"Success today requires the agility and drive to constantly rethink, reinvigorate, react, and reinvent." — Bill Gates
One day, you are the market leader, essential and in control. The next, you lose sight of your customer, and suddenly, you are closing stores and blaming and firing your CEO.
That’s the story of most behemoth companies in the world.
Walgreens and CVS, two household names in the U.S. healthcare and retail pharmacy industries, grew into giants through a combination of strategic acquisitions, aggressive expansion, and their dominance of prescription drug services. Today, however, both companies find themselves at a crossroads, facing the same existential questions that have haunted many industries in the past decade. What went wrong? Can they recover? And if so, how?
The current state of these companies - marked by shrinking profits, declining stock prices, and corporate leadership turnover - is the culmination of years of strategic leadership missteps, customer dissatisfaction, and a failure to innovate in a digital-first world. As these two former retail powerhouses attempt to reinvent themselves, their journey offers critical lessons for business leaders in any industry.
Let's navigate through Walgreens and CVS' examples - from titans to mortals. Join us on this journey, and perhaps a single phrase will spark a change in how you view your customers and competitors.
Table of Contents
The Early Days: Walgreens and CVS Growth Built on Acquisitions
Both Walgreens and CVS built their early success on a foundation of acquisitions. Walgreens, established in 1901, grew steadily throughout the 20th century, acquiring regional pharmacy chains and expanding its network across the United States. CVS followed a similar path, aggressively buying up smaller competitors and related healthcare businesses, including MinuteClinic, a leader in in-store healthcare clinics.
For years, these acquisition strategies proved incredibly effective. The companies expanded their footprints, widened their customer bases, and increased their bargaining power with suppliers. Growth was the name of the game, and by the early 2000s, Walgreens and CVS were the undisputed leaders in U.S. retail pharmacy.
But there was a flaw in this approach. Acquisitions can only sustain growth for so long. Eventually, these companies would need to shift their focus from growth through acquisition to organic innovation - something both brands struggled to achieve in a rapidly changing retail landscape. Their dependence on acquisitions left them bloated and unable to pivot quickly enough to meet the demands of a digital-first world.
Acquisition after Acquisition
What was once a strength became a weakness, as Walgreens and CVS failed to anticipate the digital disruption and changing customer expectations that would redefine the industry.
From Customer-Centricity to Efficiency: A Cultural Shift
Back in the day, Walgreens and CVS had a different kind of relationship with their customers. Pharmacies were not just places to pick up prescriptions; they were trusted community hubs. The pharmacists were knowledgeable, and approachable, and served as healthcare guides who helped navigate treatment plans and medication regimens. Customer loyalty was strong, and people had genuine relationships with their local pharmacists.
Fast forward to today, and that personalized customer experience has all but vanished. As both companies expanded, the focus shifted from customer-centricity to operational efficiency. This transformation, driven by the pressures of cost-cutting and scalability, turned Walgreens and CVS into clinical, impersonal machines - no longer community hubs but medication vending machines. The introduction of automated systems and reduced staffing gutted the human connection that had once defined their customer service.
This detachment became glaringly apparent when Walgreens found itself in a showdown with Express Scripts over prescription earnings in 2012. Walgreens refused to bow to the pricing demands of the insurance company, confident that customer loyalty would prevail. They were wrong. Walgreens was kicked out of millions of patients' insurance networks, and rather than staying loyal, patients quickly moved on to competitors offering lower prices. As Tanquilut, a healthcare analyst, observed, “What that did was prove that patient loyalty is not to the retail pharmacy, but to whatever my insurance is willing to pay”.
The New Walgreens "in chains"
This failure to understand the shifting landscape of customer loyalty and consumer priorities has been at the core of Walgreens' and CVS’s troubles in recent years.
A Narrow Focus: Forgetting the Real Competitors
Additionally, in their relentless battle for market share, both CVS and Walgreens have become so consumed with outmaneuvering each other that they have overlooked a fundamental truth: their true competitors aren’t just their retail pharmacy rivals. They are the myriad of alternatives that consumers have at their disposal today.
As the healthcare and retail landscapes evolve, the competition is no longer limited to pharmacies. Customers now have an endless array of choices - from grocery giants like Walmart and Costco, which have robust pharmacy services, to online powerhouses like Amazon, which has dramatically disrupted the market since launching Amazon Pharmacy in 2020. With the promise of prescription refills and free delivery for Amazon Prime members, Amazon has redefined convenience in healthcare. Customers can leverage their health insurance to help pay for medications or utilize Amazon’s prescription savings benefit if they are uninsured, allowing for cost comparisons that highlight the least expensive options available.
In January 2023, Amazon introduced RxPass, a groundbreaking prescription drug service that offers Prime members unlimited access to eligible generic medications for just USD $5 a month. This innovation follows the unveiling of Mark Cuban's Cost Plus Drug Company, which aims to cut out middlemen, promising consumers many generic drugs at a fraction of the cost charged by traditional pharmacies. Both initiatives yank health insurance from the equation, making the process of buying prescriptions feel a lot more like purchasing everyday items, like paper towels - impressive, right?
