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Moving to bridge the gulf between the traditional pharmacy and the online version, drugstore giant CVS Corp. has agreed to pay $30 million (US$) for Net pharmacy Soma.com.
The acquisition would instantly create a huge online market for the chain of 4,100 CVS stores, more than any other in the growing, $150 billion-a-year drugstore business. CVS had been building a Net site but instead opted to buy a well-established Web operation and thus eliminate a competitor in the bid for online market share.
The acquisition would instantly create a huge online market for the chain of 4,100 CVS stores, more than any other in the growing, $150 billion-a-year drugstore business. CVS had been building a Net site but instead opted to buy a well-established Web operation and thus eliminate a competitor in the bid for online market share.
CVS said the move would enable it to dramatically expand its online presence, tap into Soma's Net expertise and foster online alliances. With 55 million customers and 12,000 pharmacists, CVS also should be able to leverage its market reach to build Web business quickly, but could face challenges in the West because it has no stores west of the Mississippi.
"Online retailing is a natural extension of our convenience strategy, providing new opportunities to better serve our customers and expand our business," said Tom Ryan, CVS chairman and CEO. "Our goal is to provide customers with a total healthcare solution."
Soma.com now lists about 3,000 items and guarantees next-day delivery to customers for online orders. Measuring Soma's performance is difficult because it does not have to file financial reports, as public companies do. But the lack of a network of pharmacies that could deliver more quickly surely proved a disadvantage as most any customers can call a pharmacy and have a prescription delivered within hours.
Soma's need to link with a heavyweight drugstore partner may help explain why CVS picked up Soma for what analysts view as a bargain price.
To some, CVS' strategy also suggests purely Net drugstores could have a rough time going it alone. Net-only drugstores including PlanetRX, RX.com and Drugstore.com (which is 47 percent owned by Amazon.com) seem determined to stay the course with their strategies without teaming with major brick-and-mortar retailers. But the power of brand names, delivery systems and relationships with insurers and health plans could lead to more mergers and alliances between traditional pharmacies and online counterparts.
Conversely, drugstore chains might be forced re-think their strategy and consider mergers with Net pharmacies. CVS' two biggest competitors, Walgreens and Rite Aid, are working to build stronger online commerce, but are well behind Net-only pharmacies.
CVS, based in Woonsocket, Rhode Island, said it would expand Soma's online offerings to more than 9,000 items, with emphasis on more over-the-counter medicines, vitamins, health and beauty aids.
The site -- CVS hasn't decided whether to rename it -- also will offer CVS label products, generally with much lower prices than name brands, and photo finishing services. The chain also plans to offer personalized service, including individually tailored health pages, health-management programs and assessment services.
Soma.com will operate as a subsidiary of CVS, overseen by Larry Zigerelli, executive VP for corporate development. The acquisition, which needs federal antitrust clearance, is expected to be completed in June, CVS said.
