With Amazon’s Rumored Entry Into Pharma, CVS Is Eyeing Aetna and Walgreens Is Rebranding

A quest to become trusted wellness providers or a fear of falling behind?

CVS and Walgreens recently announced major strategy shifts.
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Two of the country’s giant pharmacy chains made waves over the weekend by announcing major strategy shifts likely to affect millions of consumers. CVS Health, which operates 9,700 CVS Pharmacies and 1,100 MinuteClinic locations, has announced its intent to acquire heathcare giant Aetna in a $69 billion cash and stock deal that CVS CEO Larry Merlo said will “remake the consumer health care experience.”

In related news, on Sunday Walgreens kicked off a major brand repositioning intended to move the company “beyond the counter” and establish it as a wellness-oriented brand centered on personalized care. Walgreens is the country’s No. 2 pharmacy chain by size, with 8,100 stores in all 50 states, in addition to 400 Healthcare Clinics inside stores.

Both moves come amid widespread rumors that Amazon is contemplating an expansion into the drug business, the pharmacy business, or possibly both.

Assuming the CVS/Aetna merger goes though—and it has yet to receive regulatory approval—the most visible changes consumers are likely to see are inside the stores, both in terms of offerings and prices. CVS has pledged to remake itself into “a community-based health hub dedicated to connecting the pathways needed to improve health.” In other words, CVS locations seem set to become one-stop shops for many health-related goods and services.

While some industry watchers have suggested that the merger might benefit consumers—say, by offering one-stop healthcare to the nearly 47 million Americans currently insured by Aetna—others say that the proposed deal is less about serving consumers and more about building revenues and market share in a segment in which change is long overdue.

“This market is going through a reinvention [and CVS] has to reinvent themselves to stay relevant,” said business-development and branding authority Dean Crutchfield, who believes that CVS sees greener pastures in pharmaceutical benefits than in traditional retail.

Indeed, CVS already took a step in that direction a decade ago when it purchased Caremark, an acquisition that has since made it into the largest pharmacy-benefits manager, or PBM, in America. While there has been some talk that CVS could use its bigger size to negotiate better drug prices for consumers, critics contend that PBMs’ profits have historically been tied to increasing drug prices, not lowering them.

In any case, Crutchfield believes, “consumers are not really high on the agenda” in the proposed merger. “We’re having some sops thrown our way, but this is about market share and jockeying for position.”

Veteran brand consultant Allen Adamson also doesn’t think that the proposed CVS/Aetna merger will result in much of a benefit for consumers. “Bigger does not mean better in this instance—bigger means slower and more bureaucracy,” he said. “An average insurance company merging with an average retailer will not make for a delightful experience, and two weak brands getting together does not make a strong one.”

One thing is clear, however: The press release promises of a “human touch” and a pledge to “create a health care platform built around individuals” is very much in keeping with the existing movement of pharmacy chains in the service-provider direction, a move that began a few years ago when they started getting into the clinic business.

What’s more, in pledging to give customers the warm fuzzies, CVS isn’t alone.

The No. 2 brand is also switching it up

For its part, Walgreens—in a marketing push that began on Sunday—has announced a major rebranding initiative that will position the company as a wellness-centered brand predicated on the sort of personalized service that Americans were accustomed to generations ago, when the local pharmacist knew you by name and dispensed the sort of advice that’s lacking from the faceless, publicly traded pharmacy chains of today.

To this end, Walgreens has modified its logo to include the slogan “Trusted Since 1901,” and will, in the coming months, roll out “new in-store offerings, products and services” designed to “fulfill [customers’] health and wellness needs.”

Meanwhile, over the weekend, Walgreens began airing ads portraying what the company calls “Care Stories” featuring real-life pharmacists and employees playing a role in improving the lives of customers.

For Walgreens, the effort represents a philosophical return to the company’s founding days, when its first store opened in South Chicago and a young pharmacist named Charles Rudolph Walgreen made a citywide reputation by greeting everyone who walked in the store and delivering the sort of personalized service that feels lost to the days of Norman Rockwell’s America.

But Walgreens’ senior vp and CMO Adam Holyk said that that ethos of personalized, care-oriented service is what customers, in a recent survey the company undertook, made clear they wanted. “We spent a lot of time with our target customers, in focus groups and leveraging all the data we have from our 90 million-plus loyalty members, and what you see coming through is the idea of trust, of being pharmacist-led,” he said. “This expertise is rooted in this heritage, but beyond that it’s [about] care. It could be in small and big ways, from knowing [customers] by name to helping them through different and important moments in life.”

According to retail expert Bruce Winder, co-founder and partner of the Retail Advisors Network, Walgreens is “expanding its circle of value to become more of a care partner, and that makes a lot of sense.”

The company, he added, wants to act “almost like a poor man’s doctor. What they’re trying to do is act like the local, independent pharmacy where everybody knows the pharmacist.” Which is a nice enough idea, though since “these big chains have had success based on mass production, based on volume and churn,” Walgreens will need to “have a significant investment in their people and training and even hiring to be able to do that.”

The Bezos cometh?

The larger issue looming over these announcements—and, very possibly, much of the reason they are happening at all—is the rumored entry of Amazon into the segment. While Amazon’s plans have yet to be revealed, the online behemoth has reportedly held talks with drugmakers Sandoz and Mylan NV, which to many signals a possible entry into either pharmaceuticals, pharmacy chains, or both. Indeed, some Wall Street watchers have suggested that Amazon would do well to buy Walgreens if CVS succeeds in buying Aetna.

In any case, Amazon’s well-known penchant for efficiency, discounting—and in particular its demonstrated track record of skipping short-term profits in order to build market share—are all things likely to keep pharmacy operators awake at night. And consumers’ well-known dissatisfaction with the state of American healthcare (prescription drugs included) is not only a likely contributing factor to the changes going on at both CVS and Walgreens, it’s also setting the stage for Amazon’s possible entry.

“These are scary times for pharma chains,” Winder said. “Any time Amazon even looks at a category, you shake. They don’t mess around. So [Walgreens] has to do something.”

“This entire space—drugs, pharmacies, insurance and medical care—is ripe for massive disruption, because it’s dysfunctional on so many levels,” added Adamson. “The bureaucracy is the perfect case for someone like Amazon to come in and say, ‘Does it need to be this hard to fill a prescription?’”

Amazon obviously makes news anytime it turns its head but, for his part, bestselling author and business futurist Seth Godin believes that the focus on Amazon may be beside the point when it comes to the changes pharmaceutical chains are making, and need to make.

“Amazon is an easy go-to for investors and the media to pin a moment on,” he said, “but the essential drivers in the business aren’t going to change anytime soon.” Consumers are pining for “both trust and attention,” Godin says, and both are becoming scarcer. Restoring those attributes will build stronger brands, he said, while “shortcuts in service, standards and quality are a race to the bottom and aren’t the way to build a brand, not anymore.”

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