These developments are particularly relevant given that the average American spends around USD $1,300.00 a year on prescription drugs - more than people in any other country in the world. With millions of Americans underinsured, the attention generated by these announcements is hardly surprising. The backing of influential figures like Mark Cuban and the immense reach of Amazon's platform signal a potential paradigm shift in the industry.
This shift has been underscored by recent developments, such as Blue Shield of California’s decision to terminate its partnership with CVS Health’s Caremark as its pharmacy benefit manager. Instead, they have opted to collaborate with Amazon Pharmacy and the Mark Cuban Cost Plus Drug Company, aiming to save up to USD $500 million annually once the new model is fully implemented. Blue Shield’s CEO, Paul Markovich, articulated the need for change, describing the existing pharmacy system as “extremely expensive, enormously complex, completely opaque, and designed to maximize the profit of participants instead of the quality, convenience, and cost-effectiveness for consumers”. Their initiative is a direct response to a broken system, seeking partners that prioritize transparency and affordability.
Warning: Disruption coming...
In this narrow focus, CVS and Walgreens have neglected to acknowledge the fundamental shift in consumer behavior. Shoppers no longer view pharmacies as isolated entities; instead, they consider them as part of a much larger ecosystem that includes retailers, e-commerce platforms, and various healthcare providers. This tunnel vision has cost both companies dearly, as they have failed to innovate in ways that resonate with the evolving expectations of today’s consumers.
Brian Tanquilut, a healthcare analyst, astutely observed, “The reality is, patients are loyal to their insurance providers more than the pharmacies themselves”. With this mindset, CVS and Walgreens risk becoming obsolete, seen as mere remnants of a bygone era when they were the only game in town.
Instead of collaborating to enhance their services and offerings, these companies have been locked in a zero-sum game, trading blows with each other while ignoring the larger players entering the market. This preoccupation with one another has hindered their ability to recognize and respond to emerging threats. The need for an expanded perspective is urgent; they must shift their focus from inter-company rivalry to proactively addressing the diverse needs of a market that is rapidly shifting under their feet.
By failing to see beyond their rivalry, both CVS and Walgreens risk losing sight of the fundamental principles that once guided their success: customer service, accessibility, and innovation. With the U.S. pharmacy market projected to generate USD $359.2 billion in revenue by 2025, the competitive pressure is only expected to increase. As industry analysts suggest, “Absolutely, Amazon will take market share; CVS and Walgreens are ripe for disruption”. It’s high time they pivoted their business strategy from battling each other to proactively addressing the diverse needs of a market that is rapidly shifting under their feet.
The Fall: Missed Opportunities and Strategic Missteps
If one were to trace the roots of Walgreens' and CVS's decline, several critical missteps become apparent:
Misstep 1. Failure to Embrace E-commerce and Digital Health
In an era when companies like Amazon and Walmart were revolutionizing how consumers shopped for everyday goods, Walgreens and CVS missed the boat on e-commerce. Instead of leading the charge, they stuck to their brick-and-mortar model, assuming that their wide physical presence would protect them from digital disruption. This was a critical error.
As Amazon ventured into the healthcare space, launching its PillPack service and expanding its footprint in digital health, Walgreens and CVS scrambled to catch up. They have since attempted to incorporate digital services, but it has largely felt like too little, too late. Instead of being industry pioneers, they are playing catch-up.
Misstep 2. Over-reliance on Physical Stores
Walgreens and CVS doubled down on physical locations at a time when most industries were shrinking their brick-and-mortar presence. Walgreens, for instance, continued to expand its network of stores while neglecting online innovation. Today, this overexpansion is coming back to haunt them, as Walgreens plans to close 1,200 stores in an effort to cut costs and streamline operations.
In contrast, their competitors like Walmart and Costco built integrated ecosystems where physical stores complemented robust e-commerce platforms. Walgreens and CVS, however, failed to balance the two, making them vulnerable to shifts in consumer behavior.
Misstep 3. Depersonalized Customer Experience
As both companies prioritized efficiency, they reduced staff, locked basic products behind security measures, and replaced human interaction with automation. This depersonalization eroded trust and loyalty, as customers who once relied on their local pharmacist for personal care now feel like they are just another number in the system.
The impact of these changes is profound. Customers who once saw Walgreens and CVS as trusted healthcare partners now view them as mere transactional platforms. The intimate relationship between the pharmacist and patient, which had been a cornerstone of their success, is no longer there.
Misstep 4. The Healthcare Hub Business Strategy: A Misstep
In response to the shrinking margins in the retail pharmacy business, both Walgreens and CVS attempted to reframe themselves as healthcare hubs, expanding into primary care services and creating in-store clinics. While this was a bold move, it proved to be a costly one. The healthcare sector is complex, highly regulated, and expensive to navigate. Both companies struggled with the operational and financial challenges of managing these clinics while maintaining their traditional retail operations.
