Walmart and Amazon, the two largest companies in America, are also deep into a decades-long rivalry that has spilled beyond e-commerce and physical retail and into other industries—including health care. The following excerpt from the soon-to-be-published book Winner Sells All describes a recent episode in which the two gigantic retailers were both suitors for a high-flying pharmacy startup—a contest that exposed the strengths and weaknesses of both companies’ approaches to this massive industry.
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Doug McMillon sounded determined. It was Thursday, June 28, 2018, and the biggest business news story of the day was very bad news for Walmart and its CEO.
That same morning, Amazon had announced that it had signed an agreement to purchase a young company called PillPack, a five-year-old online pharmacy backed by venture capitalists. PillPack sold prescription drugs specifically to Americans who take multiple medications every day, and had licenses in forty-nine states to ship those drugs—packaged in organized daily packs—to customers’ doors. Not only would the acquisition give Amazon the pharmacy licenses and expertise to finally enter the highly regulated but ripe-for-disruption $350 billion prescription drug market, but it also landed another blow on Walmart, which had been extremely close to buying PillPack itself.
Just a few months earlier, PillPack and Walmart were so close to securing a deal that staff on both sides had already discussed the possibility of announcing the news to the American public through an appearance on a national morning show. But in the final days of a nearly two-month period of due diligence, Walmart suddenly hit the brakes on the deal, stunning just about everyone involved on the PillPack side.
Walmart offered little explanation, other than that they needed to pause the talks and would be back in touch in about a month or so.
One possible explanation emerged a couple of years later: In 2020 the U.S. Department of Justice sued Walmart for its pharmacy division’s alleged role in the opioid epidemic, it became clear that the DOJ had been investigating Walmart during the time of the PillPack talks in the first half of 2018. It didn’t take much for people close to the deal to start wondering whether the DOJ probe might have been a reason for the pause.
Either way, when news broke that PillPack was selling to Amazon instead, McMillon, one of the most powerful businessmen in the world, phoned PillPack’s 32-year-old CEO, TJ Parker, and pleaded with him to reconsider the Amazon deal.
“I think you made the wrong decision,” McMillon told him, according to someone familiar with the conversation. “We were the right buyer.”
McMillon was apologetic about his company’s mismanagement of the acquisition process and vowed to work one-on-one with Parker to push a sale to Walmart across the finish line if the entrepreneur backed out of the Amazon deal. Of course, it was already far too late. Amazon had ripped a promising company right out of Walmart’s grasp, just like it had done nearly a decade earlier when it swooped in to purchase Diapers.com and its parent company after Walmart dragged its feet. But this time it happened in the $4 trillion health care industry, which each company had big hopes of disrupting, just as they had each first done with retail decades ago.
Pill-Oh! Fight
In 1978, when Doug McMillon was still just a middle schooler growing up in Jonesboro, Arkansas, Walmart opened its first pharmacy location, along with auto parts and jewelry departments, as it started to inch toward an all-in-one shopping experience format that it eventually formalized with the introduction of the Supercenter a decade later. By the time McMillon took over as CEO, in 2014, his company had opened thousands of pharmacy locations and had grown to become the third-largest pharmacy player in the country, only surpassed in size by Walgreens and CVS. Pharmacies offered customers another reason to visit Walmart stores and roam a Supercenter’s maze of merchandise-packed aisles before or after picking up a prescription in the back or corner of the store.
At the same time, mail-order pharmacies, which had been in existence for decades, were being reinvented. Amazon had once owned a large piece of an online pharmacy called Drugstore.com, which rose and fell during the Web 1.0 era. But now new players began entering the space in a renewed effort to make buying and receiving prescription drugs much easier to do online. One of these young companies was PillPack, founded in 2013 and launched publicly the following year. TJ Parker, the son of a New Hampshire pharmacist, had teamed up with a technical cofounder named Elliot Cohen, whom he met at an MIT hackathon.
