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What CVS and Walgreens stand to gain from the vaccine rollout

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Phil Wahba
·5 min read
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As the U.S. finally finds its stride in vaccinating its population, the government's big partners for speeding up that rollout—drug store chains, big box stores, and even supermarkets—stand to win handsomely.

As of March 24, one out of four Americans had already received one vaccine dose, and 2.5 million shots were given on average in the previous seven days. Considering the progress, President Biden on Thursday announced a new goal of administering 200 million doses during his first 100 days in office—double his original target.

Retailers will ultimately administer half of the shots, with various government sites doing the rest, Barclays said in a report earlier this month. That translates into CVS pharmacy, Walgreens, [hotlink]Walmart[/hotlink], [hotlink]Rite Aid[/hotlink] and other retailers giving about 150 million shots.

And with dispensing fees of roughly $40 per shot paid by the government to the retailers, almost all profit since the chains don't buy the vaccines, they will collect a nice little bonanza.

In February, CVS forecast a profit from COVID tests and vaccines of $400 million to $500 million for 2021, even factoring in the lost business from a weaker cold and flu season as mask-wearing protects people from getting those illnesses. (Rite Aid on Wednesday said that because of a "historically soft cough, cold and flu season", sales of related products fell 37% in the three months ended in late February.)

That might sound like a lot of money, but for like CVS, whose total 2020 retail and pharmacy revenues were $91 billion, or [hotlink]Walgreens Boots Alliance[/hotlink], whose U.S. retail pharmacy sales came to $108 billion, it's a drop in the bucket.

CVS and Walgreens will administer about 12.5% each of all U.S. vaccines, [hotlink]Barclays[/hotlink] predicts. The companies each expect to give up to 25 million doses monthly when supply is sufficient.

The real benefit to these retailers will go well beyond vaccine fees. The inoculation programs are a way for CVS, Walgreens, Walmart as well as smaller vaccine players like Rite Aid, [hotlink]Kroger[/hotlink] and Publix, to win more customers for both their traditional retail businesses as well as other businesses they are trying to build.

"Millions of new customers will engage with [hotlink]CVS Health[/hotlink] for the first time through testing and vaccine administration," CVS Health CEO Karen Lynch told investors last month.

To book an appointment at a CVS or Walgreens, new customers must provide contact information, giving the companies a treasure trove of customer data that they can potentially use to sell more products at drugstores, like ibuprofen or sports drinks, as well as healthcare services, an increasingly important focus for both companies.

"This will be a good investment, not just in the U.S.A. but also in Walgreens and it opens up many other things," Alex Gourlay, Walgreens Boots Alliance co-COO said at a conference recently. That includes healthcare services, but also a growing business using its stores and its website to sell ad space for consumer product makers, something Walgreens thinks can bring in $150 million this year.

A way to win new customers

On the traditional drugstore side of things, CVS and Walgreens find themselves in an intense fight with each other and rivals like Walmart, Rite Aid, and Kroger to get shoppers into stores.

Despite being deemed essential retailers during the pandemic, CVS and Walgreens struggled to get people to come in and shop at their physical stores compared to Walmart and [hotlink]Target[/hotlink]. Last year, CVS comparable sales, a metric that strips out closed or new stores, of general merchandise rose a meager 1.2%. At Walgreens, they barely increased at all.

About three-quarters of both chains' retail revenue comes from filling drug prescriptions, but more and more people are simply having them mailed or opting for drive-through pick-up, hurting in-store sales.

But one CVS executive sees opportunity in the vaccine program, notably from that 15-minute observation period following a shot during which medical professionals look for any sudden side effects in patients. It's an opportunity to give a literally captive audience coupons, and get them to try CVS's MinuteClinic services. "We have their e-mail, we have their text message," said Jon Roberts, CVS Health's operating chief. It's a way to "getting their pharmacy business" too, he said.

CVS also owns insurer Aetna and pharmacy benefits manager Caremark, so winning new customers through its vaccination services means a bigger clientele for its health care business too. Walgreens is also pushing to become a bigger player in pharmacy benefits.

Walmart is a much smaller pharmacy operator, with 4.7% of the market, to CVS' 24.8% and Walgreens 19.1%, according to Drug Channels Institute. But Walmart too is trying to position itself as more of a healthcare provider. A year and a half ago, the company, opened the first of its Walmart Health primary care clinics that offer services like X-rays, hearing services, and mental health counseling, for very low price.

But the vaccination drive can also help Walmart with its traditional retail business, drumming up more store visits at a time rivals like Target and [hotlink]Costco[/hotlink] are outpacing it in terms of sales growth.

Last month, Walmart U.S. CEO John Furner said that the big-box giant has 20,000 pharmacists at the ready to give millions of doses a month. "We want to help the country get vaccinated because it gets us moving back in the right direction," he said.

This story was originally featured on Fortune.com