‘A difficult decision’: Walmart to shutter all US health care services and hunker down on inflation-fueled growth in grocery business — what this means for consumers
Inflation is proving to be a curse and a blessing for big-box retailer Walmart (WMT).
On April 30, the chain announced that it plans to close all of its health centers and shut down its virtual care services due to “the challenging reimbursement environment and escalating operating costs.”
Walmart described the move as “a difficult decision” but stated the “lack of profitability” has made the healthcare business “unsustainable… at this time.”
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But those same cost pressures nipping Walmart’s fledgling healthcare business in the bud have proven a boon to the retail giant’s grocery business.
On the same day it announced the end of Walmart Health, the retailer set in motion its largest private brand food launch in 20 years — capitalizing on inflation-fueled growth in its grocery business to introduce Bettergoods to the market. Here's what that means for consumers.
Killer health care costs
Walmart launched Walmart Health in 2019 with the mission of improving health care affordability and accessibility.
In its five-year lifespan, the health business has opened 51 health centers across five states: Arkansas, Florida, Georgia, Illinois and Texas. To complement those brick-and-mortar locations, it also acquired telehealth provider MeMD for an undisclosed amount in 2021.
It is not clear exactly when each clinic location will shutter, but insiders told CNBC they expect the closures to occur in the next 45 to 90 days. However, the closures will not stretch to Walmart’s nearly 4,600 pharmacies and more than 3,000 vision centers across the country.
This news is a major U-turn from a Walmart Health announcement in March, when Dr. David Carmouche, senior vice president of Omnichannel Care, said the unit “will be growing in a big way” in 2024 — with plans to open 28 new Walmart Health center locations, including in two new states: Missouri and Arizona.
One reason why Walmart is exiting this business is the “challenging reimbursement environment.” This revolves around the rising cost of healthcare in the U.S., which has ticked up for the past several decades due to three main factors, according to a 2023 study by the Peter G. Peterson Foundation: population growth, population aging, and rising prices for healthcare products and services.
A 2023 article by Boston Consulting Group stated that healthcare providers “need further substantial reimbursement increases from insurers to offset the double-digit cost jumps and structural economic challenges faced by health systems.”
In other words, the government (through Medicare, Medicaid, the Children’s Health Insurance Program (CHIP) and subsidized Affordable Care Act (ACA) marketplace plans) and private health insurers would have to raise their rates (how much they charge for insurance) to cover health services so that businesses like Walmart Health could turn a profit.
With that necessity proving unlikely in the near future, the retail giant made the “difficult decision” to shut up shop.
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Booming grocery business
When one door closes, another opens — at least that’s the case for Walmart. The big-box retailer is debuting a new grocery brand, Bettergoods, which it describes as “a new elevated experience that delivers quality, unique, chef-inspired food at an incredible value.”
The new brand includes 300 items spanning frozen goods, dairy, snacks, beverages, pasta, soups, coffee, chocolate and more — all costing less than $15, with most products available for under $5.
According to a CNBC analysis, this marks a major effort from Walmart — the country’s largest grocer by revenue — to retain the shoppers it has attracted during a period of high inflation.
In 2023, food prices increased by 5.8%, per USDA data. While that was an improvement from the prior year’s 9.9%, the cost of groceries is still proving a major pain point for U.S. consumers — and a big boon for the nation’s grocers.
In its most recent fiscal year, ending January 2024, Walmart’s net sales for groceries in the U.S. rose nearly 7% year over year to $264.2 billion.
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