Retailers have struggled immensely to gain a firm foothold in healthcare delivery.
Last month, Walgreens said it’ll cut its stake in primary care chain VillageMD after closing more than 100 clinic locations. Walmart and Dollar General this year called it quits on their healthcare ventures entirely. Though CVS is charging ahead with growing its Oak Street clinics, it’s still losing lots of money on the effort. Tech companies haven’t fared much better, with reports of Amazon struggling with losses at its primary care subsidiary One Medical.
Is anyone in retail health going to be successful? Endpoints News caught up with Brian Tanquilut, equity analyst at Jefferies, about the state of the market and why retail health seems to be failing across the board. Originally planned for our secret slack interview room, this chat was conducted over text message for technical reasons. (Apparently, banks and Slack don’t get along!) And because, for this reporter, no conversation is complete without a Taylor Swift digression, we chatted about her, too.
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| Shelby Livingston |
| Hey Brian! |
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| Shelby Livingston |
| What’s up? How’s Nashville? |
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| Brian |
| Things are good, and Nashville is awesome! It’s hot right now, but this city is as vibrant and high energy as ever! |
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| Shelby Livingston |
| I bet it’s 1000 degrees. 😅 |
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| Brian |
| Typical Tennessee summer! |
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| Shelby Livingston |
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Anyways
Thanks for chatting. There’s obviously been a ton going on in retail health. Whole lotta headlines in the past year. I’m curious how you’d sum up the vibes in the space right now. |
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| Brian |
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Definitely lots of things have happened!
I’d say for starters, I think that as we’ve seen retailers face macro-related challenges, largely with how inflation and the increase in rates have impacted consumer spending, they have been forced to evaluate their businesses more closely, and one of the areas that comes up in that process as a laggard is healthcare, so we’ve seen retailers re-evaluate their strategies, particularly with the ownership or operation of clinics. |
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| Shelby Livingston |
| Totally. Walgreens has been front of mind for me after they said they’d cut their stake in VillageMD. Why do you think they struggled to make it work? |
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| Brian |
| When you look at retailers’ healthcare/clinic strategies, you have to bifurcate them between fee-for-service and value-based strategies. If you think about Walgreens with Village, CVS with Oak Street, and Amazon with One Medical’s Iora business, those all fall under value-based care. The problem with that model is that while in theory, it’s where US healthcare should go, starting and growing these businesses requires a lot of capital and brings significant up-front losses, just by the nature of how a patient’s overall health and effectively cost, improves over time with more proactive management efforts. |
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| Shelby Livingston |
| So… it just takes time and money? Is there a way Walgreens could have sped things up? I guess I’m kind of wondering why we see retailers retreat so quickly from strategies they bet big on. |
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| Brian |
| Unfortunately, the ramp for these value-based strategies, especially if you’re trying to scale them up, takes 3-5 years, and that’s just too much cash burn and losses to carry, especially when other parts of your business (i.e., retail, pharmacy) are challenged as well. As a publicly-traded company, mgmt and the board have the fiduciary duty to protect shareholders as well, and racking up more losses and cash burn has been bad for the stock, so they had to do something. |
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| Shelby Livingston |
| Do you think Walgreens turning its focus back to pharmacy is a good move? Or will they fall further behind CVS? |
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| Brian |
| I think it’s a necessary move. However, it likely cuts their market share further as they shut down a significant number of stores. And it brings the question back to where they were 5 years ago, which was, how do you successfully run a retail pharmacy strategy as a stand-alone (CVS has the PBM and insurance companies, while the grocery store chains have natural foot traffic from their large grocery operations) |
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| Shelby Livingston |
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Yeah I’m curious how they’ll do it. It seems like they’re going back to square one in some ways.
Oh and because I can’t not bring it up — I know you were in Zurich for Twsift’s Eras Tour. You have to tell me how that was. |
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| Brian |
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It’s the billion dollar question!
I think they need to find ways to arrest payor pricing/margin pressure on the pharmacy side, but that’s not easy. CVS’ new pricing strategy could work to help address that challenge, and they can copy that if CVS succeeds with it, but that’s the biggest thing in my mind. The front of store is tough, just because it’s so macro-dependent, and competition is much more intense in retail. There’s only so much benefit that investments in the look and feel of the store and overall customer experience can bring to driving improvement in the stores performance.
