Drug store mergers heat up as retailers defend against the Amazon threat

Among retailers, health and personal care stores were one of the bright spots in our latest Retail Report 2017.

Just like supermarkets, health and personal care stores climbed one point to an ACSI score of 79. While that doesn’t match the 82 of internet retailers, it’s a high score, and the improvement points to the results of both M&A and preparations for Amazon to enter the space.

But that vote of confidence from customers is just the prelude to a shake up that the industry’s many mergers are creating.

The leaders shed points, but still lead

Kmart pharmacies and Kroger were tied at a score of 80 at the top of the health and personal care industry. However, both saw their ACSI score fall in 2017, with Kmart pharmacies shedding 4 points and Kroger down 1 point. Kmart pharmacies did show significant improvement in service quality, and both brands improved in meeting customer expectations.

CVS customer satisfaction powered by and preparing for mergers

CVS was right behind the leaders at a company-best 78. It was the most improved in the category, gaining 2 points, and one of only two large chains to improve over 2016.

Acquiring Target pharmacies may have boosted CVS’s customer satisfaction scores. When dividing CVS’s score into CVS and Target pharmacies, Target stands at a score of 80, while CVS sits at 77.

The health care retailer’s possible merger with Aetna is suspected to be a preemptive move to counter the threat of Amazon, which may begin selling prescription medicine. Whether this merger will boost customer satisfaction – or even go through – remains to be seen.

Rite Aid split among Albertsons and Walgreens

Rite Aid, which fell 1 point in 2017 to a score of 77, is in the middle of being purchased.

Walgreens is snatching up 1,932 Rite Aids (it tried to buy all of them before antitrust scrutiny led to a scaled-back deal). And now Albertsons plans to buy the remaining 2,500 Rite Aids, further expanding its footprint after merging with Safeway in 2015.

It seems many of the health and personal care stores toward the bottom of the ACSI rankings are banding together in hopes of better serving customers and getting ahead of Amazon’s potential entrance in the market.

Walgreens gained a point in 2017 to tie Rite Aid at 77. Safeway pharmacies was just a point higher at 78 after plummeting five points from last year, a drop of 6 percent. Declines in customer loyalty and perceived value contributed to the fall.

Perhaps the many mergers and acquisitions will give these stores more resources to improve customer satisfaction.

The elephant in the room

In the end, M&A in the health and personal care space, as well as the improvements in service quality and meeting customer expectations, are all about Amazon. The potential for the dominant internet retailer to enter the space and push out any and all competitors has many companies making big moves to shore up their ranks.

If Amazon steps into the space, a focus on customer satisfaction will be critical to winning customer loyalty and dollars.