The Supply Side: Amazon play on OTC drugs expected to hit drug stores, miss Walmart

by Kim Souza ( 510 views 

Amazon’s move into the over-the-counter (OTC) drug business began late last summer when it launched its private label Basic Care, which included about 60 items such as ibuprofen and allergy meds. A recent report from Jefferies found Amazon has gained price leadership over CVS and Walgreens on the majority of OTC items.

Jefferies analyst Brian Tanquilut said Amazon’s Basic Care items were 20% cheaper on average than similar items at CVS and 22% less expensive than at Walgreens. He said 84% of Walgreens’ products and 72% of CVS’ products were more expensive than comparable Basic Care items sold on Amazon, even though the drugstore chains each provide loyalty discounts.

Retail industry watchers are not surprised to see Amazon’s private brand OTC drugs cheaper than Walgreens and CVS given low margins have been Amazon’s method of operating since inception and the drugstore chains are seen as convenient locations for immediate purchases.

In Northwest Arkansas a bottle of 500-count ibuprofen tablets (200 mg) sold for $11.19 at CVS. The same generic pain reliever cost $14.79 at Walgreens, with 50% off of a second bottle. This item sold for $8.05 on Amazon as a one-time purchase. On this one item, Amazon’s price savings were $3.14 over CVS and $6.74 cheaper than Walgreens. While Amazon offered a better value over CVS and Walgreens, it was Walmart that had the lowest price overall for the bottle of ibuprofen. Walmart sells its Equate brand for $6.98, the same price online and in stores.

Talk Business & Politics also did a check on branded items such as the allergy medication Zyrtec to see how each of the retailers fared on price. At Walmart a 30-count of Zyrtec (10 mg) tablets sold for $18.84, which was $2.42 more expensive than the same product sold on Amazon at $16.39. At Walgreens and CVS the Zyrtec cost $19.99. Each retailer also sells a generic form for Zyrtec and those prices ranged from $16.99 at CVS and Walgreens to $13.15 at Amazon and $11.63 at Walmart.

Retail consultant Max Goldberg said Amazon is doing to OTC meds what it did in books and other categories: offering lower prices to bring in orders. He said CVS and Walgreens cannot win a price war with Amazon, which is why they should continue focusing on being in the neighborhood, providing convenience, and loyalty perks.

Amazon’s success in the OTC categories long-term may depend on the quality of products and the ability to leverage delivery expertise. Paula Rosenblum, managing partner at RSR Research noted recently in a RetailWire blog she had tried OTC allergy medicine from Amazon and it was substandard.

“It was awful,” she noted.

Rosenblum said Costco and Walmart are far more likely to have the lowest prices on OTC drugs and they also offer consumers the immediacy of in-store purchases when the need arrives.

Some analysts say Walmart will likely remain competitive with Amazon in the OTC drug category as it has in every other area of the business. They also said Walmart’s experience in pharmacy and being a long-time market leader in OTC market share is a benefit Amazon has not yet been able to claim.
Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.