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A turning point for drug chains

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It begins to look like the chain drug industry will toil through 2017 much as it did last year. In other words, Walgreens Boots Alliance’s acquisition of Rite Aid Corp. will likely not happen.

This comes as a surprise to many industry people, despite overwhelming evidence that the federal government has long viewed this alliance as problematical. As acquisitions go, the tie-up between Walgreens and Rite Aid, in itself, has never loomed excessively large in terms of retail competition or restraint of trade. Therefore, any objections likely have more to do with less substantive matters, perhaps revolving around the natural negativity surrounding an alliance of the No. 1 and No. 3 drug chains.

Whatever the reasons for a government veto of this acquisition — and let’s assume, for the moment, that it will be vetoed — it unglues the expected next step in the consolidation of chain drug retailing in America.

For now, Walgreens and CVS Pharmacy will continue to compete as separate drug chains of roughly equal size, while Rite Aid, which, to the surprise of many, has achieved a remarkable turnaround, seeks to maintain its momentum and continue to build on its recovery.

This current stalemate once again raises questions about the future direction of chain drug retailing in America. Put another way, how much further can the industry leaders progress while adhering to the formula that got them where they are today?

Both these companies have huge arsenals. WBA has emerged as global retailer-wholesaler with a strong health care orientation and a powerful assortment of strengths that put it in a class by itself if retailing and pharmaceutical wholesaling are combined under a single banner.

For its part, CVS Health stands alone as a retail health care practitioner, and its control of the individual patient and the health care system gives it a unique advantage going forward. The question for each: Where do they go from here?

There’s no clear answer. If the position that makes Walgreens and CVS unique is enviable, it is also fraught with uncertainty and mined with opportunities for missteps.

WBA’s retailer-wholesaler model, while laudable in the abstract, has not yet been fully implemented in this country. Moreover, the prescription drug business, and all its ancillary connections is, say many observers, about to change. And one direction that change might take could very well be a lowering of prescription drug prices — a development that would certainly impact the WBA business model.

As for CVS Health, its bold alliance of retail drug chain and prescription benefit manager is still new, and changes to the health care system nationally would bring with it the possibility of a negative impact on the CVS model.

So the year ahead is certain to bring the possibility of change, and change the possibility of a negative impact on both the WBA and CVS Health models.

Where that would leave the remaining chain drug retailers is equally obscure at the moment. Suffice to say that any stumbles Walgreens or CVS encounter would possibly benefit more traditional drug chains, as well as  the regional pharmacy retailers in America.

Against this backdrop, the coming months — and, possibly, years — could well usher in the beginnings of a new era in chain drug retailing in America — or a return to a simpler time when a chain drug store represented another shopping channel, and no more.


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