I often write about the topic of retail strategy because I find the topic interesting, and I have a way of coming up with ideas that generate a lot of interest from Wall Street, retail analysts, business executives and casual followers of the retail industry. For example, I recently wrote an article about the retail industry and it proved to be wildly popular with readers. Why? Because I’m not afraid to share my opinion or publicly state what I believe certain companies should do.
The retail industry is in a funk. Several large retailers like Walmart, Target and Amazon are doing very well. However, many other retailers have either filed for bankruptcy, closed stores, or gone out of business. The best retailers are those companies that have an executive team carefully analyzing market trends and the needs of their customers. Retailers go out of business due to a lack of leadership, imagination and innovation, and not because of a lack of products on their shelves.
Although the retail industry is struggling, there are unique M&A opportunities that I believe should be pursued. For example:
- Facebook, Uber, or DoorDash, should acquire Instacart
- Google should acquire Target
- Walmart and The Home Depot should merge
- Albertsons and Ahold-Delhaize should merge or Kroger should acquire Albertsons
- Instacart should form partnerships with grocery distributors and become an online grocery retailer selling groceries direct to customers; Instacart would be the largest online grocery retailer in the U.S.
- TikTok should acquire Shopify
- Amazon should divest Whole Foods and focus on Amazon Fresh; another option, Amazon introduces branded CPG products (Coke, Pepsi, salty snacks, Tide detergent, etc.,) at Whole Foods and rebrand the company as Whole Foods+
- Microsoft should acquire Activision Blizzard; I wrote in 2019 that Walmart and Microsoft should acquire TikTok – it should have happened
- Tesla should acquire Jeep
- Kohl’s and Gap should merge
- Amazon should assess acquiring Target and opening Whole Foods Markets inside Target’s stores
- Walmart and Microsoft should partner and acquire TikTok
On the surface, the opportunities I listed may not make sense to some people because they’re counterintuitive to what they already know the companies I listed. Amazon divest Whole Foods? Why? Didn’t Amazon just acquire Whole Foods? Let’s dive deeper into this recommendation.
I am recognized as being one of the first people to recommend to Amazon to acquire Whole Foods. I outlined my argument in this 2013 research paper. At the time I wrote the paper, I believed that Whole Foods was strategic to Amazon. However, in subsequent articles I wrote about Amazon’s acquisition of Whole Foods, I made it clear that Amazon should sell CPG branded products at Whole Foods to increase customers and sales. That didn’t occur. Instead, Amazon is building their own 35,000 square feet supermarkets selling all of the traditional products found in supermarkets. Amazon is also selling organic products in the stores.
Here’s the problem. Amazon acquired Whole Foods, but Amazon hasn’t improved Whole Foods. The percentage of customers shopping at Whole Foods has decreased. Amazon’s grocery stores, however, are very popular and highly rated by retail analysts. Amazon is creating a business model where they will sell more groceries in their Amazon Fresh stores then at Whole Foods. In fact, it’s logical to conclude that Whole Foods sales will decrease or remain stagnant.
Whole Foods is no longer strategic to Amazon. What should Amazon do?
Amazon should divest Whole Foods. The company that should own Whole Foods is Target. Whole Foods customers overwhelmingly shop at Target, and Target must improve its grocery business. If Target acquires Whole Foods, it can open Whole Foods Markets inside its Target stores. Whole Foods is strategic to Target. If Target doesn’t acquire Whole Foods, they should explore a merger with Kroger or assess selling their grocery business. (I have encouraged Amazon to acquire Target since 2018. Among the reasons for doing so is that Amazon can open Whole Foods Markets inside each Target store. I believe Amazon will acquire Kohl’s, not Target).
Not everyone will agree with my recommendation.
CVS Pharmacy and The Biggest Opportunity in Retail
In 2015, Target made the decision to sell its pharmacy business to CVS for $1.9B. Most retail and Wall Street analysts supported Target’s decision. This link provides an overview of CVS.
I believe CVS should consider making a decision similar to Target. Specifically, I believe the biggest opportunity in retail is for CVS to sell the retail portion of their stores while maintaining ownership of the pharmacies in each store. CVS operates 9,900 stores including pharmacies inside Target’s stores. Here’s why.
Walk into most retail pharmacies and what do you see? Usually, it’s a mixture of products often with no rhyme or reason. CVS Pharmacy, for example, advertises itself as a ‘Pharmacy and drugstore which fills prescriptions and sells health products, snacks, and basic groceries.’ The problem is that CVS isn’t a grocery store or a traditional convenience store.
The focus at CVS is on fulfilling prescriptions. It appears that the products in the stores are there to fill space and entice customers waiting for their prescriptions to be filled to buy something. Anything. And that’s a problem. It’s also an opportunity. Selling their retail operations will generate a significant sum for CVS and allow the company to focus exclusively on their pharmacy business.
The following is a list of companies that could potentially be interested in acquiring most if not all of CVS’ retail locations:
- Amazon could open an Amazon-branded retail store inside each of CVS Pharmacy’s retail locations except where CVS operates pharmacies inside Target’s stores. Amazon is at the top of the list of the companies I believe that should acquire CVS Pharmacy’s retail operations.
- Instacart could partner with CVS to design, implement and manage all retail within the stores; Instacart leverages the stores as grocery drop off locations. It’s plausible that Instacart would be interested in opening Instacart-branded stores complete with a CVS pharmacy inside each.
- Shopify could open a new form of retail store focused on displaying and selling products from Direct-to-Consumer brands. Not my favorite option but the idea has potential.
- Walmart would certainly be interested in extending its reach with a new retail format.
- Grocery retailers would certainly be interested in the opportunity to leverage the stores. Lidl should jump at the chance of acquiring CVS locations.
- Couche-Tard, the owner of Circle K convenience stores, would be able to do some very interesting things if they acquired CVS’ retail business. (The weakness in the convenience store industry is the lack of a format that includes pharmacies).
There are other companies I can name, but one name stands above the rest and that’s Target. Because of their relationship, I believe Target is the ideal company to approach CVS about either acquiring their retail operations or forming a partnership with CVS for Target to open a small retail format inside their stores. CVS Target. I like the sound of that. However, Amazon-branded retail stores are likely the best fit hence the reason why I rank Amazon over Target.
The Wild Card – Google acquires CVS’ retail operations and reimagines the retail experience across nearly 10,000 locations. Google’s focus on enabling retail isn’t thinking big. I strongly encourage to start making acquisitions. Instacart, TikTok, Target, the list is nearly endless. Partner with Shopify. Do something BIG, Google.
If CVS keeps their retail operations, I encourage the company to consider making an acquisition of goPuff and/or Sprouts Farmers Market. Another option is partnering with the Russian retailer VkusVill. CVS must create a better experience for their customers which should include an increased selection of groceries and also delivery. I also encourage CVS to go big into private label brands for better pricing. What’s certain is this: CVS cannot maintain the status quo in their stores.
I encourage CVS, and any retailer that would acquire the retail business from CVS, to introduce the use of micro-fulfillment centers across the CVS retail store ecosystem. Due to the small size of the stores, leveraging micro-fulfillment will accelerate the ability to carry less inventory in the stores while maintaining high in-stock levels through rapid replenishment. CVS is making a mistake by not already implementing micro-fulfillment centers.
Is this only for CVS? No. Amazon could acquire or lease Walgreen’s retail front end as well.
