Walmart (WMT +0.00%) is a large, well-funded, low-cost competitor that no company wants to go up against if they can avoid it. For big pharmacy retailers such as Walgreens Boots Alliance (WBA +0.00%) and CVS Health (CVS +3.34%), may soon find out what it feels like (even more than they already do). That's because Walmart Health is planning to nearly triple its footprint.
Walmart Health is expanding
Walmart is a dominant name in retail as its low-priced merchandise draws in many consumers looking to save money, particularly now amid outsized and persistent inflation. The company, which generates more than $600 billion in annual revenue, is always looking for more growth opportunities. One area it has focused on in recent years is healthcare, launching Walmart Health in 2019.
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Walmart Health gives consumers a way to access low-priced medical care. This includes primary care, X-rays, dental, and optical services. For example, regardless of insurance, adults can get teeth cleaning for just $25. Currently, there are over 25 Walmart Health locations in Georgia, Arkansas, Illinois, Texas, and Florida. And two years ago, it acquired a telehealth provider, MeMD, which can enable Walmart Health to offer digital and more flexible healthcare solutions.
Walmart has the potential to be a big disruptor in the healthcare industry if it were to roll out Walmart Health on a wider scale, and that is what it is planning. By the end of next year, there could be as many as 75 Walmart Health locations, including new ones in Oklahoma, Arizona, and Missouri. The company told Fierce Healthcare earlier this year that it is banking on being a one-stop shop for consumers. "Providing these services in a place where many already live and shop and co-locating them by pharmacy and vision services and next to healthy foods in the Walmart grocery section is intentional," explained Dr. David Carmouche, senior vice president of omnichannel care offerings. "We can coordinate unique and impactful healthcare experiences."
Could big-name pharmacies be in danger?
The strategy of locating healthcare services at existing store locations should sound familiar to Walgreens investors. The company has been spending billions on investing in primary care operator VillageMD so that it can have up to 1,000 clinics at its stores by 2027.
Walgreens is focusing on primary care while Walmart Health encompasses many more services, and so there could be even more of a reason to visit your local Walmart Health location than a Walgreens. This poses a big risk to Walgreens and other pharmacies because the deeper Walmart goes into healthcare, the more lines are blurred between what Walgreens offers consumers and what the big-box retailer does. And directly competing against Walmart is not something many businesses can afford to do.
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The saving grace, for now, is that Walmart Health outlets are still relatively few. Even though the company is growing the number of Walmart Health centers it has, 75 is still a drop in the bucket compared to the more than 5,300 retail locations Walmart has in the U.S., including nearly 3,600 Supercenters.
Does this mean you should dump shares of Walgreens and CVS Health?
While Walmart may steal some business away from Walgreens and CVS Health today, it's arguably not directly in healthcare competition with those pharmacies just yet, especially as they have been offering greater healthcare-related services. CVS, for instance, has transformed many of its locations into HealthHubs, which consumers can visit to get help managing chronic conditions and seek healthcare advice.
As of now, Walmart Health remains a relatively modest part of Walmart's overall growth strategy. Getting to 75 locations by next year signifies growth, but it isn't going to crumble Walgreens' or CVS' pharmacy businesses. Plus, Walmart may have its hands full competing with online retail giant Amazon, which may end up precluding it from spending too much time or money on healthcare.
Walmart's expansion of its healthcare business is something Walgreens and CVS investors should keep an eye on today, but it's not a concerning enough reason to sell shares of those companies right now.
