- Many driving forces behind drugstore visits have faded or flipped on their heads during the pandemic. More consumers get prescriptions delivered to the home or are skipping the doctor's office and don't need over-the-counter medications for colds or the flu.
- CVS Health, Walgreens and Rite Aid have looked for new ways to drive growth and compete with big-box retailers and pure-play online pharmacies.
- CVS and Walgreens are adding more health-care services to their stores.
- Rite Aid is focusing on wellness, such as carrying more natural products like sleep remedies and essential oils.
CVS Health, Walgreens and Rite Aid are getting ready to administer Covid vaccinations in the months ahead, and this effort will give the three largest drugstore chains a chance to show off the work that's been underway to revamp their businesses and respond to huge changes in consumer behavior.
The three drugstores have long been places where Americans stock up on shampoo, refill prescriptions and browse the aisles for a cold or flu remedy. During the pandemic, however, many of the driving forces behind drugstore trips faded. More purchases were made online. Fewer people have needed to buy over-the-counter cold and flu medications, as they wear face masks and social distance. Some have skipped doctor's appointments, leading to fewer new prescriptions to fill.
For the companies, Covid vaccines offer an opportunity to reach new customers. CVS and Walgreens are administering shots at nursing homes and other long-term care facilities and plan to finish the first round by Jan. 25. All three chains plan to offer the shots at their stores, when they're available, which could boost vaccine-related revenue and drive foot traffic that leads to other purchases. These trips will be a chance for the companies to prove to shoppers they're still relevant, while investors will be looking to gauge their growth potential.
Drugstores are fending off challengers that have encroached their turf. Big-box stores like Target have gained market share during the global health crisis, as they offer one-stop shopping with everything from deodorant to pajamas. Amazon, which is eating into drugstores' front-of-store sales, launched a pharmacy business in November with a savings program and free two-day shipping for Prime members. And Walmart is opening a growing network of health clinics next to its big-box stores, which could steal business from CVS and Walgreens' medical clinics.
Brian Tanquilut, a healthcare services research analyst for Jefferies, said each company has had to hammer out strategies to make sure they "remain a viable and vital part of the healthcare and retail ecosystem."
"They, as an industry, have all been trying to figure out 'What do we need to do to pivot our strategy, so that we don't become the next RadioShack?'" he said.
The companies have had their share of internal changes, too. CVS and Walgreens are both getting new CEOs. Rite Aid is in the midst of a turnaround effort complete with a new logo and store design.
Each company has turned to a slightly different playbook: CVS wants to be a health-care destination as it treats chronic conditions and even offers yoga classes at some stores. Walgreens is opening hundreds of primary care clinics and aims to beat retail rivals with a speedier curbside pickup service. And Rite Aid has emphasized a more holistic approach to health as it adds natural products from sleep remedies to essential oils and modernizes its stores.
Here's a closer look at how the companies plan to compete in the coming year:
As customers buy personal care products from their couch, CVS is trying to give them another reason to visit. It wants to be an easy, affordable and unintimidating place to go for health care.
It acquired insurer Aetna two years ago. It has Minute Clinics for acute conditions like strep throat. And it's turning more of its approximately 10,000 U.S. stores into a HealthHub, a location with a wider range of medical services. That includes testing for sleep apnea, management of chronic conditions like diabetes and a wellness room where it can offer yoga classes. It plans to have 1,500 of those stores by the end of this year.
It's on been on stronger footing than its drugstore peers with a $98 billion market cap that's more than double Walgreens.
CVS Chief Operating Officer Jon Roberts said the company is eliminating some general merchandise to free up square footage for health services. This way, he said, it can stand out from Amazon and other companies that simply fill a prescription.
"As you think about those types of services that we'll be able to provide, you can't get that from a pure-play online pharmacy," he said. "A pure-play online pharmacy is really just delivering prescriptions."
Roberts said CVS is catering to customers' digital preferences, too, through virtual visits and its mobile app. Deliveries of prescriptions to customers' homes grew 500% from the first-quarter to second quarter of last year.
"We think people want choice," he said. "Some people like picking their prescriptions up at their drugstore. Some people like having prescriptions delivered to their home. We have both."
Jefferies upgraded CVS' stock rating to buy on Friday, saying it expects that strategy to pay off. It said it also anticipates CVS will get a boost as it administers the Covid vaccine and draws consumers who may buy other items or refill a prescription while they're there. It estimated that CVS' role in vaccination efforts could yield about $1 billion in incremental gross profits over the next 12 months.
It raised the price target for CVS to $90, which represents a gain of about 20% from current levels.
Tanquilut said the company's HealthHubs could become "the Genius Bar of healthcare" — similar to how Apple has become known for answering questions and delivering strong customer service in its stores.
In the year ahead, two new executives will help direct the company's strategy. Karen Lynch, president of Aetna, will step into the role of CEO on Feb. 1 as longtime Chief Executive Larry Merlo retires. Neela Montgomery, who grew e-commerce operations as the former CEO of home goods retailer Crate & Barrel, became president of CVS Pharmacy in late November. That could bring new ideas and speed up digital growth.
