Walgreens Sees Opportunities for Growth
In a conference call with analysts yesterday,
Walgreens executives said they didn’t expect to
grow the company’s business through large acquisitions
or a jump in new store openings.
Instead, the drugstore chain is looking to
improve next year by using store remodels and more targeted product selection
to build rings with existing customers. Walgreens also is confident it will
acquire as customers a large number of the 32 million individuals who will
soon have insurance due to health care legislation passed by Congress. The
company’s 7,600 stores are located within three miles of two-thirds of the
population in the U.S.
"We’re evolving from a retail drugstore to a retail health and
daily living store, putting us squarely at the intersection of two great industries
— retail and health care," said Greg Wasson, president and CEO of Walgreens,
in a statement.
Kermit Crawford, president of pharmacy services at Walgreens,
added, "We
are freeing up our pharmacists for the important work of patient care through
our efforts to take administrative tasks out of the retail pharmacy and redesign
workflows. We also are expanding our scope of services to ensure our highly-trained
pharmacists are viewed as a key link in the prevention and screening of chronic
disease."
Among the chronic diseases that Walgreens is looking to address
is diabetes. The chain pointed to studies showing that one in three Americans
will be a diabetic by 2020, up from about 10 percent today.
The company is
continuing to push itself as a destination for immunizations, whether through
in-store clinics or the pharmacy. Walgreens saw the number of flu shots it
administered go from 1.2 million in 2008 to more than seven million last year.
Mr.
Crawford told analysts that Walgreens sees opportunities in vaccines for the
flu, pneumonia and shingles. He said the company has the ability to rapidly
respond to outbreaks such as the recent occurrence of whooping cough in California.
Discussion Questions: Do you think Walgreens is mapping out a smart/realistic
plan for business growth? What competitive challenges will it
face in acheiving its goals?
I’ve long argued that Walgreens needs to be more focused in its mission to be a provider of health and wellness products and services, not just a pharmacy. Central to this mission will be some long-overdue “SKU rationalization” and store redesign. Walgreens needs to be willing to walk away from its other role as a “neighborhood convenience store” cluttered with a bunch of stuff in order to maximize its true role as a category killer with huge growth opportunity. I look forward to the day when I can actually find the HBA product I’m looking for in my neighborhood Walgreens store, without having to wander through aisles of t-shirts and “as seen on TV” junk.
Given the results of Tuesday’s election, I am not sure all those 32M people are suddenly going to get health care. However, I do believe the current remodel program for Walgreens will yield very positive results.
The front right corner of the remodeled stores is in essence a convenience store and more. The “and more” comes from the addition of the limited produce and the fresh ready to eat items that most c-stores don’t carry.
I also agree that providing immunizations is a smart move. I was one of the 7M people who got their flu shot at a Walgreens. Not only was it less expensive than a doctor’s visit but much faster process.
I’m impressed by how well (if not that quickly) Walgreens has rolled out its CCR (customer centric retailing) initiative and the resulting formats. The stores are much easier to shop than before and aesthetically pleasing in a way that “feels” customer centric (rather than just window dressing). I like the way that they are beginning to integrate Duane Reade private brands into Walgreen stores as well. The deLish snack line, for example, has a sophisticated and minimalist look that stands out without adding visual noise.
Walgreens has done just what it should: updated and refined the core while resisting the temptation to dabble in fripperies (in-store networks, apps, etc.). All of that is on the way now, and it will be layered onto a strong foundation rather than becoming a distraction.
I’m expecting great things from Walgreens, particularly in the small/urban rush that’s getting ready to hit retail in the U.S. With Duane Reade and its already baked-out concepts (Look Boutique) in the quiver, Walgreens can bring it!
