Where is Walgreens Headed?

Does "stepping out of traditional drug store format" include c-store channel encroachment?

Published in CSP Daily News

DEERFIELD, Ill. -- Coming off a strong year highlighted by record profits, top executives of The Walgreen Co. outlined the company's strategies for growth at the Walgreens Annual Shareholders Meeting last Wednesday in Chicago. Mixed in among the expected enhancements to its core pharmacy and health and wellness-related offer, one of the strategies outlined by president and CEO Gregory D. Wasson sounds a lot like channel blurring--"stepping out of the traditional drug store format and creating something unique, new and special."

He said, "Our opportunity now is to combine the best locations in America with an outstanding customer and patient experience--what we call the 'Well Experience.' Our new pilot drugstore format supports our vision of becoming My Walgreens for everyone in America, the first choice for health and daily living."

Walgreens latest example of its "Well Experience" stores is its new flagship store that opened on January 9 at the corner of State & Randolph streets in Chicago's Loop (see Related Content below for previous CSP Daily News coverage, including an opening-day visit by CSP senior editor Angel Abcede).

The store features an enhanced, state-of-the-art pharmacy designed to encourage greater interaction between pharmacists and patients; a Take Care Clinic offering a wide range of health care services including vaccinations, health tests, physicals and treatments for common illnesses and minor injuries; an Upmarket Cafe featuring a juice bar and fresh hand-rolled sushi; a barista; a wide selection of wines; and a LOOK Boutique beauty department featuring dozens of prestige and niche cosmetic, skincare and hair care brands not typically found in drug stores.

The pilot program for Walgreens "Well Experience" store format includes more than 20 locations in the Chicago area. On January 19, the company takes the next step with its "Well Experience" format when it celebrates the grand re-opening of all of its Indianapolis market stores, which recently finished their conversion to the new pilot format.

The executives also reviewed highlights and milestones over the past year, a few of which included:

  • Building many of Duane Reade's store design concepts into Walgreens stores across the country as the company leverages the best of the New York City drug store chain it acquired in April 2010.
  • Converting and opening more than 3,700 stores under its "Customer Centric Retailing" initiative, bringing the total to 6,400 stores since the initiative launched in 2009.
  • Expanding its answer to "food deserts"--underserved communities lacking ready access to fresh, healthy foods--with a plan to offer an expanded selection of fruits, vegetables and other staples at 1,000 Walgreens stores across the country.
  • Launching a new Walgreens private brand, Nice! With Nice! and Duane Reade's Good & Delish, the company now offers more than 400 high-quality grocery and household private-brand products.
  • Acquiring a leading e-commerce site, drugstore.com, to advance Walgreens multi-channel strategy and build on its core business. As well, Walgreens introduced "Web Pickup" service at Chicago-area stores and San Jose, Calif., locations, enabling customers to shop online and pick up their orders at a store in as little as an hour.
  • Exceeding its three-year goal to deliver $1 billion in annual pre-tax savings through the company's "Rewiring for Growth" initiative.

Walgreens is executing five key strategies toward its vision to become America's first choice for health and daily living, it said. Those strategies are:

  • Transform Walgreens traditional drug store to a retail health and daily living store.
  • Advance community pharmacy to play a greater role in health care through integration and expanded services.
  • Deliver an outstanding customer experience through enhanced employee engagement.
  • Expand across new channels and markets, particularly through investments in e-commerce and mobile technology.
  • Reinvent its cost structure through continuous improvement and innovation.

Executive vice president and CFO Wade D. Miquelon reviewed Walgreens performance metrics and capital priorities during the meeting. "Since exceeding our three-year goal to deliver $1 billion in annual pre-tax savings through our 'Rewiring for Growth' initiative, we are advancing our strategy of cost control and increased productivity by launching 'Fuel Well'--building continuous improvement and innovative cost-reduction and productivity gain into our daily business operations," he said.

Disciplined focus on its core business strategy helped Walgreens set new records in fiscal 2011 of $72.2 billion in sales, $20.5 billion in gross profit and $2.94 in earnings per diluted share. In addition, cash flow from operations was $3.6 billion.

Addressing the approximately 2,000 shareholders in attendance, chairman Alan G. McNally concluded, "Our strong performance and substantial progress in fiscal 2011 places us in excellent position to execute the next phase in our transformation, play a bigger role in people's lives and in their communities, and create more value for consumers, patients, payers and shareholders. In fiscal 2012, we will continue our sharp focus on revenue growth, cost savings and capital allocation, and enhancing our customer experience."

Deerfield, Ill.-based Walgreens is the nation's largest drug store chain with fiscal 2011 sales of $72 billion. The company operates 7,818 drug stores in all 50 states, the District of Columbia and Puerto Rico.