Ha! Yes, it’s me, hi, I’m the dad it’s me! Zurich and the Eras Tour was a blast. Taylor is an amazing entertainer, and whether you’re a Swiftie or not, her concerts are fun and the vibe was just really great. Everyone was friendly and just enjoying the experience! The interesting thing about Zurich is that it felt like more than half of the audience were folks that came from the US! |
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| Shelby Livingston |
| I feel like so many people I know are going abroad for Taylor. Did you actually crunch the numbers to find out if it’s cheaper than seeing her here? |
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| Brian |
| My 10 year-old daughter built a spreadsheet that had ticket, plane fare, and hotel options and pricing for different cities in Europe and the US, and she was diligently scouring for tickets for 3 weeks! And yeah, it was a good bit cheaper to go to Europe! We were seeing Miami tickets starting at $5k and Indy and Nola tickets were all above $2k minimum |
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| Shelby Livingston |
| Good for her! I’m ashamed of how much I spent to see Eras in Nashville, 🙈 but it was worth it |
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| Brian |
| Ha! And it rained during the Nashville one! |
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| Shelby Livingston |
| So back to healthcare. Is there any retailer with a care delivery strategy that’s actually working, and profitable? |
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| Brian |
| I think the Minute Clinic is modestly profitable, but that took years to get there. And that’s a lower-acuity model, run by nurse practitioners. For those with full-blown primary care doc-driven models, everyone’s still ramping up and incurring losses and burning cash. And there aren’t that many retailers left with healthcare strategies with the closures we’ve seen from companies like Walmart, Dollar General, etc. |
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| Shelby Livingston |
| You’ve mentioned macro issues a bunch. How much of these retailers’ problems in healthcare are macro and how much are business-specific, like execution-related, for example? Is it possible to parse that out? |
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| Brian |
| The macro is more on the retail side. |
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| Brian |
| I think the more secular challenge for the healthcare side, at least for those who run value-based strategies, is that broadly speaking, healthcare utilization is up, so for those companies that effectively take insurance risk, they’re seeing margins drop as people use more healthcare services. But again, you gotta add the inherent structural issues that come with operating clinics (ramp for value-based, high operating cost for traditional fee-for-service) |
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| Shelby Livingston |
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Right. I’ve also wondered if one problem is that patients just don’t wanna see a doctor at a Walmart or a CVS. Maybe they’d still rather go to a traditional doctor’s office.
Walmart specifically had trouble getting patients to their clinics |
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| Brian |
| That’s an interesting question because we’ve heard that convenience is a factor that drives patients to these clinics. And availability. What I’m not sure about is whether this holds true in urban vs more rural markets (as may be in the Walmart case) |
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| Shelby Livingston |
| Do you think that any of the retail health folks are providing a primary care experience that’s actually different and *better* than what patients can get from traditional healthcare providers? |
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| Brian |
| Not necessarily. I think it’s just more about access. At least on the fee-for-service side. But value-based, patient experience is better compared to traditional primary care. |
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| Brian |
| Not sure. I’d say the same about the Village clinics. Not sure who would step in to take over |
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| Shelby Livingston |
| I guess we’ll see! Ok, I’ve got some final rapid fire questions for you! First one, in 5-10 yrs, who will be the retailer (or even big tech company) who will have made the most successful push into care delivery? |
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| Brian |
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I think CVS will still be there
Not sure if there will be others |
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| Shelby Livingston |
| Who’s most likely to quit their healthcare push, like Walmart did? |
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| Brian |
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I don’t think there’s much left, right?
Pharmacy will stay, but I don’t think there will be a lot of clinics left inside stores outside of CVS’ |
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| Shelby Livingston |
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True. I’d be interested to see if somebody new is going to surprise us all and make a big primary care push. All the failures might deter newcomers though.
Thanks for taking the time to text with me, Brian! Always love nerding out about retail health and Taylor Swift! |
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| Brian |
Yeah, I’d be curious too!
Always fun chatting with you, Shelby!
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