Together, their vision for the company was fairly straightforward: to make it as easy as possible for the tens of millions of Americans who take multiple medications for chronic conditions on a daily basis to purchase their prescriptions online and have help keeping track of what to take when. PillPack presorted the medications into small packs organized by the time and day that the customer needs to take them, eliminating one stressful piece of care for those taking several pills a day. By 2017, PillPack had ripped out all the off-the-shelf software and computer systems it had previously used to run its operation and began using a homegrown system that made running an online pharmacy much less complicated than running traditional pharmacies in the brick-and-mortar world.
Walmart took notice. PillPack’s core business was interesting, but the way it ran its business was even more attractive. PillPack’s software and other technology chops were especially attractive to those who were plain-faced about how bad Walmart Pharmacy’s IT systems were.
“Nothing [PillPack] had was rocket science,” a former Walmart Health division executive told me. “Nothing they had was something that Walmart couldn’t have done. It’s just that Walmart wasn’t going to do it.”
By 2017, PillPack’s leaders were meeting with potential partners to talk about large commercial agreements. One of them was Walmart. After months of on-and-off conversations, Walmart executive Lori Flees posed a question to PillPack’s founders: How about we just buy you outright? While the entrepreneurs believed they had a clear path to building a long-term, sustainable, independent company, they knew it was going to be capital-intensive, and the funds they currently had in the bank definitely weren’t going to cut it. They still weren’t convinced that selling was the right path—they felt confident they could attain more venture capital when necessary—but they let Flees and team know that they were certainly open to the idea.
Late that summer, Parker traveled to New Jersey to meet with Marc Lore, Walmart’s e-commerce chief, who had joined the company after selling Jet.com to Walmart in 2016. Lore had floated in and out of the PillPack discussion for months. After rebuffing some lower offers, Parker told Lore that anything less than $500 million wouldn’t even be worth discussing with the startup’s board of directors. (PillPack had been valued at around $300 million in its most recent round of venture funding.) Soon after, Flees notified Parker that the two sides were too far apart on a fair purchase price, but they should stay close and still consider a commercial arrangement if it made sense. Right before the end of that year, though, Flees got back in touch and said she thought the two sides could make a deal work after all.
Parker was indeed interested. But first, the banker the company had hired to help run a potential sale process felt it necessary to get other bidders involved. Top of mind was a certain Seattle-based tech giant that finally seemed ready to enter the online pharmacy space.
Talks in Seattle
In late 2017, Parker and his cofounder Cohen flew to Seattle to pitch a large contingent of Amazon officials on a potential acquisition. The assorted staff included Doug Herrington, the onetime head of Amazon’s consumables and grocery business, who had since been elevated to run Amazon’s entire North American retail business. Amazon had also been toying with building an online pharmacy, and members of that fledgling team also packed into the conference room to hear from the entrepreneurs.
Unfortunately for Parker and Cohen, their pitch didn’t land, and Herrington and company hinted that they might be able to build an online pharmacy on their own. Amazon, like many new entrants attempting to penetrate the prescription space, felt that they had to target customers who paid for medications in cash, because powerful industry middlemen called pharmacy benefit managers (PBMs) had a stranglehold over whose customers could and couldn’t use insurance for prescription drugs. The rise of high-deductible plans also played in the company’s favor.
“Let’s just get out of the insurance quandary altogether and let’s build something customers love for the 20% that need to, or can, pay in cash,” was how Greg Greeley, the former head of Amazon Prime, recalled the internal discussions. “Then it was just a matter of, when do we prioritize this. We were going to build it.”
With one big suitor seemingly off the table, Parker and Cohen continued to go deeper into conversation with Walmart in a series of visits to the home office in Bentonville. Walmart leaders also traveled to PillPack’s headquarters in New Hampshire for an up-close look at their operations. Things seemed on track.
Then, after a conversation with Marc Lore, Parker felt confident that a final offer would value his company at at least $600 million, with added compensation on top for both founders and their staff. They were about to become generationally wealthy.
By late winter of 2018, the two sides had entered an exclusive forty-five-day negotiation window, during which Walmart could complete due diligence and secure a deal. Within that time frame, which eventually was extended by a week or two, PillPack was not permitted to discuss an acquisition with any other companies. By then PillPack’s founders were probably most excited about envisioning a world in which Walmart.com customers would be able to purchase prescriptions for delivery alongside toys, or toiletries, or maybe even groceries.
