Mega-retailers like Dollar General and Walgreens are competing for a spot in healthcare services, investing billions of dollars and mapping out big expansion plans.
Their quest to become dominant players isn't taking shape only in cities where they have multiple stores—the new battleground is rural America.
About 15% of consumers live in rural areas, where they tend to be more at risk for heart disease, stroke, cancer, chronic respiratory issues and unintentional injuries than their urban counterparts, according to the Centers for Disease Control and Prevention. People in rural areas also are typically older, sicker and more likely to be impoverished.
Access to care in rural areas has suffered for decades. Hospitals treating a larger percentage of Medicare and Medicaid or uninsured patients often report financial losses and are forced to cut services or close. In addition, recruiting medical talent to rural facilities with fewer resources is a tough task.
Retailers eager to grow their healthcare presence see an opportunity to add customers and grow their bottom line, particularly through primary care. They are increasingly targeting areas lacking up-to-date technology, capital resources and teams-based care.
“We talk a lot about the overtreatment that occurs in this country, but there are many areas where undertreatment is still the prevailing issue that needs to be addressed,” said Dr. Clive Fields, chief medical officer at VillageMD, which is majority-owned by Walgreens. "We don’t want people to leave rural America because they can’t access healthcare. We want to bring healthcare to where rural Americans live, and I think that’s a different way of thinking about it.”
It's unclear at this point whether the strategy will pay off. Jeff Goldsmith, president of healthcare consultancy Health Futures, said he isn't sold on whether the business model will work for retailers, citing staffing constraints and the decision to invest in types of care with lower returns.
"There's no doubt that there is an unmet need, but anybody that is trying to meet that need has got to be able to support the folks that are there, logistically and clinically," Goldsmith said. "Count me skeptical."
Investing in primary care
VillageMD has almost 700 locations across the U.S., including about 350 Village Medical primary care practices. More than 200 of those practices are connected to Walgreens pharmacies to encourage more collaboration between physicians and pharmacists. About half of the patients at the co-branded locations fill their prescriptions through Walgreens.
Executives want to open 1,000 co-branded “Village Medical at Walgreens” locations by 2027, half of which will be in medically underserved areas in rural and urban settings.
CVS Health is also delving deeper into primary care. The pharmacy chain recently acquired primary care provider Oak Street Health in a $10.6 billion transaction. Oak Street has 169 locations across 21 states, with plans to grow to 300 locations by 2026. More than 90% of Oak Street’s centers operate in underserved areas, including some rural, with income averaging below 300% of the federal poverty level.
Primary care, although a relatively small percentage of healthcare spending, drives patient engagement and better clinical outcomes, CVS CEO Karen Lynch told investors on a February earnings call. She noted how the Oak Street deal complements CVS’ more than 1,100 MinuteClinics, a widespread network of retail medical clinics, by providing additional capacity for preventative and chronic care for seniors.
The MinuteClinics also offer 24/7 virtual care, including mental health counseling in some states, that can reach patients in rural areas.
CVS declined an interview request.
One of the newest players in healthcare services is Dollar General, which opened three mobile clinics at stores in Tennessee late last year, offering annual physicals, vaccinations, urgent care and lab testing a couple of days per week. CEO Jeff Owen said on a March earnings call the company wants to increase access to care, particularly for rural residents.
Dollar General's aggressive expansion includes adding more than 1,000 stores this year. As part of its DG Wellbeing health initiative, Dollar General is also adding about 30% more selling space and up to 400 health and wellness items in its stores. The company declined an interview request.
The company estimates 75% of the U.S. population lives within 5 miles of one of its stores — a widespread presence that many other retailers have yet to achieve.
“There are 20,000 towns, cities and municipalities in the U.S. Of those 20,000, there are 15,000 with less than 5,000 people. That’s really where a lot of the opportunity for at least the more rural retailers exists,” said Corey Tarlowe, equity research analyst at Jefferies. “A lot of the other retailers in [these areas] haven’t been able to service these customers as economically as Dollar General can because Dollar General is the lowest-cost operator. … They’ve created a really significant moat for themselves.”
Walmart, another familiar brand in rural areas, estimates 90% of Americans live within 10 miles of one of its stores. The company said last year it would add 16 health centers, attached to Walmart Supercenters, that offer primary care, dental, behavioral health, audiology, lab, X-ray and telehealth services in Florida by this fall. In March, the retailer announced plans to further expand its footprint with 28 new centers added in Arizona, Missouri and Texas in 2024. On Wednesday, the company announced plans to add four health centers in Oklahoma.
A tricky venture
The healthcare services strategy isn’t necessarily the same as that for groceries and other products, Tarlowe said.
Dollar General, for example, sought healthcare expertise to accelerate its strategy, hiring Dr. Albert Wu, formerly with McKinsey & Co. and an anesthesiology resident, as its first chief medical officer in 2021. In July, it announced the formation of an advisory panel of subject matter experts to guide its strategy.
Walmart launched a healthcare research institute in 2022, overseen by chief medical officer Dr. John Wigneswaran, to recruit underrepresented groups, including rural residents, for clinical trials related to chronic conditions. CVS and Walgreens have also recently launched clinical trial divisions.
Despite efforts to build the appropriate organizational infrastructure, one unanswered question is how retailers will find the clinicians to staff care sites, Goldsmith said.
CVS, Walgreens and Walmart are adjusting or reducing pharmacy hours due to a national labor shortage. Dollar General, also grappling with the shortage, has come under fire multiple times amid reports of safety violations and poor working conditions, racking up millions of dollars in penalties from the U.S. Occupational Safety and Health Administration.
Retailers will also likely lose money on primary care visits in rural areas, in addition to shouldering overhead costs, Goldsmith said.
“That’s not a business,” he said. “The only reason the hospitals that are serving these communities remain open is because they have salaried the clinicians, particularly the [doctors], but obviously the nurses as well, and they have to have the infrastructure in place to bill for them, to supervise them, to provide them with the material support that they need to practice primary care medicine.”
Goldsmith said retailers must figure out how to convince potential employees of the benefits of working for them versus working for a more traditional healthcare provider.
