Amazon sets pharmacy industry in sights after triple digit Q1 growth


The US pharmacy delivery industry is firmly in Amazon’s sights, with the online giant opening Amazon Pharmacy in New York City and greater Los Angeles. As it set about disruption of yet another industry, the company reported 218.8% y-o-y operating income growth to $15.31bn in the first financial quarter on revenues that were up 12.4% to $143.3bn.

According to CFO Brian Olsavsky, operating income growth at Amazon was, “Driven by strong operational performance across all three reportable segments… and lower cost to serve.” Across those three segments:

  • North America had a 455% y-o-y increase in operating income to $5.0bn on revenues that grew 12.3% to $86.34bn
  • International saw 175% operating income growth to $903m on revenues that grew by 9.6% to $31.93bn
  • Amazon Web Services (AWS) saw an 84.3% increase in operating income to $9.4bn on revenues that grew 17% to $25.0bn

The North America division continued to benefit from its overhaul of its fulfilment network. Meanwhile, regarding the International segment, Olsavsky continued, operating income growth was primarily “Driven by our established countries as we improve cost efficiencies through network design enhancements and improved volume leverage”.

Pharmacies in sights

Amazon is known for swings between investment phases and profitability phases. This time, it is working on both at the same time. The online giant’s Amazon Pharmacy has opened micro fulfilment centres in New York City and greater Los Angeles, adding to its offering in six other major cities in the USA.

According to the company, despite pharmacy deliveries being offered in the US for almost 80 years, the service accounts for just 10% of prescriptions fulfilled for patients. Dough Herrington, CEO of Worldwide Amazon Stores said, “Amazon is building the fastest and most convenient service for the home delivery of prescription medications.” In one example, the company said that the small-format facility in Brooklyn has a subset of more than 12,000 medications with a focus on supporting urgent care needs. This will be able to fulfil prescription requests in minutes as opposed to hours or days in some cases.

As bookstores found out the hard way in the late 1990s and early 2000’s, this move is likely to upend the industry in the US in fairly short order, to the cost of hundreds if not thousands of existing US businesses.

More automated fulfilment centres to open

Back to Amazon’s core business, it has announced it is to open Delivery Service Partner (DSP) operations in Australia – starting in Brisbane, Melbourne and Sydney. Amazon Australia’s general manager of delivery and supply chain, Anthony Perizzolo said, “The expansion of our last mile network with DSP will enable us to continue meeting growing customer demand and enhancing delivery outcomes for customers”.

At the same time, the online giant has plans to open Amazon Robotics Sortable (ARS) fulfilment centres in Asturias, Spain and Sagamihara in Japan ahead of the 2024 peak season. The €300m Asturias site is 175,000 sq m in size of which 40,000 sq m will be robotised. Though heavily automated, it will still create 1,500 jobs. 

Already by far the largest retail operation in the world, Amazon doesn’t seem likely to slow down in terms of profitability or industries that it disrupts. As well as threatening the pharmacy industry in the US it has lately launched its third party supply chain offering that could make the likes of industry giants GXO and DHL Supply Chain sweat in the coming years. As ever, time will tell just to what extent it will do that.

Author: Richard Shrubb

Source: Amazon