Retail and Healthcare Convergence: M&A and the Future of Consumer-Centric Care

The rapidly evolving landscape of healthcare has been reframed by M&A, particularly given the convergence of retail and healthcare. This trend -- typical of the new deal strategies that require nuanced integration -- is driven by consumer demand for more convenient, transparent, and affordable healthcare solutions. It has also led to a significant increase in retail health clinic utilization, which has surged by over 200% in the last five years. This surge has sparked a flurry of M&A activity, with major retailers seeking to acquire or partner with healthcare providers to capitalize on their physical footprint and logistics network by expanding their service offerings.

Successful examples of this convergence include a large electronics retailer that strategically acquired several health technology companies to build a comprehensive home health platform. These moves not only expanded their service offerings but also drove positive margin impact in the most recent fiscal year. However, there are cautionary tales as well. For example, a major retailer recently decided to shut down its in-store health clinics after an ambitious expansion and its acquisition of a telehealth provider. Despite significant investment, the retailer struggled with low reimbursement rates, high operating costs, and lower-than-expected patient volumes.

Why do some of the largest, capital-rich retailers sometimes experience headwinds when breaking into healthcare? Three reasons:

1. Reimbursement challenges: Primary care, often the focus of retail clinics, operates on thin margins at best. The average charge per claim for the 10 most common diagnoses in retail clinics is significantly less than that of traditional healthcare institutions. Without cross-subsidization from higher-margin specialized care or pairing risk with optimized utilization, acquisitions focused on transactional, low-complexity care can quickly become unsustainable.
2. High operating costs: A shortage of healthcare clinical staff has increased labor costs, as nurses leave for higher-paying travel roles and physicians negotiate more costly contracts. Depending on location and experience, a nurse practitioner in a clinic can require compensation three to four times greater than that of a typical retail employee. Operating costs are further exacerbated by the retail model’s reliance on unscheduled walk-ins, often leaving gaps of idle time where the clinic incurs costs without corresponding revenue.
3. Consumer sentiment: While convenience is a major draw, many patients still prefer traditional healthcare settings for complex care needs. This limits patient volumes and the overall success of retail health ventures.

Despite challenges, significant potential for retail-healthcare deals remains. Based on successful case studies, recommendations can be made for retailers looking to succeed in healthcare M&A:

1. Strategic fit is crucial: The most successful deals are those where the acquired healthcare capabilities align closely with the retailer's existing strengths. Seek synergy across patient needs, medical offerings, and existing capabilities, then acquire what is needed to address any gaps. For example, grocery chains might acquire health services that align with their core business and clientele, such as immunizations, school physicals, and nutritional counseling.
2. Orient the new operating model around health: Rather than focusing solely on optimizing the retail clinic, consider the acquired business as one component of an integrated operating model around health. This enables a seamless consumer experience and expands the revenue footprint.
3. Redefine the success metrics and their horizon: In healthcare, long-term value often trumps short-term profits. Retailers should consider emphasizing long-term value, sustainability, and societal impact over immediate profits.
4. Think carefully about post-merger integration: Merging retail and healthcare operations is complex. Convergence of two business models – one product-based, one service-based – requires detailed integration planning and disciplined execution. For example, a major pharmacy chain’s integration of a health insurance company boosted enterprise value, while recent non-integrated acquisitions negatively impacted share price.

Looking ahead, continued M&A activity in this space is anticipated, with a more targeted and strategic approach emphasized. Retailers are becoming more sophisticated in their healthcare strategies, and healthcare providers are increasingly open to creative partnerships. However, success in this space requires a nuanced understanding of both retail and healthcare dynamics. By learning from both the successes and setbacks in recent deals, a path forward can be charted that truly benefits patients, consumers, and shareholders alike.

Interested in discussing the retail-healthcare convergence and keys to success? Let's connect.

With invaluable contributions from my Accenture colleagues Sonal Kathuria , Rick Stewart , Marc Warren , Ryan Zayance , Travis Beach and Meredith Ficery . Your expertise and support have greatly enriched this article. Thank you!