Walgreens CEO Says Pharmacy Chain Will Survive Amazon Threat

(Bloomberg) -- Walgreens Boots Alliance Inc. Chief Executive Officer Stefano Pessina said it will be easier for his company to move online than it will be for Amazon.com Inc. to copy its massive store network, predicting a long future for the pharmacy chain as it strikes new partnerships in health and retail.

In a wide-ranging interview at Bloomberg’s headquarters in New York, Pessina said that reports that Amazon.com may open up thousands of physical stores is a acknowledgment that a brick-and-mortar presence is still important in some retail markets.

“It shows that they have understood that you cannot just be online,” Pessina said. “The customer of the future will not be happy to sit at home to talk to an Alexa.”

Investors haven’t completely agreed. Since Pessina took over Walgreens through a merger with Alliance Boots at the end of 2014, his company’s shares are down 1.9 percent. Its biggest strategic move has been the acquisition of 1,932 stores from Rite Aid Corp. Amazon shares, meanwhile, have gained 467 percent over that period and the company has expanded its offerings with groceries, online services, video, consumer electronics and dozens of other industries.

Bloomberg News last month reported that Amazon.com is considering opening up as many as 3,000 new AmazonGo cashierless stores in the next few years to sell things like food items and other convenience goods, according to people familiar with the matter. Amazon has not publicly confirmed the plans.

“I don’t believe it is a big threat,” Pessina said of Amazon. “It will be another competitor, but I don’t think we’ll disappear because of Amazon. We’ll adapt.”

He predicted that Amazon “will find it more difficult to create the physical infrastructure than we will find it difficult to digital-ize our company,” citing an ongoing overhaul of the company’s software and digital operations. He predicted that people will still want to interact with other human in store, or to have the reassurance of a pharmacist to answer questions about a prescription.

Walgreens is also trying to keep pace with its existing competitors such as CVS Health Corp., which by the end of the year plans to close its acquisition of Aetna Inc., a deal designed to push more of the insurer’s customers into its drugstores. Cigna Corp., another insurer, is swallowing up pharmacy-benefits manager Express Scripts Holding Co.

“We should have bought an insurance company four years ago when our multiple was was higher than their multiple,” Pessina said. “At the time, we were engaged with Rite Aid.”

Other Deals

Walgreens, so far, has focused on partnerships and joint ventures. This month it announced plans to open at least 600 medical testing locations run by Laboratory Corp. of America Holdings in its drugstores. Earlier this month, it teamed up with subscription service Birchbox Inc. to test beauty spaces in 11 stores. It also has a pilot project with grocery giant Kroger Co.

“Are we against a big deal? No, of course not, provided we can see the financial logic,” Pessina said.

Walgreens currently owns 26 percent of drug distributor AmerisourceBergen Corp., and the Wall Street Journal reported earlier this year that it had held talks to buy the portion of AmerisourceBergen that it doesn’t already own.

Pessina didn’t rule out this possibility of a deal between the two, at the right price, saying it would make sense.

“It is something that could happen at a certain point, maybe yes, maybe no,” Pessina said. There was no rush to do so, however, because “we control them strategically.”

AmerisourceBergen shares were up 3.2 percent to $92.43 at 3:26 p.m. in New York.

An AmerisourceBergen representative declined to comment.

--With assistance from Blake Dodge.

To contact the reporter on this story: Robert Langreth in New York at rlangreth@bloomberg.net

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Timothy Annett

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