Investors Have Misdiagnosed Amazon’s Push Into The Pharmacy Business | ContrarianEdge.com (a disagreement)
Contrarian Edge published this online article:
Investors Have Misdiagnosed Amazon’s Push Into The Pharmacy Business
I disagreed with the article that Walgreen had a bright future and wrote the following in the article's comment section to explain why I differed in opinion:
There are some undiscussed ‘good’ things for Walgreens but also some difficulties ahead all related to the next 10 to 15 years introduction of the fully automated Self Drive Vehicle (‘faSDV’) and electric vehicle (‘EV’).
EVs and faSDVs are going to ‘crash’ the roadside gas/convenience store. EVs don’t use gas and faSDBVs will be refueled at specialized low cost centers without owners in the vehicle (like overnight). When gas stations lose 20% of their volume they will be unprofitable and will start closing. This will happen by the mid / late 2020s and the market will become aware of this inevitability somewhere around 2023/2024. Walgreens has a better base for continuing the ‘convenience store’ business and should pick up some of the pure convenience store traffic. This part a plus for Walgreens.
There is going to be a huge increase in delivery via customer sourced faSDVs and vendor faSDVs. Within a 2 to 5 mile radius of physical location (store), customer sent faSDVs and store faSDVs will provide fast, convenient and really cheap delivery services. Prescription medicines are going to be delivered this way for most customers. And good online menus will encourage additional purchases. This could easily be the dominant form of prescription provision by 2030 and significant by 2025+. Adoption curves are going to be very rapid because of low costs, increased market reach and the ability to disrupt existing purchase relationships. Another plus for Walgreens.
But in the long run, the Amazon and WalMart experience shows a difficult future for Walgreens. In the physical world (WalMart) and in the online world (Amazon), customers/purchasers exhibit a very strong preference for one stop shopping. AI, comprehensive (& easy) online ordering, and the ability to buy anything/everything from a single source will drive customers to a very small handful of ‘stores’. This everything will include prepared foods, grocery, alcohol, drugs, general merchandise as well as many specialty lines like branded makeup and office supplies. This will kill Walgreens.
The average Walgreens is less than 15,000 sq ft. The average WalMart supercenter is around 180,000 sq ft. WalMart locations can be expanded and made more dense. Walgreens are not expandable. And since selection and category breadth is key, Walmart wins. And so does Amazon. And so do some of the Kroger/Target type chains that combine to get regional scale.
To compete, Walgreens needs to buy big grocers, a Target like merchandise chain and abandon most of their current locations. All in the next 15 years. It’s doable but hard and expensive. At best, for some extended period the dividend and profits will disappear. More likely will be a fail because of the complexity of the task.
The trend I describe will be clear by 2025 but action to survive will be needed sooner. I’m not optimistic for Walgreens. The best outcome for Walgreens is to get to Amazon and get acquired.
There are some undiscussed ‘good’ things for Walgreens but also some difficulties ahead all related to the next 10 to 15 years introduction of the fully automated Self Drive Vehicle (‘faSDV’) and electric vehicle (‘EV’).
EVs and faSDVs are going to ‘crash’ the roadside gas/convenience store. EVs don’t use gas and faSDBVs will be refueled at specialized low cost centers without owners in the vehicle (like overnight). When gas stations lose 20% of their volume they will be unprofitable and will start closing. This will happen by the mid / late 2020s and the market will become aware of this inevitability somewhere around 2023/2024. Walgreens has a better base for continuing the ‘convenience store’ business and should pick up some of the pure convenience store traffic. This part a plus for Walgreens.
There is going to be a huge increase in delivery via customer sourced faSDVs and vendor faSDVs. Within a 2 to 5 mile radius of physical location (store), customer sent faSDVs and store faSDVs will provide fast, convenient and really cheap delivery services. Prescription medicines are going to be delivered this way for most customers. And good online menus will encourage additional purchases. This could easily be the dominant form of prescription provision by 2030 and significant by 2025+. Adoption curves are going to be very rapid because of low costs, increased market reach and the ability to disrupt existing purchase relationships. Another plus for Walgreens.
But in the long run, the Amazon and WalMart experience shows a difficult future for Walgreens. In the physical world (WalMart) and in the online world (Amazon), customers/purchasers exhibit a very strong preference for one stop shopping. AI, comprehensive (& easy) online ordering, and the ability to buy anything/everything from a single source will drive customers to a very small handful of ‘stores’. This everything will include prepared foods, grocery, alcohol, drugs, general merchandise as well as many specialty lines like branded makeup and office supplies. This will kill Walgreens.
The average Walgreens is less than 15,000 sq ft. The average WalMart supercenter is around 180,000 sq ft. WalMart locations can be expanded and made more dense. Walgreens are not expandable. And since selection and category breadth is key, Walmart wins. And so does Amazon. And so do some of the Kroger/Target type chains that combine to get regional scale.
To compete, Walgreens needs to buy big grocers, a Target like merchandise chain and abandon most of their current locations. All in the next 15 years. It’s doable but hard and expensive. At best, for some extended period the dividend and profits will disappear. More likely will be a fail because of the complexity of the task.
The trend I describe will be clear by 2025 but action to survive will be needed sooner. I’m not optimistic for Walgreens. The best outcome for Walgreens is to get to Amazon and get acquired.
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