industry. Then Amazon’s purchase of Whole Foods for $13.6 billion resulted in a dramatic “pummeling” of pharmaceutical retailers such as Walmart, Costco, Kroger and Target as examples (who collectively lost an estimated $22.6 billion in market capital. The PBMs (Pharmacy Benefits Managers) were also hit hard with CVS Health Corp and Express Scripts Holding Company seeing slides in their stock prices.
However, some recent reports are questioning if Amazon really is planning on entering the game, and if so, how soon. According to the experts at MarketWatch, it is important to note that after close examination the Amazon’s earnings calls since 2006, there was absolutely no mention of pharmacy. They state that Amazon entering the pharmacy market reports “are driven by unsubstantiated and unconfirmed press reports, not by Amazon itself”.
Are You Considering a Pharmacy Startup?
The bottom line is really that Amazon will probably not affect the independent retail community pharmacy industry. Whether Amazon eventually does choose to enter the game or not, the timing to open up a new independent pharmacy business has never been better.
Pharmacy startups and opening new pharmacies have been our business now for over 28 years. Having helped open hundreds of new pharmacies, HCC ensures that all aspects of the business are covered and done right. We offer you the support of an experienced staff who have been through the process many times and know the business inside and out. Whether you are a seasoned business professional with experience or simply considering a pharmacy venture as a new business investment, HCC can help. Contact us now online or call us at (800) 642-1652 for a Free Consultation.