“The core thesis,” according to someone familiar with the deal talks, “was that if you could give consumers the same tools to shop pharmacy as they shop for other categories in their life, you could fix a bunch of the knock-on supply chain [and] drug pricing issues.”
Some Walmart executives, however, had a much less sexy idea. They wanted to use PillPack and its software to make Walmart’s existing pharmacies operate more efficiently and economically.
“We coveted their systems,” said Marcus Osborne, a fourteen-year veteran of Walmart who served as the head of the Walmart Health division before departing in 2021.
At the time, Walmart was staring down a necessary investment of hundreds of millions of dollars to upgrade its own pharmacy technology system. For maybe $100 million more, some inside Walmart thought the retailer could get that from PillPack with the added bonus of continuing to grow the startup’s existing core business.
The Walmart executive who delivered the message about what Walmart really wanted from PillPack was Flees, the same company leader who was initially hired in 2014 to serve as Doug McMillon’s corporate strategy lead. Flees had counseled Marc Lore on how to pitch some of his initiatives to Walmart’s more traditional store leaders; now she was counseling PillPack’s founders on the right way to win over the Walmart execs who needed to sign off on the deal. The Walmart corporate translator was at it again.
Walmart’s pharmacies did indeed need a lot of help, even if they had at one time been innovative in their own right. In 2006, for example, Walmart introduced a plan to charge customers only $4 per prescription for the generic version of around 300 of the most commonly prescribed medications.
“There was no certainty that they weren’t going to lose their shirt on that deal,” Osborne, the longtime Walmart health care executive, said.
But for the tens of millions of Americans without insurance, or with high-deductible plans, the initiative was a true game changer.
“It was a spectacular success,” he said.
But that had been one of Walmart’s few innovations in the pharmacy space. McMillon believed that Walmart had an opportunity to be even more disruptive in the health care industry and needed to keep trying to make its own imprint on the sector. In 2015, CVS’s acquisition of Target’s pharmacies prompted McMillon to ask Flees to evaluate what Walmart could and should be doing in health care. The chance to buy PillPack, along with its technological prowess and talent, represented a potential new era for pharmacy innovation at Walmart.
Once Walmart paused on the talks, though, PillPack reengaged Amazon. This time Parker was confident he had nailed his pitch in a new meeting with a longtime Amazon executive named Nader Kabbani, who had been put in charge of Amazon’s internal pharmacy plans. After the meeting, Parker stretched out across the lawn in Seattle’s Olympic Sculpture Park, pulled out his phone, and shot off a text to his executive team.
It was the best pitch of his life, he said, and he was confident the deal was going to happen.
That meant Walmart’s chances were all but dead. Not even a call from the CEO of the world’s largest retailer could change that.
Excited, then stifled
Amazon’s acquisition of PillPack, for a little over $750 million up front (two sources said the total all-in value eventually reached $1 billion), paved the way for the tech giant to launch its own pharmacy online, with innovative industry entrepreneurs leading the way. It had been a long time coming, though some close to the deal found it odd that Jeff Bezos never met with PillPack’s founders during the acquisition process. After all, Bezos had been burned once before.
All the way back in early 1999, Amazon had bought a 46% stake in an upstart website called Drugstore.com, with Bezos joining its board of directors as a result. As its name indicated, Drugstore.com aimed to sell the types of products commonly found in local drugstores, and that included prescription drugs. Among the challenges Drugstore.com faced was the cold shoulder it was getting from some of the powerful middlemen of the prescription drug industry—PBMs. Years later, these same middlemen would spar with PillPack as its service gained more traction, at one point costing the startup one-third of its customers. Dawn Lepore, one of Drugstore.com’s former CEOs, said a major turning point was when a large PBM called Medco shut Drugstore.com out of its insurance network, which included tens of millions of U.S. customers.
