Although large retail pharmacies like Walgreens and Walmart are worried about Amazon's push into the industry, they shouldn't be, Vitaliy Katsenelson, chief investment officer at Investment Management Associates, wrote in an op-ed.
There are several reasons why Amazon will not significantly affect the existing retail drug industry, according to Mr. Katsenelson.
Here is a breakdown of those reasons:
1. Amazon's online pharmacy won't be a draw for aging Americans. Most drugs in the U.S. are consumed by an older population whose habits are unlikely to change or will not change very quickly, according to Mr. Katsenelson. As a result, the brick-and-mortar stores are an advantage to retail pharmacies.
2. Walgreens, Walmart have a huge share of the industry. Americans spend $450 billion on drugs per year. Walmart, the fourth-largest pharmacy in the nation, has pharmacy sales of $21 billion. According to Mr. Katsenelson, even if Amazon is able to get to Walmart's level in five years, Walgreens would barely notice its presence, because its pharmacy sells about $70 billion per year.
3. Everyone is taking Amazon too seriously. Companies across the U.S. are "bestowing CEO Jeff Bezos with walk-on-water-like superpowers," Mr. Katsenelson wrote. "Boardrooms today are filled to overflowing with chatter about Amazon. There's admittedly a lot corporate America can learn from Bezos [for instance, about ignoring short-term results], but Bezos is not superhuman, and Amazon cannot bend the laws of economic gravity."
4. Underutilized assets. Walgreens has an underutilized asset — its front-of-store sales. The pharmacy generates about 70 percent of its revenue, and the front of store brings in about 30 percent. To optimize this asset, Walgreens is trying out new strategies to bring people into the store, including opening medical clinics and offering testing services.
Read the full op-ed here.