Are we headed for a drugstore apocalypse?
CVS Health Inc., America’s biggest pharmacy chain, rang a warning bell in February with a disappointing 2019 forecast that reflected pressure on its prescription-drug business. A month later, Rite Aid Corp., another big pharmacy operator, jettisoned executives amid continuing struggles as its stock price traded below $1. Then on Tuesday, No. 2 chain Walgreens Boots Alliance Inc. announced dismal second-quarter results and slashed its full-year guidance. Its shares tumbled more than 12% as both retail and pharmacy performance fell substantially short of expectations.
Trouble on the convenience-store side of the business isn’t news. But pharmacy sales have helped cover up those issues for years; the fact that these chains are now making less money on prescriptions is a matter of real concern. A once consistently profitable differentiator that helped insulate drugstores from the headwinds facing the rest of the retail world is no longer as reliable.
Pressure on the pharmacy business is coming from all sides. Increased political scrutiny and outcry over the high cost of medications means fewer drugmakers are raising prices on medications, and the Food and Drug Administration has sped up the generic approval process, which has helped bring down the cost of older treatments. The Trump administration has proposed a series of policies that could bring down prices even more.
The drugstore giants aren’t just competing with each other and smaller chains anymore. More internet-savvy startups such as Capsule and Blink Health have entered the market and will only continue to snatch customers out of stores and add to reimbursement pressure. Last year, Amazon.com Inc. bought PillPack, one of those upstarts, and could be a fearsome pharmacy competitor in time.