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How Walgreens Is Going to War Against Amazon

One industry after the next has been steamrolled by Amazon.com Inc.'s (AMZN) economies of scale as the e-commerce behemoth continues to eat up market share and drive long-standing companies out of business. Now, Walgreens Boots Alliance Inc. (WBA), the giant U.S. pharmacy chain with a market value less than 10% Amazon's, is mounting an aggressive defensive strategy as Amazon threatens to invade its turf. Walgreens has teamed up with cloud giant Microsoft Corp. (MSFT) to fend off Amazon's advance into the massive and lucrative American pharmacy business. The recent deal follows another bold partnership made by the drug store retailer late last year, in which it linked up with Alphabet Inc.’s (GOOGL) life-sciences arm, Verily, to offer a number of services, per Business Insider.

Walgreens' Alliances To Battle Amazon

  • Microsoft, Partners Market Value: $814.7 billion
  • What Alliance Does: Cloud partnership, links big data and pharmacy, puts tech products in retail stores
  • Alphabet, $761.4 billion; virtual diabetes program, makes Walgreens the storefront in which Verily eventually sells its products currently in development

Industry Disruption

The healthcare industry has been shaken up by news of Amazon’s interest in the space. Last year, shares of drug retailers took a massive hit on news that Bezos was teaming up with JPMorgan Chase & Co.’s (JPM) Jamie Dimon and Berkshire Hathaway Inc.’s (BRK.A) Warren Buffett to launch a joint venture aimed at lowering the cost of healthcare for employees. The Seattle-based online retail leader then bought online pharmacy provider PillPack. 

Some competitors have chosen to take the consolidation route, with companies such as CVS Health Corp. (CVS) buying up rivals including insurer Aetna. On the same note, health insurer Cigna (CI) has acquired pharmacy benefit manager Express Scripts. Meanwhile, pharmacy retailers continue to stand off against giants such as as the world’s largest retailer, Walmart Inc. (WMT). 

Partnership Approach

Walgreens has chosen an alternative strategy, inking partnerships over the years with grocery stores, health plans, and beauty subscription boxes. Walgreens CEO Stefano Pessina tells BI that Walgreens strives to be the place where consumers go as they start to gain autonomy over their healthcare spending, taking away power from insurers and pharmacy benefit managers. 

"At the end, the consumer will be in charge much more than today. They will increase their power and they will be the final decider more than today,” he said.

Walgreen’s new alliance with legacy IT company Microsoft makes the tech company Walgreens' official cloud partner and grants it full management of Walgreens' data storage. Further, Walgreens employees will now use Microsoft 365 for their office software. Microsoft because it was willing to treat Walgreens as a partner rater than a consumer, per BI.

Digital Health Corners

On the consumer side, Microsoft and Walgreens plan to test out health offerings, including 12 "digital health corner" pilots where it will sell consumer health devices and software for tracking weight and exercise.

Walgreens’ deal with Microsoft should expand to involve the retailer selling Microsoft tech products at its stores, much like Amazon promotes its hardware via its hundreds of physical Whole Foods stores. Much like CVS Health’s planned health hubs, which incorporate clinical services, blood work, a “care concierge” to help customers understand their health insurance and wellness devices, the partnership will provide physical spaces to manage chronic conditions and educate patients about their medication.

Diabetes Program

With Alphabet’s Verify, Walgreen’s plan is to offer a “virtual diabetes program” from Onduo, a venture formed between Verily and Sanofi, to Walgreens employees. The partnership also makes Walgreens the storefront in which Verily eventually sells its products currently in development. 

Looking Ahead

Despite the advantages that Walgreen’s recent partnerships may offer, it remains unclear whether teaming up with Microsoft and Alphabet, as big as they are, will be enough to fend off Amazon. The big risk is that Amazon, with its deep-pockets and already sweeping dominance across industries, will force Walgreens to spend more capital and offer lower prices, thus hurting profits and revenues, dragging down its share price as a result.