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The “disruptor” is back, and they’ve come to visit your local pharmacy…

Amazon’s plan to purchase Whole Foods has caused quite a tizzy with some Pharmacists interested in seeing if this leads to new job opportunities in the market, or on the flip side potentially leads to job loss with a disruption in how drugs are delivered and consumed.

For me personally I turn to SWOT analysis to understand the pros and cons of transactions. SWOT stands for strengths, weakness, opportunities, and threats regarding a business or transaction. To get a brief overview of SWOT analysis visit wikipedia.

So with that being said…let’s take a look at what we have on our hand’s from my perspective…

Strength

  1. Amazon has plenty of money and is willing to spend it to keep the business growing. At the close of the bell on June 19, 2017, Amazon’s stock price is at $995per share. Gross revenue end of year (eoy) for 2016 was 135 billion dollars. Net income after operation expenses and taxes was 2.3 billion. Net profit margins for 2016 were a measly 1.74%. With so much money being made, why the low margins? Jeff Bezos, the CEO of Amazon is known for reinvesting profits back into the business. For Amazon, this has meant an emphasis on building infrastructure (fulfillment centers) and emphasis on technology and design (Amazon Fire, Echo, etc.). Don’t believe me? Click on this “article” published in 2013.
  2. Amazon is the “ultimate disruptor”. The company was essentially founded to disrupt; with the first disruption on how books could be sold and viewed on the internet. In my opinion, this company enjoys being a disruptor. Thus, they will know how to hire employees that will meet and exceed the demands of the consumer.
  3. In terms of potentially enter the pharmacy market; purchasing Whole Foods allows Amazon a traditional path for initially entering a market that can have some tough “barriers of entry”. Brick and mortar pharmacy locations can be setup at Whole Foods in a matter of months if they have the right staff in place.

Weakness

  1. The market already has both chain, specialty, and independent pharmacies meeting the needs of customers. Do we need pharmacies inside Whole Foods? Are the Whole Foods locations in idea markets as it relates to pharmacy?
  2. Pharmacy Benefit Managers can simply not allow Amazon to enter into the marketplace as a provider. This would create a barrier to Amazon’s entry and force the company to potentially create it’s own benefits company which would be costly and time consuming.
  3. Pharmacy is a business of supply chain. With the manufacturers working closely with the wholesaler and the wholesalers working with the pharmacies to create a marketplace for the consumption of goods. Each part of the supply chain has strict laws around their practice and distribution of drugs and medical products. Once again, this is a barrier to Amazon’s entry and it may be too time consuming and costly.

Opportunity

  1. Amazon already has mail orders through prime memberships. They have contracts in place with the postal service and other mail providers. Thus, mail order pharmacy can be an easier point of entry into the pharmacy market.
  2. There aren’t a ton of Whole Foods in each city. So, do they use their fulfillment centers to fill medications? Or would they rather setup closed door pharmacies at the Whole Foods locations and register each location as a mail order within the states they’re located? Either way the purchase of Whole Foods allows them to have more options.
  3. Automation has always been key to their success. How will they incorporate some of their technology in ways to change how pharmacy is currently practiced? Automation is already in use at most “big chain” pharmacies. How can Amazon use it’s technology to allow Pharmacists to fill prescriptions faster and more accurately?
  4. Knowing which medications people are on gives them a point of entry into each persons life. Now that they know your medicines, they can now data mine your information even further to know what you’re potentially going to purchase in the future. So potentially the real money to be made is on having the data. Dispesning the medication just allows a point of entry into your life. Medications are simply “loss-leaders”.
  5. Cash paying customers seeking alternative pricing to “big chain” stores.
  6. Being seen as a “disruptor” that brings about more transparency in drug pricing.
  7. Greater access to medicine for folks in countries that do not have the same level of healthcare as the United States.

Threat

  1. Major players (Caremark, Express Scripts/Medco, Optum Rx, Prime Therapeutics) will not give up market share without a fight.
  2. Healthcare law…what happens to ACA..is it repealed and replaced or just repealed?

Whats your opinion?

Is Amazon even interested in the pharmacy business? Are they just dipping their foot into the pool to get a sense of the market? Either way, it will be interesting to see how it all plays out.

_______

Sam Blakemore is the Pharmacy Manager of Peds Rx Pharmacy Solutions. Connect with him via: LinkedIn

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