The abundance of Walgreens and CVS Health stores makes them convenient for whenever Shriya Raghavan, a research associate based in Philadelphia, needs to pick up necessities like gum, deodorant and soap.
But she said she often has to wait for employees to unlock cabinets or stand in lengthy lines to pick up prescriptions as pharmacists juggle tasks.
Those are just some of the ways Walgreens and CVS are falling out of favor with consumers, in a trend that has hit their profits and stock prices and forced them to reconsider their strategies. They are symptoms of deeper issues plaguing retail pharmacy chains, which pivoted from years of store expansions to shuttering hundreds of locations across the U.S. to shore up profits.
Among the biggest problems for the chains, reimbursement rates for prescription drugs have fallen. Inflation, softer consumer spending, theft, and competition from Amazon and grocery stores are also making it difficult for drugstores to turn a profit at the front of the store, where they sell everything from pantry staples to makeup and cleaning supplies.
There’s also widespread burnout among pharmacy staff, many of whom complain about understaffing and increasing workloads.
Many of those issues aren’t new. While CVS and Walgreens got a temporary boost from COVID-19 vaccinations and test sales during the peak of the pandemic, they now face a harsh reality: the retail pharmacy model may be broken.
“As things have started to normalize, we’re reverting back to the challenges that the retail pharmacy industry had faced even before Covid,” Jefferies analyst Brian Tanquilut told CNBC. “I think most of these pharmacies are realizing that fundamentally, their businesses have not really changed.”
Falling retail pharmacy profit margins only add to the woes at both Walgreens and CVS.
While Walgreens struggles with its push into primary care, CVS’ bottom line is getting battered by higher medical costs in its insurance business. CVS earlier this month slashed its full-year profit outlook for the third consecutive quarter and announced $2 billion in new cost cuts over several years as those higher medical costs squeeze the insurance industry.
It’s not just those two chains: Rite Aid, once a viable competitor, declared bankruptcy last year and is closing hundreds of store locations as it restructures.
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