CVS, for example, spent billions acquiring Aetna and Caremark in an attempt to become a healthcare leader. However, this ambitious corporate strategy has not yet paid off. In fact, CVS is reportedly considering a breakup of the very mergers that were supposed to define its future - ouch!
Stock Price: A Mirror of Declining Performance
The stock prices of Walgreens and CVS tell a stark story too, and better than no one else. Over the past five years, the value of both companies has dropped significantly. Walgreens has seen its stock price fall by nearly 60% since its peak, while CVS has similarly struggled, with its stock value also declining sharply.
These drops aren’t just reflections of broader market trends - they are indicators of deeper, more systemic issues within both organizations. Investors have lost confidence in their ability to adapt and innovate. And as these companies continue to grapple with shrinking margins and operational challenges, the market’s skepticism only grows.
In a bid to regain investor confidence, Walgreens' CEO Tim Wentworth recently announced that the company is “reorienting to its legacy strength as a retail pharmacy-led company”. This move, while seemingly a return to basics, raises the question: Is this business strategy enough to address the underlying issues, or is it simply a temporary fix?
CVS: From $110 to $60 in a Matter of 2 Years
Walgreens: From $60 to ~$11 in 5 Years
The Opioid Crisis: A Stain on Their Reputations
To add to their woes, both Walgreens and CVS have been caught up in the opioid crisis, facing accusations of contributing to the epidemic by failing to properly monitor prescription practices. These legal battles have not only been costly, resulting in millions in fines, but they have also tarnished the reputations of both companies at a time when consumer trust is paramount.
According to the filings, “a Walgreens drug distribution center sold 2.2 million tablets to a single Walgreens’ pharmacy in tiny Hudson, a roughly six-month supply for each of its 12,000 residents... In some cases, Walgreens increased orders as much as 600% in the space of just two years, including, for example, supplying a town of 3,000 with 285,800 orders of oxycodone in a one-month period.”
The large volume of pills flowing into Walgreens pharmacies made some stores targets for crime, including armed robberies and employee theft, according to police officials, board of pharmacy records, and other published reports. In 2014, a pharmacy technician who stole about 25,000 pain pills from a Walgreens in Missouri told state investigators that another employee gave him instructions on how to pilfer the pills and sell them during breaks in the store bathroom and pharmacy parking lot - source.
In an age where corporate responsibility and ethics play a crucial role in consumer decision-making, these scandals have further alienated customers and investors alike. It’s not just about prescription prices anymore - it’s about the integrity of the companies dispensing them.
What Can Walgreens and CVS Do?
The future of Walgreens and CVS is not written in stone. If they want to avoid becoming relics of a bygone era, they must take bold, decisive action. Here are three strategies that could help:
Business strategy 1. Reimagine the Customer Experience
Walgreens and CVS must return to their roots as customer-centric organizations. This means more than just hiring more staff - it means rethinking how they interact with customers at every touchpoint. Personalized service, telemedicine consultations, and AI-driven healthcare insights could be key to restoring trust and rebuilding relationships.
Business strategy 2. Double Down on Digital Health
The future of healthcare is digital, and if Walgreens and CVS want to remain competitive, they need to go all-in on e-health solutions, AI-driven diagnostics, and telemedicine. CVS’s HealthHUBs and Walgreens' investments in VillageMD are steps in the right direction, but they need to scale these initiatives quickly and decisively.
Business strategy 3. Rethink the Role of Physical Stores
Rather than continuing to close stores, Walgreens and CVS need to rethink how those stores function. Instead of traditional retail spaces, they could serve as hybrid health centers - places where customers can access healthcare services, pick up prescriptions, and consult with healthcare professionals in a personalized setting.
A Cautionary Tale for All Industries
The challenges facing Walgreens and CVS are not unique. Many companies - whether in retail, healthcare, or tech - face similar pressures to adapt or die. What the story of these two companies teaches us is that growth and expansion alone are not enough in the long run. Sustainable success requires constant innovation, customer-centric thinking, and the ability to pivot in the face of new challenges.
As the business world continues to evolve at breakneck speed, the rearview mirror will always seem clearer. But for those companies willing to take risks, listen to their customers, and embrace new technologies, the windshield might just offer a clearer path to long-term success.
💡Explore our Business Insights Hub for the latest in business strategy and corporate leadership! Discover proven strategies to build a resilient, lasting organization that thrives beyond your tenure.
Stay Ahead with Weekly Executive Insights! Subscribe to our newsletter for exclusive tips and insights delivered straight to your inbox — helping you lead with impact every week.
An eye-opening analysis! Walgreens and CVS remind us of the risks of losing customer focus and underestimating innovation. At HRS, we believe sustainable success lies in blending customer-centric strategies with digital innovation. Thank you for sharing these crucial lessons in reinvention!
Excellent summary and analysis. We can definitely do much more as leaders to anticipate market trends and avoid the inevitable - because sometimes it is. Yet, it is in our hands to mitigate risks. Thanks for sharing