Amazon Effect Leads to Potential Bankruptcies for Grocery Stores That Contain Pharmacies

FEBRUARY 21, 2018
Various media reports note that 2 US supermarket chains, which both contain pharmacies, are getting ready to declare bankruptcy.

According to one report, Bi-Lo, the company behind Winn Dixie supermarkets, is preparing to file as soon as March. Tops Friendly markets may seek court protection from creditors this month. Bi-Lo is planning to shut approximately 200 stores. This is not the first time Bi-Lo has struggled with bankruptcy; they have dealt with this in 2005 and 2009.1 Currently, Bi-Lo carries $1 billion in debt. Another report notes that as of June 2017, Winn-Dixie operates 495 grocery stores in Florida (which has the most locations at 358), Alabama, Louisiana, Georgia, and Mississippi, and as of May 2017 Winn-Dixie employs more than 38,000 associates who serve customers in approximately 500 grocery stores, 150 liquor stores, and 280 in-store pharmacies.Tops, a Williamsville, NY-based grocery chain, operates 170 stores and has more than 14,000 employees in the Northeast.

A Bloomsberg news report on the subject of these 2 grocery chains cite Amazon as the potential cause for these bankruptcies. In the article, it is explained that grocery stores have always been a difficult industry, with low margins of profit and a lot of competition. Now that Amazon, with its acquisition of Whole Foods, has entered the brick and mortar arena, some of the older chains are being forced to find new ways to compete if they want to survive.

The news of Amazon entering into the pharmacy industry was reported in May.3 This report explained that each year, Amazon holds an annual meeting to discuss whether it should break into the pharmacy market, and in 2017, Amazon was getting more serious and was looking to hire a general manager for this purpose.  This had been an annual topic of discussion for several years, but with the trend of high deductibles and consumers paying for health care, Amazon was ready to take the next steps. Industry experts speculated a multibillion market opportunity for Amazon. In the United States, more than 4 billion prescriptions are ordered every year. In 2015, estimated spending on prescription drugs was $300 billion.3

In October 2017, it was reported that over the past year, Amazon had quietly gotten regulatory approval from 12 states for wholesale distributor licenses4, further making its way into the path of pharmacy. This did not include actual pharmacy licenses, but was a sign that Amazon was working toward entry into the drug supply chain.

The “Amazon Effect,” as it is described in many different areas of retail, is causing many retail stores to slowly shut down. Stores such as JCPenney, Macy’s, Sears, CVS, and Kohls are closing locations, and the list of stores gets longer each year. 5

Even real estate is suffering. As these retail stores shut down, consumers are left with many empty storefronts that are not perceived as valuable. The effect then shifts to consumer goods manufacturers and suppliers, as they struggle to keep prices low to compete. There becomes an ongoing cycle of cost-cutting, job elimination, and pressure to change.

Forbes has described Amazon's effect on jobs as “staggering.” With Amazon's growth escalating, from 19% in 2014, to 20% in 2015, to 28% in 2016, jobs are being taken away from traditional retailers. Thousands of jobs are being lost across traditional retail in stores, supply chain positions, and headquarters facilities. According to this same article, 2 million jobs are expected to be lost over the next 5 years, as a result of the Amazon effect.

In June 2017, Amazon acquired Whole Foods for 13.7 billion dollars.6Shoppers of the high-end Whole Foods rejoiced as prices came down. Amazon/Whole Foods continue to delight customers by offering cash back on purchases,7up to 5% when customers use the Amazon Prime rewards card. In addition to slashing grocery prices, Amazon delivers Whole Foods groceries to Prime Now customers in less than 2 hours.

As much as I love Amazon, it is sad to see so many businesses and industries suffer due to the Amazon Effect. Not only are Winn Dixie and Tops stores/employees affected by Amazon, but the pharmacies/employees within these stores will likely suffer as well. As Amazon continues to push forward into the pharmacy industry, chains and independent pharmacies are going to have to work even harder to compete.

While Amazon can offer fast and inexpensive service, only we can give that friendly, one-on-one interaction and patient counseling that many patients appreciate. I hope that the genuine, caring, personal, face-to-face interactions we can offer will help pharmacies succeed through Amazon's entry into pharmacy. While it is easy and convenient to order a book or a pair of shoes from Amazon, you just can’t order up the personal service that your friendly local pharmacist can offer.
 
 
References
 
1.    Bloomberg News https://www.bloomberg.com/news/articles/2018-02-17/winn-dixie-and-tops-owners-are-said-to-prepare-for-bankruptcy Accessed February 20, 2018

2.    Wikipedia https://en.wikipedia.org/wiki/Winn-Dixie Accessed February 20, 2018

3.    CNBC https://www.cnbc.com/2017/05/16/amazon-selling-drugs-pharamaceuticals.html Accessed February 20 2018.

4.    Fortune http://fortune.com/2017/10/27/amazon-pharmacy-drugs-approval/
Accessed February 20, 2018

5.    Forbes https://www.forbes.com/sites/adamhartung/2017/02/28/how-the-amazon-effect-will-change-your-life-and-investments/#45ad5b5c5e76 Accessed Februaruy 20, 2018.

6.    Bloomberg News https://www.bloomberg.com/news/articles/2017-06-16/amazon-to-acquire-whole-foods-in-13-7-billion-bet-on-groceries Accessed February 20, 2018.

7.    Time http://time.com/money/5166368/amazon-prime-rewards-card-discount-whole-foods/
Accessed February 20, 2018.

Karen Berger, PharmD
Karen Berger, PharmD
Karen Berger, PharmD, graduated from the University of Pittsburgh School of Pharmacy in 2001. She has worked in community pharmacies for over 16 years as a Pharmacist in Charge, staff, and floater pharmacist for a large chain. Currently, she is a pharmacist at an independent pharmacy in Northern NJ. She can be reached at karenmichelleberger@gmail.com
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