Walgreens CEO: Amazon should steer clear of pharmacy business
Customers wait at the pharmacy counter of a Walgreen Co. store in Oak Park in 2011. (Bloomberg file photo)
Stefano Pessina, CEO of Deerfield-based Walgreens Boots Alliance, has his share of corporate concerns but his company being attacked by online retailing giant Amazon isn’t one of them.
Not yet, at least.
Pessina, on a quarterly call with investors Thursday, dismissed the probability of Amazon quickly expanding into the pharmacy market like it’s doing in supermarkets with its $14.6 billion bid for Whole Foods.
Some investment analysts have predicted Amazon soon will swoop down on retail pharmacies and disrupt them the same way it’s rattled the traditional store- and mall-based world.
Pessina may be one of the few corporate CEOs to openly shake off the mighty Amazon. When asked about the Seattle-based concern’s possible entry, Pessina’s answer wasn’t glib but analytical — providing an industry assessment that Amazon CEO Jeff Bezos might find valuable.
"I don’t believe Amazon will be interested in the near future, in the next few years," Pessina said. "They have so many opportunities around the world, and in many other categories, which are much, much simpler than health care, which is a very regulated business."
Pessina knows something about government regulation and its impact on the pharmacy business.
His company’s attempt to acquire the East Coast-based Rite Aid chain, which started in October 2015, was thwarted by a drawn-out antitrust probe courtesy of the Federal Trade Commission.
Walgreens called off the deal Thursday and launched a revived buyout for part of Rite Aid, which it hopes will get the regulatory nod. Walgreens intends to acquire 2,186 Rite Aid stores for $5.2 billion.
Despite those expansionary ambitions, Walgreens brass doesn’t expect to compete head-to-head with Amazon.
Aside from being heavily regulated, Walgreens is in a consolidating industry and making online and other marketing strides that are connecting with customers, Pessina said.
"So, there is not a lot of new things that they could do," he said. "I believe at the end … this will not be their priority."
A native of Italy who’s reportedly worth about $12 billion, Pessina’s own priority is to quickly put the failed Rite Aid bid behind Walgreens and get on with the next phase of the company’s expansion.
Oddly enough, it looks like Walgreens won’t be penalized by investors for the aborted Rite Aid purchase.
You’d think shareholders would be angry at the extended amount of time and resources that went into trying to make the deal happen. Walgreens also is paying a $325 million breakup fee to Rite Aid.
But Wall Street had given up on the buyout before it was officially dead.
Something else that will appease shareholders: Excess cash that would have been plowed into the original Rite Aid acquisition will be redirected into a $5 billion stock repurchasing effort, which comes on top of a $1 billion buyback.
Pessina’s team will concentrate over the next few years on improving Walgreens’ stores and profits, he added.
That means building up what it calls "beauty, health and wellness" products, touting more in-house brands and sprucing up stores to make them easier for customers to navigate.
Walgreens, harboring a strong balance sheet, has the firepower to make these changes in an industry with dogged competitors including CVS and Walmart.
Still, you never know, Amazon may take a run at the pharmacy business.
If it does, Pessina is prepared for that eventuality too.
"We wouldn’t exclude to partner with them," he said.