Walgreens is cutting costs and investing in its app, offering curbside service and adding hundreds of primary care clinics. Its shares have plummeted by nearly 20% over the past year. It's looking for a new leader after after its CEO Stefano Pessina announced this summer that he would step down.
Sales and foot traffic have dropped during the pandemic, particularly at its more than 2,000 Boots stores in the United Kingdom. But its pharmacy and retail sales in the U.S. grew and its earnings beat expectations in the fiscal first quarter ended Nov. 30. Still, comparable retail sales were up less than 1%.
The latest lockdown in the U.K. will lead to a weaker second quarter, Walgreens Chief Financial Officer James Kehoe warned in a Thursday earnings call.
Neil Saunders, managing director of GlobalData, said sales patterns during the pandemic have pointed to its bigger problems. It has missed out on the sales bump and market share gains of its grocery store rivals, despite selling similiar essentials.
He said the company must think beyond deals and acquisitions and become a company that "grows by innovating for the customer."
At its U.S. drugstores, Vineet Mehra, its global chief marketing officer, said the company aims to "become the fastest in retail." Nearly all its items are available for curbside pickup. Stores can have online purchases ready in as little as 30 minutes.
He said the quick turnaround will be a competitive advantage over Amazon, which ships purchases, and big-box retailers, which can have longer wait times. And he said it's especially key for the products Walgreens sells, such as pain medication or personal care products.
"If you think about it, if you're out of toothpaste right now, you can't wait a day," he said. "You want that as quick as possible, to get back home, put it in your pantry, so you can brush your teeth. It's that acute convenience needs that are so common in health and wellness where we think we're really going to win with our super fast pickup promises."
Like CVS, Walgreens is also adding health-care services to its nearly 9,000 U.S. Walgreens and Duane Reade stores. It struck a deal with VillageMD to open clinics in its stores. Under a recently accelerated timetable, 600 to 700 stores will add clinics over the next four years.
Walgreens relaunched its mobile app and loyalty program in November. The myWalgreens app offers tailored discounts, a 24/7 pharmacy chat, vaccination appointments, curbside pickup and at-home delivery through DoorDash and Postmates.
"It is essentially becoming the digital front door for all of Walgreens' health and wellness services," Mehra said.
Walgreens response to the pandemic put this development on fast-forward. "In five to 10 weeks, we saw five to 10 years of digital adoption happen," he said.
When the pandemic struck, Rite Aid was already in the midst of revamping its stores and e-commerce business. The company's stock price plummeted so low two years ago that it was in danger of being delisted from the New York Stock Exchange. Its struggles prompted a leadership and strategy shakeup, including the naming of Heyward Donigan as CEO in 2019.
The global health crisis has inspired the company to tap into consumers' heightened interest in staying healthy. In a new TV ad, Rite Aid portrays its stores as the best of both worlds: A place with pharmacists with traditional training, but also able to offer advice on alternative and holistic approaches, such as sleep remedies.
Rite Aid Chief Operating Officer Jim Peters said the pandemic "has been a real test of organizational grit, hustle and heart" — but has sharpened its focus on delivering what customers want.
"Gone are the days when retailers white-knuckle on to forcing people into the store to the best they can," he said. "I embrace the reality that we can win by actually giving consumers what they want, when they want it, how they want it."
Over the past few months, it's unveiled a new logo and modernized website, partnered with Instacart for home deliveries and opened its first "stores of the future." It has three so far, which have a sleeker design and pharmacists stationed in the open rather than in the back and behind a counter. It has swapped out hundreds of products to cater to customers who want wellness-oriented products, such as healthy snacks, holistic remedies and natural skin care products.
Peters said its edge is being "big enough to be a nationally credible player, but yet small enough to be able to pivot on a dime."
Like all drugstores, the company faces an ongoing headwind: People need fewer cough, cold and flu medications as they largely stay at home. Peters declined to specify how much those sales have dropped, but said it is trying to make up for that with growth in other categories, such as sales of immunity boosting products like vitamins and essential oils.
The company's performance during the pandemic has caught investors' attention. Its stock jumped 9% after its third-quarter earnings beat expectations in mid-December. Its shares have risen by about 32% over the past year. That's compared with shares of CVS and Walgreens, which rose by about 3% and dropped by about 17%, respectively, during that same time period.
Yet Rite Aid must still prove its worth to Wall Street. Its market cap is a tiny fraction of its peers at just shy of $924 million. It's been tripped up over the past few years by two failed mergers, one with Walgreens and another with grocery chain Albertsons, and struggled to find a way forward.
Tanquilut of Jefferies said Rite Aid is performing better, but said its footprint of stores is smaller and skews toward low-income areas. For its strategy to work, he said, it must show the desire for wellness products and willingness to pay for them has gone mainstream.