Could Amazon Acquire Struggling Pharmacy Chain Rite Aid?

Amazon‘s meteoric rise has fueled constant speculation over what industry it may disrupt next through aggressive acquisition strategies. As Rite Aid struggles financially amidst pharmacy sector consolidation, rumors have reignited regarding the potential for an Amazon takeover of the regional drugstore chain. But with Rite Aid‘s track record of failed merger deals, this much-hypothesized deal faces steep odds.

Let‘s analyze whether Amazon buying out Rite Aid makes strategic and financial sense.

Why An Acquisition Would Aid Amazon‘s Healthcare Ambitions

Rite Aid‘s 4,500+ stores and 88,000 employees could provide infrastructure for Amazon to rapidly scale its pharmacy arm.

Amazon Pharmacy launched nationwide recently after piloting prescription delivery services years prior. But despite upbeat analyst projections, estimated 2022 revenue still pales against incumbent pharmacies:

Clearly, Amazon has lots of catching up to do against established giants like CVS if it wants to disrupt traditional pharmacy distribution models.

An acquisition fast tracks Amazon into brick-and-mortar retail pharmacy with millions of customers switching to using Amazon Pharmacy services. Envision Rite Aid stores doubling as package pickup points for Amazon pharmacy orders – the convenience would likely appeal to Prime subscribers.

And Rite Aid would gain a rescuer with the resources and capacity for business reinvention lacking during its decade-plus of corporate turmoil.

Would Acquiring Rite Aid Move The Needle for Amazon‘s Bottom Line?

Likely not significantly. Despite nearly $24 billion in 2021 revenues, Rite Aid posted yet another big net loss exceeding $530 million as industry headwinds persists.

Declining prescription sales and competition from mass merchants caused Rite Aid‘s pharmacy sales contribution to dip below 50% recently. And its retail performance fails to differentiate against big box and specialty chains.

So turning Rite Aid into a profitable arm could prove a steep challenge even for Amazon. Especially since the e-commerce titan would face the same issues plaguing Rite Aid‘s competitiveness across both pharmacy and retail.

Yet for Amazon, absorbing losses from Rite Aid may be justifiable strategically long term by cementing its physical footprint in healthcare services.

Could Regulatory Concerns Spoil The Deal Once Again?

Rite Aid leadership remains once bitten, twice shy from having two huge failed mergers cost them over $600 million in termination fees last decade. So they may balk at another risky deal, even with a behemoth like Amazon at the helm this go-around.

Especially since anti-competitive concerns still loom large in any potential pharmacy M&A.

The FTC previously forced Walgreens to substantially slash store purchases from Rite Aid to only 2,186 locations from an initial expected amount of 4,000 stores. Regulators worried about overly concentrated local pharmacy markets disadvantaging consumers.

Would federal overseers perceive an Amazon buyout of Rite Aid differently? Possibly, but skepticism regarding shrinking competitive consumer choice likely remains regarding another attempted pharmacy megamerger.

And Amazon already faces its share of antitrust pressures across industries ranging from online retail to cloud computing services. So inviting further regulatory scrutiny by absorbing a top 10 US pharmacy chain has risks.

While Amazon‘s track record includes swallowing up major supermarket Whole Foods for nearly $14 billion in 2017, Rite Aid may prove one acquisition target too farfetched financially and strategically.

Outlook: Low Odds of Acquisition Despite Some Valid Rationale

In my assessment as a retail industry mergers & acquisitions analyst, I would handicap chances of Amazon acquiring Rite Aid at around 15 percent probability over the next two to three years unless Rite Aid’s financials or market position markedly deteriorate further.

The reasons why Rite Aid merits consideration from Amazon:

• Instantly gain store locations suited for healthcare services
• Big subscriber base to cross-sell Amazon pharmacy offerings
• Grow Amazon Care telehealth through expanded pharmacist network
• Reinvent pharmacy operations with Amazon supply chain expertise

However, achievable synergies quite possibly fail to justify the mammoth risks Amazon accepts by absorbing Rite Aid‘s entire business.

Rite Aid leadership prefers righting the ship without handing over the reins to another corporate savior. And the retail pharmacy industry climate has only grown more cutthroat for mid-tier players like Rite Aid.

So in my expert view, speculative chatter around Amazon buying Rite Aid continues exceeding realistic prospects of a deal materializing. Rite Aid‘s quest for renewed direction will likely stay independent of Amazon ownership despite some apparent strategic alignments.