CVS Tests Membership Program — Mega Business Rivalry with Amazon is Exploding
Friday, November 02, 2018
Top analysts warn that Amazon is coming after CVS's core business.
The genesis of CVS and Amazon could not be more different. Consumer Value Store started in 1963 as a health and beauty retailer in Lowell. Today it is the largest pharmacy chain in America with 9,600 plus stores.
Amazon was first founded as Cadabra, by Jeff Bezos in 1994 as an online bookstore — quickly the company was renamed and today it is the world's largest online retailer by revenue.
Now, one business consultant is warning that Amazon's recent moves threaten CVS and its peers.
"The most loyal part of their [CVS and Walgreens] pharmacy customer base is the older consumer. Over the next ten years, this cohort will become a much less significant part of the market and this will leave drugstores exposed to younger shoppers who are more likely to use both Amazon and remote pharmacy services. There is a significant risk that drugstores will see a real erosion in pharmacy customer share, especially in urban and suburban areas where Amazon can quickly deliver," writes Neil Saunders, Managing Director of Global Data retail in the trade magazine Chain Store Age in June.
On Wednesday, CVS Pharmacy, the retail division of CVS Health announced that Boston-area customers can enroll in CarePass, a new pilot membership rewards program offering additional benefits to the company's popular ExtraCare Rewards Program -- think the CVS version of Amazon Prime.
CarePass offers members a “suite of in-store and online perks including free delivery on most medications and purchases, access to a 24/7 pharmacist hotline and 20% off all CVS Health brand products.”
"We are committed to designing and testing innovative programs that meet our customers' health needs whenever, wherever and however they want," says Kevin Hourican, Executive Vice President, CVS Health and President, CVS Pharmacy. "The CarePass pilot program in Boston offers our customers an additional level of benefits and services that make it easy to save time, save money and receive access to on-demand pharmacy care."
But, CVS starts this week with zero customers for their new service and Amazon Prime has more than 100 million members globally — each paying $119 annually (students pay $59 a year).
Also this week, Amazon Prime members in the Stamford, CT area now can receive same-day and maybe nearly same hour delivery of groceries from Whole Foods Market starting.
Also, in June, Amazon purchased PillPack and Saunders says it is a big danger sign for CVS and its pharmacy rival Walgreens.
“Amazon’s acquisition of PillPack is a warning shot in what is about to become a major battle within the pharmacy space. Not only has Amazon finally made a solid move into pharmacy, it has done so via an innovative supplier which helps patients manage and organize their prescription drugs,” wrote Saunders.
“In our view, this is only the first play in what will be an increasingly aggressive strategy by Amazon to develop a much more significant presence in the pharmacy market. This is incredibly bad news for traditional players, like Walgreens and CVS, who stand to lose the most from Amazon’s determination to grow its share,” added Saunders.
CVS’ Aetna Merger and Amazon’s Whole Foods Markets Purchase
All of this comes after more than a year of mega deal-making by both CVS and Amazon. Amazon purchased in Whole Foods Market in the spring of 2017. And, in December 2017, CVS finalized the deal points for its acquisition of Aetna.
At the time, a GoLocal analysis found that a combined CVS and Aetna company will be the second largest revenue company in the United States — at $240 billion — ahead of Apple ($215B) and Berkshire Hathaway ($223B). The only company in America doing more revenue would be Walmart ($485B).
“It positions CVS Health as a disrupter instead of the disrupted. It's obvious from our national healthcare policy debate -- and the growing number of families that can't access or afford the healthcare -- that we need transformational new healthcare business models. Tweaking today's healthcare models isn't working,” Saul Kaplan, Founder and Chief Catalyst at Business Innovation Factory told GoLocal in November of 2017.
CVS said it expects to realize $750 million in "synergies" through a number of cuts including reducing corporate redundancies between the two companies. They expect those savings to be realized within the first two years.
In October, the Justice Department gave conditional approval of the CVS-Aetna deal. The companies must first shed their Medicare Part D business before final approval. That is expected by the end of 2018.
Where the CVS and Amazon rivalry goes next is anyone's guess, but make no mistake about it, this is emerging to biggest rivalry in American business today.
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