The Big 3 have controlled over 90% of the wholesale drug market for over 10 years. At that size, they are close to a zero-sum game… there is no new business to win except from each other or through acquisitions that are limited on supply.
PROFIT & SALES GROWTH
Many times, these companies are fierce in their competition to grow sales. But with independent retail pharmacies, the Big 3 has close to identical pricing on much of their portfolio. In fact, many times, their pricing can be as much 100% more than the secondary distribution space. They utilize rebates, convoluted pricing structures, and a once-a-year paid trip to their respective conventions all to obscure dead net pricing.
Something interesting to note – Parmed (owned by Cardinal) and Bellco (owned by AmerisourceBergen) are utilized to play the secondary distribution space. And the secondary space is where pricing gets truly aggressive; no prime vendor contracts to shield (potentially colluded) pricing. Imagine the independent pharmacy’s frustration and anger when Parmed gives pricing 50% less than what Cardinal gives…
ONE’S COMPANY, TWO’S A CROWD, THREE’S A PARTY AND FOUR’S A…?
So where does Amazon come in? Amazon has the potential to become the fourth player. And as the fourth player, a couple of things to note:
1. Amazon built its empire on pitting companies against each other and, when convenient, leveraging that data to get into the business themselves (i.e. “Ships from and sold by Amazon”).
2. There is no expectation from Amazon to earn profit, like the constant pressure on each of the Big 3. Amazon is only interested in growing sales revenue. If Amazon took just 10% of revenue from the Big 3, Amazon revenue would increase by 20%
3. At 100+ warehouses in only the US, they already have more locations than the Big 3 combined.
4. Their increasing investment into transportation (e.g. robots, a license to ship ocean freight, and their potential run at an in-house airline) has the potential to beat whatever deal UPS or FedEx or DHL can offer as well as their in-house distribution capabilities.
5. Pharmaceuticals are easier to ship than the wall mounts, car parts, bikes and furniture that Amazon has become an expert in moving.
How do you see Amazon affecting your business? Please leave a comment below!
About Five Rivers RX
Five Rivers RX is a leading pharmaceutical compliance services firm that uses experience, relationships and knowledge to develop custom solutions for their clients. The company provides numerous services including VAWD Accreditation, state Board licensing and federal registration. Five Rivers helps third-party logistic firms, distributors and manufacturers in the pharmaceutical industry focus on their supply chain while reducing costs, enhancing efficiency and improving quality. Five Rivers is committed to helping their clients thrive and to providing peace of mind.