Walgreens is forging alliances with tech giants like Microsoft as it prepares for war with Amazon
- Walgreens, one of the largest pharmacy chains in the US, is up against stiff competition as rivals like CVS Health strike deals and Amazon looms.
- As a defensive move, Walgreens has taken a partnership approach, forging alliances rather than doing outright takeovers. On Tuesday, Walgreens reached another such deal with Microsoft. In December, it partnered with Alphabet's life sciences arm Verily.
- We spoke to Walgreens CEO Stefano Pessina about why the changing power of the consumer is driving his approach to partnerships with grocery stores, health plans, and now tech giants.
In the not-so-distant future, on the shelves of Walgreens stores alongside headache pills, lotions and snacks, you might start to see products from tech giants like Microsoft.
On Tuesday, the retail pharmacy chain announced a partnership with Microsoft. It comes just a few weeks after Walgreens made a deal with fellow tech giant Alphabet's life sciences arm Verily and after a few years of striking partnerships with everyone from grocery stores to health plans to beauty subscription boxes.
Microsoft will be Walgreens' cloud partner, meaning Microsoft will be in charge of managing Walgreens' data storage. and Walgreens employees will now use Microsoft 365 for their office software. For consumers, Microsoft and Walgreens plan to test out health offerings, including 12 pilot "digital health corners" in stores.
Walgreens CEO Stefano Pessina told Business Insider on Tuesday that Walgreens ultimately picked Microsoft because it was willing to treat Walgreens as a partner rather than as a customer.
The partnerships are an integral part of Walgreens' strategy to stay competitive as it faces stiff competition for customers. Walgreens is facing off against Amazon, which is getting into the pharmacy business through its acquisition of the online pharmacy PillPack; CVS Health, which is making a big bet on the healthcare aspect of its business through the acquisition of the insurer Aetna; and, of course, retail giant Walmart.
Elsewhere in healthcare, the lines are blurring after health insurer Cigna acquired pharmacy benefit manager Express Scripts.
Pessina's bet: Walgreens will have to be the place where consumers choose to go as they start to gain more power over their healthcare spending.
"At the end, the consumer will be in charge much more than today," Pessina told Business Insider. "They will increase their power and they will be the final decider more than today."
He predicted that the power of insurers and pharmacy-benefit managers will diminish, as consumers increasingly choose where to purchase healthcare for themselves.
The partnership strategy
About three years ago, Pessina and his team realized that the pharmacy business would start to require the company to perform more functions in healthcare. But instead of buying companies outright, Walgreens decided to take a partnership approach.
"We have always been positive on vertical integration," Pessina said. But integrating fully in the way Cigna-Express Scripts or CVS-Aetna did wasn't a possibility for Walgreens. "We realized that we could not integrate in the space. The conditions were too expensive."
Eventually, Pessina said, the plan was to patern with technology companies as well. So far, Walgreens has partnered with health plans like UnitedHealth Group and Humana, laboratory testing company LabCorp, grocery store Kroger, beauty subscription box service Birchbox, and delivery service FedEx.
With Verily, the plan is to offer a "virtual diabetes program" from Onduo, the joint venture between Verily and Sanofi, to Walgreens employees. It also makes Walgreens a commercialization partner for Verily, meaning that Walgreens would be the store that carries products Verily eventually develops.
Verily has been working to understand the aspects of diabetes management that don't take place inside the hospital, the company's top doctor told Business Insider last week.
"It's about how do you close the loop and get people on the right medications," Verily Chief Medical Officer Jessica Mega said in an interview on the sidelines of the J.P. Morgan Healthcare Conference in San Francisco in January. "Really understanding that piece of the pie is important."
Mega said Verily's plan is to partner with companies beyond Walgreens as well.
Pessina said that before signing the partnerships with Microsoft and the Alphabet unit, he made sure he was clear that his intention was to work with both of them.
"They are for an open solution," Pessina said. "Because only one will not be able to offer the complete solution to customers, to be really able to take care of their health in a comprehensive way. "
'Digital health corners' and connecting data
As part of the Microsoft deal, Walgreens will set up pilot "digital health corners" where it will sell consumer health devices and software for tracking weight and exercise. They'll be staffed by an advisor who can coach customers on the products or help them interpret any confusing data.
The spaces will also serve as a space to manage chronic conditions, such as diabetes, or help make sure a patient understands how to use a particular medication.
The spaces could be similar to CVS Health's upcoming health hubs, which incorporate clinical services and blood work, as well as a "care concierge" to help customers better understand their health insurance or wellness devices.
Ideally, Pessina said, the plan would be to link the data each partner collects and use it to make patients healthier. For example, should a patient with diabetes or high blood pressure consent to have his or her data shared, Walgreens might be able to get insights into the groceries they're buying at its partner Kroger.
"We could give them enormous support because when they eat something that is not particularly healthy for them," Pessina said. That way, Walgreens and its partners could work together to find personalized ways to help a particular patient manage his or her condition.
With the Microsoft partnership in place, Pessina said Walgreens now has the tools to get started on the next challenge: building out the pharmacy of the future.
"Now we are ready, we have the platform on which we can now build this new evolution of our company," Pessina said.
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