How Amazon’s Latest Acquisition Could Affect the Drugstore Space

The Amazon–Whole Foods deal

In this article, we’ll discuss how Amazon’s (AMZN) latest bid to acquire organic food retailer Whole Foods Market (WFM) has affected the drugstore sector and what it means for the industry going forward.

On June 16, 2017, Amazon announced that it would be acquiring organic food retailer Whole Foods Market in a $13.7 billion deal. The deal marks Amazon’s entry into the brick-and-mortar retail space, and it should help the online juggernaut to expand its footprint in the grocery sector.

How Amazon’s Latest Acquisition Could Affect the Drugstore Space

How did the news impact the broader retail sector?

The news sent tremors across the entire retail sector (XRT) and eroded billions of dollars from the market caps of big retailers such as Walmart (WMT), Kroger (KR), and Kraft Heinz Company (KHC).

Drugstores’ share prices also nosedived. Walgreens (WBA) and CVS Health (CVS) fell 5.1% and 4.4%, respectively. In fact, Walgreens was trading close to its 52-week low.

However, Walgreens’ acquisition target, Rite Aid (RAD), was among the few companies that rose after the announcement. Its stock price rose 12% on June 19, registering its highest single-day jump since Walgreens announced its acquisition in October 2015.

While the reasons for the rise were unclear, it was likely the result of ongoing speculation that Amazon could transition into the drugstore space and try to acquire RAD if the Walgreens deal were to fall apart.

What this all means for the drugstore sector

Rumors of Amazon’s entry into the pharmacy business were already making the rounds even before its Whole Foods acquisition. In May 2017, CNBC reported that Amazon had been hiring pharmaceutical professionals and was keen to launch its drug delivery and online pharmacy business.

Now, even if it doesn’t choose to acquire Rite Aid, Amazon has the option of adding physical pharmacies, at which its customers can pick-up their prescriptions, to Whole Foods locations.

Nevertheless, the transition isn’t likely to be a cakewalk for Amazon, as it will require significant regulatory clearances, which the online giant hasn’t dealt with so far.