Walgreens Boot Alliance (NYSE: WBA) announced a new plan to open doctor's offices within its locations. It's partnering with VillageMD to open 500 to 700 primary care clinics. Walgreens is investing $1 billion into the project and will get 30% ownership of VillageMD. The tie-up seeks to open locations in 30 metro markets over the next five years. It's already testing out the concept in Texas with five in-store clinics.
Walgreen is following in the paths of CVS. Walmart (NYSE: WMT) has also begun testing out health clinics. Throughout the last two decades, pharmacies have been consolidating with major players like Target (NYSE: TGT), Costco (NYSE: COST), Walmart, CVS, and Walgreens. Now the next step is to increase revenues by offering health services.
Pharmacies are also aware that a long-term threat to their business models is younger people who are just as comfortable getting their prescriptions online. It's long been rumored that Amazon (Nasdaq: AMZN) is itching to get into the game. Given that the population keeps getting older, providing convenient health-care services to people is one option to protect and grow their business.
Typically, pharmacies have had retail operations, where they sell products at a higher markup. Recently, they have been cutting back and offering adjacent health services like eyeglasses, hearing aids, and shipping offices. Again, younger people are less likely to go shop for something at a pharmacy that they could get online for a lower price and more convenience.
Following CVS
In some ways, the plan mimics CVS (NYSE: CVS) which has its 'Minute Clinic' which lets patients see a nurse practitioner and get all sorts of procedures done including basic check-ups, vaccinations, and some types of treatments. However, one major difference is that Walgreens is planning on full-service doctors. An innovative feature of CVS' Minute Clinic is that it offers listed prices for all procedures which is different from most medical providers.
Following CVS's purchase of Aetna, CVS is increasing its investment in this concept by building HealthHubs which will allow for treatment for all types of chronic care conditions like diabetes, arthritis, and heart disease. Of course, another benefit of this plan is that it feeds into greater sales for CVS's home and health products as well as its pharmacy which remains the primary driver of its business.
WBA
Walgreen's stock has been an underperformed. In fact, it's one of the few stocks that are lower than its March low. In contrast, the S&P 500 is 46% higher. WBA is flat over the same time period.
This is not a new development. The stock topped out in late-2015. And since then, it's trended lower making lower highs and lower lows. One explanation is that the company's costs are basically the same, but it's losing its leading position in the pharmacy business to online competitors, Costco, Walmart, and Target. By combining medical services, Walgreen's is hoping that it'll help its pharmacy business as well.