“For 1 out of 5 people who came to the site, we would have to tell them we didn’t take their insurance,” Lepore said in a 2018 interview. Amazon eventually sold its stake in Drugstore.com as the business foundered. The idea of building an online pharmacy inside Amazon, however, percolated for years, with multiple teams coming up with ideas on how the tech giant might enter the space. Eventually, leadership aligned on the PillPack acquisition as the best path to accomplish their goals.
Then, in November 2020, Amazon introduced Amazon Pharmacy, separate from the PillPack business, and of course with free two-day delivery for Prime members. The company said at the time that Prime members without prescription drug coverage, or with a high-deductible plan, could save up to 80% on generic drugs and 40% on brand-name drugs when paying in cash. Amazon Pharmacy also developed a tool for shoppers to compare drug prices in-cash versus with-insurance before checking out.
“Our goal is to make accessing prescription medications as simple as any other purchase: saving customers time, giving them more control over their purchases, and helping them stay healthy,” Amazon spokesperson Jacqui Miller told me in an email at the time. It sounded a lot like the vision the PillPack founders were excited to build at Walmart, before the deal ultimately fell apart.
Even with the introduction of Amazon Pharmacy, Amazon continued to encourage PillPack customers to use that service since it was designed for those who regularly take multiple medications. On the other hand, Amazon Pharmacy might appeal to those with less regular or pressing medication needs. Someone who might only need blood pressure medication or prescription pills for anxiety. The logistics behind the service, however, wouldn’t be able to serve customers who needed a prescription filled the same day, such as an antibiotic to treat an infection.
Eventually PillPack’s founders hoped that the pharmacy would evolve to a place where customers could use it to compare the prices of different medications designed to treat the same ailment. That would require a format similar to what Amazon had pioneered years before with the Amazon Marketplace, through which merchants big and small vie with each other and, many times, Amazon itself. In this case, prescription drug makers and third-party pharmacies would not only be competing with each other for a sale but possibly with PillPack or Amazon Pharmacy as well.
“It’s supercomplicated,” a source said.
But, over time, Parker recognized that even with Amazon’s reputation for experimentation and innovation, it was difficult to get big initiatives off the ground at the company. Bureaucracy had finally crept in, as it had done at Walmart many years ago, and it was difficult to build healthcare technology inside the systems of a retail organization. Parker began feeling stifled.
By the time the entrepreneur left Amazon in 2022, his full vision for Amazon’s potential in the pharmacy world was not yet realized, but he remained hopeful that someday down the road it would be.
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Today, almost five years after the PillPack deal closed, both Amazon and Walmart continue to expand their presences in health care, adding a new chapter to their rivalry. In addition to Amazon Pharmacy and PillPack, Amazon also now operates Amazon Clinic, an online portal that connects customers with medical clinicians that provide diagnoses and treatment plans virtually, and the tech giant also spent nearly $4 billion early in 2023 to buy the One Medical primary care chain. At Walmart, a new health leader has announced expansion plans that would result in the company operating 75 all-in-one Walmart Health clinics of its own, across seven states, by the end of 2024. Walmart also purchased a telehealth company whose product is now the core of a Walmart virtual care offering.
Each company possesses strengths and advantages that they hope will help them build trust among customers and tame industry rivals—and each now has considerable experience in the field. Amazon began experimenting in the space before the dotcom bust of 2000, through a large investment in an online pharmacy called Drugstore.com. And way back in 1991, the year before Walmart founder Sam Walton died, he gave an impassioned plea to a room full of employees, shortly after he discovered how much a hospital was marking up the cost of an MRI.
“We’ve got to get the hospitals and doctors in line,” he told the room during a Saturday morning leadership meeting. “We’ve got to get those charges under control.”
“These people,” he added, “are skinning us alive.”
Yet the future of health care for both companies is anything but certain. Each has experienced significant setbacks in this sector that has long been so unkind to newcomers—and sustained success is still likely to be a long time off.
Adapted from WINNER SELLS ALL: Amazon, Walmart, and the Battle for Our Wallets, by Jason Del Rey. Copyright © 2023 by Jason Del Rey. To be published by Harper Business/HarperCollins Publishers. Reprinted with permission.