Pharmacy Chains Like CVS Health, Walgreens Boots Alliance Confront Shifting Consumer Habits And Profit Pressures

Retail pharmacies like Walgreens Boots Alliance Inc. WBA and CVS Health Inc CVS have become less convenient for consumers, as customer complaints demonstrate.

Despite their widespread locations, long waits for assistance and prescription pickups have led to frustrations that mirror retail pharmacy chains’ broader challenges, CNBC reports.

These operational issues are symptoms of deeper financial struggles, leading to strategic shifts across the industry.

Also Read: CVS, Rite Aid, Walgreens Hit Hard By Online Pharmacy Trend.

The business model for retail pharmacies is increasingly under pressure. Declining prescription drug reimbursement rates, inflation, changing consumer behavior, and competition from e-commerce giants like Amazon.com AMZN have eroded profit margins.

Additionally, chains have experienced staff burnout due to understaffing and growing workloads.

Though both companies enjoyed temporary gains from vaccine and test sales during the COVID-19 pandemic, the post-pandemic reality has revealed fundamental flaws in their models, CNBC writes.

CVS faces mounting losses in its insurance business, leading to a third consecutive downgrade in profit outlook and $2 billion in planned cost cuts.

Meanwhile, Walgreens has struggled with its push into primary care, resulting in substantial write-downs.

The broader retail pharmacy market also faces challenges: Rite Aid declared bankruptcy last year, and its stock was delisted from NYSE in October.

Pharmacy benefit managers (PBMs) play a key role in squeezing profit margins. These powerful middlemen negotiate reimbursement rates, often leaving retail pharmacies with slim or negative returns.

While CVS operates its own PBM, Caremark, giving it some buffer, Walgreens remains more vulnerable to these pressures.

CVS has responded by introducing a new transparent pricing model for medications, though analysts remain skeptical about its impact.

Retail pharmacies are also losing ground to e-commerce platforms and big-box retailers.

Despite their efforts to adapt, such as increasing private-label products, they continue to struggle with lower front-of-store sales.

Walgreens and CVS have declined sales, driven partly by inflation-conscious consumers turning to cheaper alternatives like Walmart Inc WMT and Costco Wholesale Corporation COST.

Though these chains are still vital to the U.S. healthcare system, they may need to rethink their business models, potentially downsizing stores, increasing online offerings, or exiting certain markets.

“As things have started to normalize, we’re reverting back to the challenges that the retail pharmacy industry had faced even before Covid,” Jefferies analyst told CNBC. “I think most of these pharmacies are realizing that fundamentally, their businesses have not really changed.” 

Citing an Evercore ISI analyst, CNBC noted that while pharmacies will remain essential, they likely will not look the same in the future.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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