By Todd Huseby
Traditional U.S. community pharmacies have always seemed pretty safe. People get sick or have a chronic need, they need medication, they make their way to the nearest drug store. Done. But now, as tech grinds away doing its thing, there’s a gnawing sense that maybe we’re crossing the point at which going to an aging store with a physical pharmacy isn’t all that necessary — or appealing. Amazon and Mark Cuban want in on pharmacy. Private Equity wants in. Bloomberg reports that Mexicans apparently want in too. Even your phone wants in!
Disruption seems unfair. Just ask my local department store. The disruptors unfairly pick off the fast-moving products — the easy sales you depend on to pay your rent and wages. And maybe they target customers just coming into their prime — the ones you’re depending on next. And they leave you only the slow-moving products, the most time-intensive customers. Your CFO hates this; it seems unfair. And those darn disruptors surely used modern digital cost-effective tools and automation from their start.
But is it clever? Yeah, kinda. Did you give them the opening because of inaction? Probably. Will they happily sell you their company? Yes, if you can afford it.
Amazon: the patient predator
Amazon is famously patient, methodical even. They spent $750 million on PillPack in 2018, a neat little start-up that mailed prescriptions with compliance packaging. (Classic Amazon: buy something smallish, tinker, scale quietly.) Then came Amazon Pharmacy itself in 2020, now with a cool RxPass — a $5 per month, “all-you-can-eat” generic drug buffet for Prime members.
It turns out, all things equal, this subscription model cuts patients’ monthly drug cost by about 30% and supports medication adherence. Is this really surprising? It is pretty consumer-centric.
Amazon, quite smartly, targets Prime customers (mostly Millennials and Gen X, who don’t really buy many meds yet) and banks on their loyalty, convenience-seeking habits, and eventual aging into chronic conditions. So when they turn 45, find their cholesterol’s acting up, Amazon will be right there saying, “Hi again, here’s your medication,” frictionlessly embedded in their Prime account. This isn’t actually disruption — it’s a very deliberate, slow-motion collision.
Dr. Richard Zane, chief innovation officer at UCHealth, puts a sharp point on it when he reminds us, “Amazon clearly can disrupt the pharmacy industry … they have the scale, technology, supply chain and extreme focus on customer experience.”
D2C: radical transparency
Speaking of intermediaries, Mark Cuban’s Cost Plus Drug Co. is almost offensively transparent — selling generics at cost plus a fixed markup. Cuban, unsurprisingly, is making a clear statement: Drug pricing is ridiculously complicated, and maybe it doesn’t need to be. Nearly 30% of adults skip meds due to cost — Cuban’s model seems designed specifically to mock opaque industry practices while solving real customer problems. Based on the frequency with which Mark Cuban’s name is invoked, his idea seems to be getting under our collective skin.
Born-digital pharmacies: lean and mean
Then you’ve got companies like Hims & Hers, Ro, Wisp, and Alto. Often they are focused on unmet customer needs, building a brand around target markets: men’s health, women’s health, hair loss, mental health or sexual wellness. Their business models are focused, lean, and their products move quickly. Admittedly, they may not (all) be profitable — which isn’t unimportant, mind you — but they showcase for us the value of target markets and agile customer-focused development. Who do you think will innovate faster? The born-digital pharmacy or the legacy pharmacy?
Private equity: the new owners
Recent news reminds us that apparently U.S. pharmacies are also targets for private equity. These firms are known to optimize aggressively for cash flow, efficiency and rapid ROI, which sometimes leads to leaner staffs, greater throughput and pressuring suppliers (but let’s face it, any private owner would do that). Critics complain such owners will prioritize profit over patients. Maybe. Though many PE firms are savvy enough to inject innovation along with all that leverage.
The empire strikes back: incumbent inertia
So why aren’t the large incumbent pharmacies fighting back harder? Maybe it’s because incumbents typically innovate slowly — except weirdly, during COVID when testing and vaccination innovations were remarkable.
The point is that U.S. pharmacies haven’t brought that urgency to ingoing digital transformation. Amazon obsesses over customer friction; most brick-and-mortar pharmacies obsess over operational efficiency (and how quietly they can manage change without anyone noticing).
Pharmacies, especially chains, sit on mountains of patient, prescription and payor data yet do far too little with it in the age of AI. For your toothpaste, Amazon has already used its data to predict when you’ll run out — imagine if we relentlessly applied that power from all our incumbent pharmacies to personalized consultations … or generated condition-specific content or advice … or resolving adjudications systematically? With the mountain of (clean) data, AI could do much more to:
• Automate pharmacy grunt work.
• Predict adherence issues.
• Manage inventory smarter.
• Highlight patient risks early.
• Free pharmacists for enhanced patient interactions.
Imagine!
If incumbents took full advantage of the AI opportunity, what could be accomplished! Could we redistribute a pharmacist’s time? Could we reduce script processing from 50% to 15%? Inventory or staffing from 20% to 5%? Consultations from 15% to 40%? Patient engagement (sales) from 15% to 40%?
Consumer preferences: yes, they’re changing
As we all know, consumers, especially younger ones, want more convenience, price transparency and seamless digital experiences. These aren’t “nice to haves,” they’re minimum viable features.
Pharmacy leaders must urgently rethink convenience. To be truly consumer-centric, you know you must leverage technology to eliminate lines, simplify prescription management, and promote seamless pickup or delivery options. Also, you’ll need to obsess about anticipating patient needs proactively. In short, behave more like consumer-tech brands than health care bureaucracies.
Actionable C-suite questions (Or, how not to get disrupted):
What agitates me is that incumbents have seen all this coming for a decade. But innovations have generally slowed — they slowed before COVID, but picked up impressively during COVID, then slowed again as extra federal funds ended and reimbursements tightened again. Maybe the great innovation awakening is coming just over the horizon? If so, I hope C-suites and board meetings will ask themselves the following five questions:
• What are five new customer expectations we can obsess about next? (Be excited like when you applied the Dominos Pizza Tracker idea to your pharmacy workflow.)
• We have so much data. What are our next five AI priorities? (Hint: think personalization.)
• For the (less) physical space that we ultimately need, how do we seamlessly integrate convenient digital? How will data help us? What new data can we collect?
• What operating costs have risen or been stubbornly high? Advanced robotics is coming mainstream — what will we automate as soon as we can?
• Some convenience stores are doing great and growing traffic. What can we learn? How can we drive localization and local entrepreneurship?
Conclusion
The real disruption isn’t coming from Amazon or Mark Cuban. It’s consumers realizing that better, cheaper and easier options are actually possible. So, as powerful chain pharmacies that have earned Americans’ trust, maybe we can disrupt ourselves before someone else does it for us.
(If not, maybe just sell out to private equity and they’ll do it.)
Todd Huseby is a partner at Kearney, a global management consulting firm, and leads its Consumer Healthcare practice.
