In its second-largest acquisition, Amazon buys the company for $970 million.
Industry analysts used to joke that someday people would buy even toothpaste online. Now, it’s happening. Nearly half a dozen online drugstores have opened in recent months, and consumers are filling prescriptions, e-mailing virtual pharmacists, learning about vitamins, and even buying toothpaste without ever leaving their home. And on April 20 the most aggressive entrant of them all, drugstore.com, unveiled “the boutique,” targeting brand-loyal shoppers looking for top-of-the-line cosmetics.
“People will buy online because it’s convenient not to have to go out to the drugstore,” says David Restrepo, a health analyst at Jupiter Communications, a New York-based e-commerce research firm.
Online pharmacies such as Soma.com, PlanetRx and Mybasics.com are after a huge market. Consumers spend about $50 billion a year on medications for chronic illnesses, Restrepo says, which are well-suited to Internet orders because people know they need them in advance. Add other drugstore staples such as beauty products, personal care items, over-the-counter medications and herbal remedies, and the potential market reaches $180 billion a year domestically, says Stephanie Schear, vice president of business development and cofounder of PlanetRx, which sells 23,000 items on its Web site. “Online players will try to capture some sales from the physical world,” she adds.
As they debut, online drugstores are facing competition mainly from one another. Traditional stores have been slow to initiate e-commerce efforts, Restrepo says, although some chains, such as Walgreens and CVS Pharmacy, allow customers to request medication refills on their Web sites.
Restrepo predicts that online drugstores will steal market share from traditional pharmacy chains in the Internet space, adding, “You’ll see the bricks-and-mortar guys playing catch-up.”
But some pharmacy chains already have big plans for the online market. Deerfield, Ill.-based Walgreen Co. plans to have a full e-commerce site up by December. Competition for the online drugstore market also may come from pharmacy benefits management firms, which offer pharmacy services to consumers by way of employers and managed-care companies. One large company, St. Louis-based Express Scripts, recently announced it will open a Web store.
Still, the new Internet drugstores are well-positioned for success. Companies that start on the Web rather than trying to convert from other sales channels fare well, Restrepo says. Plus, drugstore.com, PlanetRx and Soma.com have solid financing and strong staffs, he adds.
Peter Neupert, a former Microsoft Corp. executive who led MSNBC, is president and CEO at Drugstore.com. He took the job because launching a whole new business concept offers challenges and a lot of fun, he says. The venture also draws on his strengths as a brand builder. Neupert lent his guest house as the start-up company’s first corporate headquarters. But Drugstore.com. has since settled into its own space in Redmond, Wash., and as of March had 140 employees. Amazon.com owns 46% of Drugstore.com.
The online pharmacy and wellness center will target women, who shop the most at traditional drugstores, while striving to offer good value, Neupert says. He expects people to shop online for convenience and because shopping at home offers privacy you can’t get at the corner store: “People can buy a pregnancy test or birth control without worrying about running into their neighbors.”
Not everyone is as certain about the sudden impact Internet pharmacies will have on the market. “Online drugstores will have to convince shoppers that their sensitive medical records will be safe,” says Timothy Kenney, president of NYBOR Corp., a Williston, Vt.-based health-care Internet consulting firm. “They need to clearly post how they are keeping the information secure and who has access to the data,” he notes.
But for those who are taking the plunge, online drugstores represent the new frontier of e-commerce. “We’re at the beginning of a long run,” says PlanetRx’s Schear. We’re going to build a big business here.”