As the U.S. health care landscape continues to evolve amid the COVID-19 pandemic, drug store retailers are seeking to become

Deborah Weinswig

the first port of call for patients. To achieve this and capitalize on the rapid changes in health care, they are refining their strategies for both online and off-line channels.

Transforming retail stores to expand in-store health services

CVS and Walgreens are pushing ahead with ambitious plans for comprehensive primary care services at lower costs. Since 2018, both retailers have been revamping their physical retail spaces to integrate in-store health centers. CVS has relied on acquisitions, including the late 2018 takeover of health insurer Aetna, to widen its range of health care services. Meanwhile, Walgreens has forged a series of partnerships with medical care providers and health insurance companies to provide in-store health services and primary care.

CVS recently noted that it remains on track to expand its new HealthHUB concept to 1,500 stores across the U.S. by the end of 2021, despite the negative impacts of the pandemic. The drug store retailer ended 2020 with more than 650 HealthHUB locations. The HealthHUB concept is based on remodeled CVS drug stores, with 20% of retail space (average size of 2,500 square feet) newly dedicated to health care services — including wellness products and personalized care. Through this new format, CVS aims to bring more health care services into the community in a more convenient and accessible way. The company noted that the HealthHUB format is seeing increased prescription volumes and an uptick in traffic associated with chronic services compared to a control group of traditional CVS stores.

For Walgreens, accelerating its primary care presence involves expanding its pilot with VillageMD nationwide as it seeks to establish its stores as health care destinations. Walgreens announced in January that it has accelerated its investment in primary health care partner VillageMD to open 600 to 700 physician-led primary care clinics inside Walgreens drug stores in more than 30 U.S. markets over the next four years — with the aim of expanding to hundreds more stores after that. This announcement updates the previous terms of the partnership from July 2020, when Walgreens said it would invest $1 billion in VillageMD over three years to open 500 to 700 clinics.

Walgreens expects to open 40 co-branded clinics by the end of summer this year. The new clinics will be staffed by over 3,600 primary care providers in total, recruited by VillageMD. They will work closely with Walgreens’ pharmacists to provide patients with a full suite of primary care and pharmacy services at nearby locations, which the company expects to lift prescription volumes. The partnership could also help drive traffic among VillageMD patients (of which there are roughly 600,000).

These developments come as drug store retailers are feeling the pressure from online pharmacy startups and e-commerce giant Amazon. In November 2020, Amazon launched Amazon Pharmacy, an online storefront that offers a delivery service for prescription medications. Amazon’s move could pose threats to the market dominance of CVS and Walgreens. However, we view the strategies of CVS and Walgreens to leverage their huge footprints — with both operating over 9,000 retail locations nationwide — for comprehensive health care services as a significant opportunity to stand out and differentiate themselves from online pure plays. Moreover, the role of the two retailers in vaccination efforts is bolstering foot traffic to stores, translating to opportunities to expand their customer base and deepen their relationships with current customers.

Strengthening telehealth offerings

The pandemic has accelerated consumer demand for accessible and fast health care services, and we saw telehealth emerge as one of the primary ways for patients to seek treatment. The telehealth market has been witnessing massive growth across the health care industry due to patients staying at home and avoiding doctors’ surgeries and hospitals amid the pandemic.

According to medical network platform Doximity, over 20% of medical visits in the U.S. were conducted via telehealth in 2020, translating to a $29 billion market. Doximity estimated that the telehealth market will almost quadruple to $106 billion in 2023.

Many drug store retailers entered the current telehealth boom on the front foot, having introduced such services in recent years as part of their larger digital transformation — with services mainly aimed at providing access to care in areas where physicians were not available. The crisis further led these retailers to ramp up their telehealth initiatives and offerings.

CVS reported a surge in telehealth usage during the pandemic. Virtual visits to the retailer’s MinuteClinic — which offers video consultation for behavioral health, chronic conditions and common injuries — skyrocketed 750% in the second quarter of 2020 after increasing by 600% in the prior quarter. The company first launched its telehealth service in August 2018 in collaboration with virtual care provider Teladoc. When the pandemic hit, CVS expanded its telehealth offerings with the introduction of an e-clinic service, powered by local MinuteClinic providers across 33 states and in Washington, D.C.

Walgreens also saw sustained demand for telehealth throughout last year. In its latest quarter, the company noted that customer traffic to the retailer’s Find Care platform, which was launched in July 2018, increased 13 times compared to last year — totaling 18.9 million visits. Against the backdrop of growing demand, the company announced the expansion of its digital health platform in March 2021 to include 11 new and four expanded collaborations with health care providers. With the new additions, consumers today can access more than 45 national and local service providers on the platform to address more than 120 medical conditions.

We expect the range of services offered virtually to expand as supporting technologies improve. According to CVS’ 2020 Path to Better Health Study, 40% of health care providers said that telehealth is a valuable tool to connect with their patients, up from 22% in its 2019 study. In addition, 32% of consumers stated that they would be more likely to communicate with their health care providers through telehealth, up from just 19% who reported the same in 2019. A separate survey conducted by health care data management firm Harmony Healthcare IT in July 2020 found that 60% of respondents plan to use telehealth services even when the pandemic wanes.

In a competitive market, drug store retailers are looking for new ways to achieve growth. CVS and Walgreens are moving toward the omnichannel integration of health care, which we believe should solidify their position as care providers.

Deborah Weinswig is founder and chief executive officer of Coresight Research. She can be reached at [email protected]. Additional research by Katy Cheng.