Originally published on Aug 10, 2017. 
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 is 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 Amerisource Bergen) are utilized to play the secondary distribution space. And the secondary space is where pricing get 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 things to note:
  1. Amazon built their 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 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!
References:
http://www.marketwatch.com/story/growing-share-of-big-three-drug-wholesalers-gets-attention

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