(Bloomberg Gadfly) — It's hard to think of an industry Amazon.com Inc. isn't currently trying to conquer, or at least thinking of conquering. Pharmacies might be next.
According to a CNBC report, Amazon is considering a leap into the prescription-drug business. It wouldn't be easy, but the industry and its investors shouldn't dismiss the threat.
It's easy to see why pharmacies might be attractive to Amazon. CVS Health Corp.'s mail-order drug business brought in more than $10 billion in revenue in the first quarter alone. If Amazon is thinking of going after the broader pharmacy benefit management business — and that's a possibility, given it reportedly hired someone to create an internal PBM — then it's looking at a sector that brought in more than $200 billion in revenue last year.
If Amazon can offer an experience that significantly improves on existing mail-order options in price or convenience, then it could substantially disrupt retail drug stores, as well. The company is already chasing a chunk of drug-store business with its general e-commerce platform and private-label vitamins, batteries, and groceries. But the pharmacy in the back is a potentially even juicier target; drug sales provide the vast majority of retail revenue for America's biggest drug stores.
Most people still pick up their prescriptions in a store — only 14.5% of CVS pharmacy claims were through the mail-order channel in the first quarter — making this a juicy target for Amazon's war on physical retail.
Amazon is not exactly shy about pursuing complicated businesses with large incumbents. Many thought it was crazy to try breaking into corporate computing, which was dominated by enormous companies such as Microsoft Corp. Now it has a high-margin business, Amazon Web Services, that produced more than $13 billion in revenue over the last 12 months and is one of the most important players in the rapidly growing cloud-computing market.
