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After a two-year effort to improve its health, this drugstore chain is ready for its stores to become the daily living choice for consumers. From retail drugstore to retail health and daily living store. These may seem like just word changes to consumers, but they are words that Walgreens takes seriously as the company is focused on building the most complete national network of integrated healthcare providers in the country.

 

 

 

 

Profile
  • Headquarters: Deerfield, Ill. 
  • Founding year: 1901 
  • Number of locations as of January 2011: 7,600 
  • Private label brands: Walgreens, W, Studio 35, Big Roll, Pet Shoppe, Penway, DR Delish 
  • FY 2010 earnings: $2.1 billion

“We are beginning to see the convergence of two great industries, retail and healthcare, which is good for us because we are located right at that intersection,” said CEO Greg Wasson during Walgreens’ 2011 shareholders’ meeting.

Wasson believes the company has the opportunity to increase the volume at the front end of its stores by meeting the needs of consumers and answering the question he said all consumers ask when they walk in the door: is this a smart use of my money?

To start, the company is focusing on its non-pharmacy section in a few ways. One is by enhancing its Walgreens brand products. Another is by expanding its fresh food section. The company already did this in 10 of its Chicago-area locations, where supermarkets have been shutting their doors, and fresh food in the neighborhood is hard to come by for residents.

Walgreens is also piloting a loyalty program in three of its markets and is studying the loyalty program of recently acquired Duane Reade to help in that effort. The company is borrowing something else from Duane Reade, its beauty department, which it is also piloting certain features of in some Walgreens stores. “This is what we mean when we say we are closer to customers than anyone else,” said Wasson.

Walgreens is offering customers a new shopping experience as well. “It begins with a customer-centric retailing effort, which is a reminder on how to increase sales, reduce inventory, increase store efficiency, and improve customer experience,” said Wasson.

About 2,100 of Walgreens 7,600 locations have converted to the customer-centric retail approach, which includes a redesign to help customers shop more efficiently by having lower shelves, more signs, and a more streamlined selection of product in its stores. An additional 3,000 stores will be converted this year, and once this effort is completed company wide, Walgreens will be able to implement other programs like the ones previously mentioned.

Delivering dough

Enhancing the consumer’s experience was just one of three areas Walgreens chose to focus on to get the most out of its core business. The other two goals were achieving major cost reductions and productivity gains and leveraging the best community-based store network in America.

Walgreens finished fiscal year 2010 with $67.4 billion in revenue (an increase from the previous year of 6.4%) and $2.1 billion in earnings (up 2.4%). This is the 36th consecutive year of record sales for the company. Fiscal year 2011 is also off to a good start, according to Wasson. The first quarter netted $16 billion in revenue, an increase of 6% over last year’s first quarter.

“We have grown sales even during economic downturns,” said Wasson. “It was a year of substantial progress in a challenging climate.”

Walgreens’ shareholders are also benefiting from the company’s success. “Since we announced our plan to win two years ago, our S&P 500 number is up 56%, and we are in the top 10% of this list. We are confident we have the strategies in place to deliver long-term values to our shareholders as this is the 35th consecutive year of dividend increases.”

Regarding its the second goal, Walgreens is building on its strong foundation. The company fills one in five retail prescriptions annually, and 63% of Americans live within three miles of a Walgreens store.

With this knowledge, Walgreens actually slowed down new store openings. Two years ago, the company had 9% new store growth; this year Wasson predicts it will be 2% or 3%. Walgreens was able to do this and still open more drugstores than all of its competitors combined.

While organic growth was slowed down, Walgreens acquired more drugstores in the past two years than at any time in the company’s history. The combination of organic growth and acquisitions has made Walgreens number one or two in 115 US markets.

Walgreens focused on becoming a leader in multichannel retail as well. The company added a broader selection of products on its website and gave consumers options about when and where they wanted their products (options include in-store pick up at select locations or delivery). Walgreens also developed a smartphone app to make shopping even more convenient.

“Studies show that multichannel shoppers are three times more valuable to a retailer than one-channel shoppers,” said Wasson.

Pharmacy for life

Even as Walgreens expands its front store offerings, the company will never lose focus of its roots, which center on pharmaceuticals. Walgreens has three goals for its pharmacies: improve productivity, improve patient experience, and advance the scope of pharmacy services.

As Walgreens started to implement some changes, these three goals fed into each other. By increasing productivity over the past two years, the company was able to save $250 million in its pharmacy operations and reduce time spent filling a prescription by 43%. This meant pharmacists had more time to spend with patients to consult with them about their health and medications.

According to Wasson, only 15% to 20% of patients refill their prescription and take it properly. “That costs the US hundreds of billions of dollars each year,” said Wasson.

He believes one way to increase compliance is to offer patients 90-day supplies of their medications. This practice has become common through mail orders made directly through a patient’s healthcare insurer. As a result Walgreens is launching a Go 90 campaign, in which patients can receive a 90-day supply through Walgreens if approved by their health plan.

Walgreens would also like to expand its off-site health and wellness services. “Our worksite health centers continue to grow as employers are looking for new solutions to lower costs and improve care for employees,” said Wasson.

Sprint is one company that has taken advantage of this model. At Sprint corporate offices in California and Virginia, patients can consult with pharmacists on minor health issues and have their prescriptions filled at work. Not only does this reduce Sprint’s overall medical costs, it also reduces the amount of time Sprint employees spend out of work due to illness or medical visits.

Giving patients options to maintain their health is important in what Wasson described as a rapidly changing industry. The company has to be ready for the potential of 32 million more patients once the healthcare reform law takes effect. This is on top of a growing aging population and an increase in patients with chronic and complicated diseases.

“I can assure you Walgreens is not sitting still,” said Wasson. “Our vision is to be My Walgreens to everyone in America—to be their first choice for daily and health needs.”

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