Pharmacies need to start protecting themselves from Amazon now, as its entry into Australia is “almost inevitable,” says one expert
If the online giant was able to enter the Australian market, it could easily acquire a wholesaler to establish a ready-made supply chain, Robert Read, CEO of MedAdvisor, told the AJP today.
Mr Read’s comments followed Amazon’s announcement that it had acquired PillPack, an American company which offers pre-sorted dose packaging, home delivery and a customer service commitment for people who take multiple daily prescriptions.
Crucially, PillPack has pharmacy licences in all 50 states of the US, which removes a significant barrier for Amazon in that country.
“PillPack’s visionary team has a combination of deep pharmacy experience and a focus on technology,” says Jeff Wilke, Amazon CEO Worldwide Consumer.
“PillPack is meaningfully improving its customers’ lives, and we want to help them continue making it easy for people to save time, simplify their lives, and feel healthier. We’re excited to see what we can do together on behalf of customers over time.”
The two say that completion of the transaction is subject to regulatory approvals and other customary closing conditions, and they expect to close the transaction during the second half of 2018.
CNN Money reports that CVS shares fell 9% in early trading, while Walgreens Boots Alliance dropped by more than 10%.
It’s an “almost inevitable scenario” that it will happen here, Mr Read says, which could see pharmacies lose up to 20% of their PBS volume.
“When you think about what Amazon’s all about, it’s about disrupting industries that are not progressing,” he told the AJP.
“A lot of that focuses on consumer experience, and with the health care system in general, that hasn’t been the number-one focus for the last 10 to 15 years. The risk for health care businesses is that they don’t adapt fast enough.
“Money’s no barrier for Amazon – they could acquire any of the big group wholesalers fairly easily, and that could cause significant indigestion for community pharmacies, as they’d have a supply chain ready-made and purchasing power second to none.
“They would push to leverage their Prime membership to offer inducements to use their service, and I’d expect that on those routine medicines that are low-risk, could supply through mail order or next-day delivery.”
Mr Read says the size of the Australian market may be some protection for pharmacy – but Amazon could use the sector as a “leverage point” to gain greater traction in other areas.
The Health and Beauty sector is already a booming area of online shopping, with Roy Morgan announcing that it’s one of the strongest-growing areas in Australia.
The effect on individual pharmacies could be very significant, Mr Read warns.
“This would depend on the specific demographic of the pharmacy – but if you assume 20% of people really focus on convenience, as an absolute minimum, they will do everything to focus on those people.
“So there’s a risk that 20% of your business might fly to Amazon. They’re saying they want to get mail order back up to 20% of the US pharmacy market; and that’s probably the threshold they look at in other markets.
“Twenty percent of your PBS volume coming out of your pharmacy would have a huge impact, and you’re still paying rent, you’re still paying wages and you’re paying for stock not moving.”
Already Mr Read says that pharmacists are often surprised when they sign patients who are perceived to be loyal up to MedAdvisor, and find out that they have also been getting medicines at one or more other pharmacies.
Pharmacies have not always moved swiftly enough to protect themselves against new threats in the past, he says.
“Look at the big box retailer dynamic – that really started to take hold and I think pharmacy didn’t quite know how to react. Many tried to compete on price, but they couldn’t match pricing from the big boxes.
“So that’s a case in point where planning, to play your strengths, is critical. Community pharmacy has so many strengths to build on, and they have to – if they just sit by and watch, you run the risk of losing to other players, not necessarily Amazon, but any of the other chains offering a better service to consumers.
“The message is very clear for pharmacy: get on with streamlining your business, improving the customer experience both physically and in a digital way. And ask everyone to join that experience; don’t just assume people are not interested in technology.”
Meanwhile, a spokesperson for the Pharmacy Guild said that “the Australian regulatory environment for prescription medicine supply may be an impediment to Amazon, but so be it because our regulatory environment is beneficial for patient safety and quality use of medicines.
“It will always be preferable for patients to receive face-to-face advice and guidance from a flesh and blood pharmacist when receiving prescription medicines,” the spokesperson said.
“Furthermore, the Pharmaceutical Benefits Scheme significantly subsidies many prescription medicines, including all PBS medicines dispensed to concession cardholders – so it is unlikely Amazon could supply medicines at a cheaper price.”