In the connected economy, retail pharmacies like CVS, Walgreens, and Rite Aid face challenges to their traditional business models. As consumer preferences move toward digital solutions and telehealth services, these industry leaders are assessing their business strategies to remain viable.
CVS recently appointed David Joyner as CEO amid struggles to stabilize its healthcare business. The company’s challenges include elevated medical costs and declining retail sales, prompting a strategic review that considers splitting its insurance and retail divisions. CVS also announced plans to cut about 2,900 corporate jobs as part of a broader initiative to trim $2 billion in expenses.
In a similar vein, Walgreens Boots Alliance is transforming its retail pharmacy operations, including the closure of around 1,200 underperforming stores over the next three years. CEO Tim Wentworth acknowledged the difficulties, stating, “The consumer may get stronger, but you wouldn’t count on it right now.” The company reported a net loss of $3 billion last fiscal year, attributed to opioid-related liabilities and operational costs.
Rite Aid, having emerged from bankruptcy, is also adapting its strategies. Chief Marketing Officer Jeanniey Walden highlighted the importance of data-driven decision-making in refining marketing and merchandising efforts to better understand and respond to consumer behavior.
As foot traffic declines, retail pharmacies find themselves facing pressure from both traditional competitors and new entrants like Walmart and Amazon. Walmart’s recent announcement to deliver prescriptions directly to customers underscores the evolving dynamics of the pharmacy sector.
In an interview with PYMNTS, George Van Antwerp, managing director at Deloitte Consulting, noted that the rise of online shopping and telehealth has fundamentally altered consumer behavior, pressing pharmacies to rethink their offerings.
“The traditional business model is evolving with a focus on the consumer and closer integration with health plans and payers,” Van Antwerp said. “Pharmacies are looking at ways to engage consumers differently through digital and other channels. They are looking at how data and AI [artificial intelligence] can make those interactions more personalized. At the same time, they are expanding and improving their mobile and web functionality and offering new delivery options. While most newer pharmacies haven’t taken significant share, they have prompted incumbents to reevaluate their business models, services and investments.”
In response to these industry shifts, Van Antwerp said, retail pharmacies continue to evolve their services and offerings to leverage central fill and 90-day prescriptions while lowering costs through technology automation.
“At the same time, they are investing in digital engagement and the overall patient experience,” he added. “In some cases, this has included broader services like clinics, but in general, retail pharmacies are working to find new ways to provide clinical services that improve patient outcomes and get reimbursed for those services. This is driving closer collaboration with some payers and more integration of data.”
Meanwhile, in an interview with PYMNTS, Sudip Mazumder, SVP, retail industry lead, North America, at digital consultancy Publicis Sapient, explained the impact of declining foot traffic and changing consumer behavior.
“This decline in foot traffic has notably impacted the overall sales of retail pharmacies,” Mazumder explained. “While prescription drug sales remain a stronghold, the reduction in over-the-counter (OTC) purchases and related services has adversely affected their financial performance. … As consumers increasingly seek convenience, the demand for in-person pharmacy consultations and services has decreased, resulting in a decrease in front-of-the-store high-margin general merchandise sales. Retail pharmacies must adapt quickly to these changes to stay relevant.”
A competitive pricing landscape and the availability of generic drugs add more pressure, he said.
“Lower prices from online and mail-order services make medications more affordable for consumers but have strained the profitability of retail pharmacies,” Mazumder explained. “Long wait times in stores are leading to increased customer dissatisfaction, resulting in lost sales and higher operational costs as pharmacies struggle to sell their general merchandise.”
What can retail pharmacies do to gain positive business trajectories?
“To address these challenges, retail pharmacies are implementing various strategies,” Mazumder said. “They are expanding their service offerings to include health screenings, vaccinations, and chronic disease management programs. They are also enhancing the in-store experience with personalized services and digital tools and partnering with healthcare providers for integrated care services.
“Retail pharmacies aim to retain their customers and remain a key part of healthcare by leveraging technology for efficiency and customer engagement, including options like prescription delivery and virtual consultations. By adapting to these changes and focusing on value-added services, they can continue to play a crucial and irreplaceable role in the healthcare ecosystem.”
In an interview with PYMNTS, Amanda Lai, a retail analyst and director for consultancy McMillanDoolittle, said elevated prices have led many consumers to trade down, choosing to shop at value and mass merchant retailers for their everyday needs instead of paying a premium for convenience at retail pharmacies.
“The rise of eCommerce and telehealth has reshaped the traditional retail pharmacy model,” Lai explained. “Customers have increased expectations for convenience and a seamless digital experience when it comes to managing their healthcare needs, from filling prescriptions online to accessing on-demand telehealth consultations.
“This shift puts pressure on brick-and-mortar pharmacies to integrate digital capabilities, such as eCommerce and digital health platforms. Like the broader retailer industry, those in the retail pharmacy business who do not adapt to the shift to digitalization risk losing customers to more tech-forward competitors.”
The future of retail pharmacies hinges on their ability to adapt to a connected economy characterized by changing consumer preferences. If retail pharmacies adapt to the challenges ahead, they can maintain a role in healthcare by harnessing technology, improving service offerings, and refining their operations.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More