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Amazon has announced the acquisition of PillPack, a US prescription medication supply chain company, for a reported $1 billion.

The completion of the deal is subject to regulatory approvals, expected to close in the second half of the year.

Modernising the health care space

Amazon aims to modernise the health care space through the deal.

Jeff Wilke, Amazon CEO Worldwide Consumer, commented "PillPack's visionary team has a combination of deep pharmacy experience and a focus on technology. PillPack is meaningfully improving its customers' lives, and we want to help them continue making it easy for people to save time, simplify their lives, and feel healthier. We're excited to see what we can do together on behalf of customers over time".

The US prescription drug market is worth over $450 billion. Talks of the deal has sent Amazon shares up by 2.5 percent.

Established PillPack network could enable quick expansion

PillPack is a pharmacy catering to those that take multiple daily prescriptions.

The company offers pre-sorted dose packaging and home delivery, with a commitment to providing 'the best possible experience for customers'. It also streamlines the refill process with automated software.

It has a mail-order pharmacy license in all 50 US states and relationships with many major drug-benefit managers, meaning Amazon could expand its healthcare ventures quickly with the company.

TJ Parker, co-founder and CEO of PillPack, said "PillPack makes it simple for any customer to take the right medication at the right time, and feel healthier. Together with Amazon, we are eager to continue working with partners across the healthcare industry to help people throughout the US who can benefit from a better pharmacy experience".

Source: PillPack

Locking shoppers into the Amazon ecosystem 

The acquisition of PillPack is the latest extension of the Amazon ecosystem.

Amazon tries to lock shoppers into the 'Amazon eco-system' through acquisitions like that of PillPack. The notion is that Amazon offers everything a customer would need in one place, meaning they would not have to look to other retailers to fulfil their needs.

Amazon has officially launched its Hub apartment delivery lockers, enabling residents to access packages from a range of senders.

The Hub was initially launched last year, but Amazon has now decided to announce the product officially and begin rolling the service out across the US.

Standing out from rival collection lockers

The Hub lockers are similar to Amazon Lockers that are present at a number of retail sites, except these lockers are located in apartment buildings. Recipients receive a code on their smartphone, indicating that their parcel has arrived, allowing them to open the locker door.

However, the key difference is that parcels are accepted from any sender or carrier. This could help Amazon to stand out from rival collection lockers. There is also 24-hour support for the service.

Patrick Supanc, Director of Amazon Worldwide Lockers and Pickup, said "Building on Amazon’s expertise in locker solutions, the Hub addresses frustrations from property owners, carriers and residents concerning package delivery. The Hub simplifies delivery for residents, offering quick and secure access to packages, day or night. For delivery providers, it offers a single, convenient location for package drop-off and gives property managers time and resources back to focus on other priorities".

The service is currently available to over 500,00 US residents.

Source: Amazon

Focus on convenient delivery solutions

The Hub is the latest of Amazon's convenient delivery solutions, offering a safe space for parcels when the recipient is not at home.

Amazon recently launched its in-car delivery service, giving couriers access to shoppers' cars to leave their parcels inside. It also announced Amazon Key, allowing customers to have packages delivered inside their home via the Amazon Key smart lock.

These initiatives display Amazon's focus on improving delivery efficiency and cutting redelivery costs. It also shows how Amazon is putting customer convenience at the forefront as it strives to become “Earth’s most customer-centric company”.

For many shoppers, the issue with buying products online is having to be at home for the delivery time slot. Unattended in-home delivery eliminates that need, and even remembers to put your ice cream in the freezer.

In the last year or so, we’ve noticed a real trend in unattended in-home deliveries. It’s not something I’d have ever thought possible five years ago, but if there’s anything I’ve learnt in recent years, it’s that innovations in our industry are arriving faster than ever before.

Who’s involved?

There are a number of businesses in North America and Europe currently offering in-home delivery.

Leading Swedish grocery retailer, ICA, and Glue, a smart home startup, ran a pilot in 2016. Glue produced smart digital locks, which enabled pre-approved delivery drivers to enter shoppers’ homes and unpack groceries, using a digital key.

Several retailers have followed ICA’s example: Walmart and Amazon both launched in-home delivery at the end of 2017.

Walmart partnered with a leading provider of smart locks and home accessories, August Home and third-party, Deliv, to test in-home delivery. In this pilot, customers could view the delivery in real time on a smartphone and received a notification when the door had automatically locked again.

Investing $1bn in in-home delivery

Following Amazon’s equivalent pilot, in which it trialled Amazon Key in 37 US cities, it acquired home security business, Ring. The deal was Amazon’s second largest acquisition, worth over $1bn. Once they’ve installed the Amazon Key Home Kit, shoppers can track their delivery with real-time notifications and, like Walmart, can watch the delivery or watch a video afterwards. It’s included at no extra cost Prime members, and also offers keyless access for family and friends, with customers able to set the frequency and length of time a person has access for.

Source: Amazon

Responding to competition

Since Amazon Fresh launched in Germany in 2017, retailers have increased focus on their online services. Edeka’s online supermarket, Bringmeister began offering in-home deliveries in Berlin at the beginning of 2018. Partnering with Cary Services, customers pay €9.99/month for its smart lock system.

Source: Edeka

These retailers and their partners have relatively similar offers, with little to differentiate them. However, Walmart’s been busy in another area.

Making the last mile more efficient

Walmart’s Jet.com subsidiary launched a new delivery method with smart access business Latch in 2017. Latch installed its residential access system in apartment buildings in New York, enabling residents to provide delivery companies with access to a safe delivery location inside the apartment block. By installing the system in 1,000 apartment buildings, it has enabled around 100,000 residents to benefit from the service.

Whilst this is currently only a viable option for ambient and non-food products, it could be combined with multi-temperature locker systems for many full grocery deliveries to be made simultaneously.

Source: Latch

Why invest in in-home delivery?

There are a number of benefits of delivering orders when the customer isn’t there to receive them. Drivers will be able to optimise delivery routes - saving time and fuel - as they won’t have a predetermined order of deliveries. They will also be able to react to traffic congestion and change their route, without being penalised for late deliveries.
As well as optimising the last mile logistics, drivers could save time by not having to meet and greet the customer on arrival. Not having to deal with any returns would also save time – though any product substitutions would need to be communicated clearly in advance of delivery.

What’s next?

In-home delivery isn’t something that will immediately take the world by storm. It’s expensive to set up: the list price for the Amazon Key Home Kit is almost $300, and it’s only available in selected areas. It’ll take time for this to become commonplace.

Once the likes of Amazon and Walmart have embedded their offer in-home delivery offer, the next step will likely be value-added services: dog walkers and cleaners will no longer need keys to enter the house, and homeowners will be able to monitor their presence remotely.

Transporting orders to individual addresses will still lead to expensive last mile costs. One alternative could be to deliver products to other convenient locations. Amazon currently offers in-car delivery to certain vehicles. This could become more efficient by offering in-car delivery in certain locations, such as station or company car parks for commuters to use.
What’s clear, though, is that as shoppers become more demanding, competition in grocery retail will heat up. Unattended in-home delivery seems like the ultimate convenience in 2018. I wonder will the ultimate convenience look like in a couple of years…

Suzannah Murphy

Suzannah Murphy

Supply Chain Analyst

This report highlights four key supply chain trends that will emerge and develop in 2018. It also assesses how the trends IGD identified at the beginning of last year are impacting the supply chain today.

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11/07/2018
Amazon has launched Delivery Service Partners, a new programme that allows entrepreneurs to start their own package delivery business under the Amazon brand.
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