I like the approach Walgreens is taking over the next few years. Growth for the sake of growth is never a good model. As the article pointed out, 2/3 of the US population lives within 3 miles of a Walgreens. A focus on remodeling stores, quality service both at the Pharmacy counter and in store will contribute to their bottom line. Also, a careful look at assortment will be important. What services (immunizations & disease screening) and products can Walgreens add to the mix to enhance the consumer’s experience and boost store visits and/or the basket per visit? I am certain Walgreens is also carefully weighing the mix of private label and national brands, making sure they have options for their shoppers.
The new plan is both smart and realistic. There’s no point building more and more boxes that people aren’t comfortable shopping in.
Since pharmacists are among the most trusted people in America, one quick way to build customer loyalty is to free them from administrative duties and give them more time to focus on real patient care.
Walgreens’ strategy of ‘sticking to the knitting’, and watching the pharmacy end is an excellent move. This retailer is seen as one of the most trustworthy merchants in the country. And, that has paid off for them in terms of customer loyalty and market share. This move helps them assure that they can harness and hold onto that strength and customer relationship.
Based on the BIGresearch Consumer Intentions & Actions (CIA) Survey, Walgreens customer base has been making the store their # 1 choice for Pharmacy for 8.3 years. Competitors have the status of 7.7 years. The reasons that Consumers choose Walgreens most often provide a clue to that leadership — it’s in the service around Health Care. Leading reasons that Consumer choose Walgreens vs. competitors, and how they index compared to Adults who shop elsewhere include:
Location at 83.1% and an index of 137
Drive through at 34.3% and an index of 279
Insurance coverage accepted at 39.3% and an index of 121
24 Hour service at 26.5% and an index at 260
Pharmacist provide valuable iformation at 18.7% and index 122
Trustworthy Retailer at 27.6% and index at 138
The list goes on with Prescription Phone in, online service, and more. Little wonder that Walgreens ‘Net Promoter Score with their customers is a healthy (no pun intended) +15.1 vs. competitors who have +6.1 ‘Net Promoter’ numbers.
Focusing on operations will keep Walgreens’ market share in the #1 slot, ahead of CVS and Walmart, the #2 and #3 choices of consumers, based on the CIA models.
The report said Walgreens’ 7,600 locations are within three miles of two thirds of the population. I can not argue with that. Take a random drive around where I live and you will find eight Walgreens or CVS locations within those dimensions.
My concern is Walgeens is not focused on the customer other than pharmacy. The stores are not what one would consider clean or customer friendly. The staff is not trained or customer friendly. Walgreens needs to take a step back and decide how to train their staff to accommodate the customers as the number one priority. They have to decide how to draw customers for more than a prescription refill.
I think Walgreens’ approach is pretty consistent with a lot of other retailers regardless of segment. We’re in an environment where the ROI on larger investments like retail acquisitions and new store openings isn’t as clear-cut as it once was, and maintaining strong balance sheets is essential.
Like many others, Walgreens is focusing on improving the productivity of their existing stores by becoming more relevant to their customers. Their emphasis on providing goods and services focusing on customer health is well placed. The key is in the store-level execution of each initiative.
The sales growth may not be as impressive out of the gate as new store openings once were, but the costs and risks are much more manageable, and the sales increases are likely to be more enduring.
Walgreens’ strategy of realizing more profits through product and SKU selection will be as successful as the choices they make and the philosophy behind those choices.
If they continue to take the usual SKU rationalization approach, then they will likely make small profits and stay above ground. But if they decide to surprise consumers by carrying destination brands, specialties, niche brands, and the unexpected, and make the right choices in doing so, then they will be much more profitable.
There’s a significant interest in health and wellness programs, from the manufacturers, channel providers, doctors, insurance companies, and the drug/grocery stores. The ability to increase the effectiveness of loyalty programs to handle this insight will be significant.
The increased push towards health and wellness and the increase we will see in the programs driven by HR entities in corporate America will be tantamount to their success in the next couple of years. America is fat, indolent and lazy and hopefully if these programs are constructed correctly they will change behavior.
Merchants that take advantage of these initiatives and focus on use the behavioral insight from their loyalty programs will be very successful and increase their share of wallet.