Inside This Issue - News
Accelerating front-end strategy is Gourlay’s goal
September 9th, 2013
LONDON – From one perspective, Alex Gourlay’s imminent move from Alliance Boots to Walgreen Co. will represent a sea change for someone who has spent 37 years working for the United Kingdom’s top drug chain.
Despite their shared history and common language, Britain and the United States have very different retail markets, a fact that many unsuspecting retailers from both countries have learned through hard lessons.
Looked at another way, the transition should be relatively seamless, since Boots and Walgreens, which each track their origins in community pharmacy back more than a century, have much in common.
“Like Boots, Walgreens is a great company,” says Gourlay, who has been chief executive officer of Alliance Boots’ health and beauty division for the past six years and will become president of Walgreens’ customer experience and daily living business, effective October 1. “They have such a similar heritage and such a similar position that it’s almost uncanny — to use a Scottish word.”
Gourlay, a native of Scotland who started working at Boots in 1976 as an assistant behind the pharmacy counter on weekends when he was 16 years old, adds, “When you look at the two brands, it’s clear how similar they are and what they mean — both in their markets and in the hearts of their customers.”
Alliance Boots and Walgreens, which entered into an unprecedented global partnership in 2012 that put them on a path toward a full merger in 2015, are leaders in their home countries. Boots, which traces its roots back to 1849, commands a 25% market share in pharmacy and health and beauty care in the United Kingdom, with a share that’s almost double that in cosmetics and in the high 30s in skin care.
“The key development at Boots in the last decade is that our health and beauty model has become more specialist and focused on the customer,” Gourlay notes. “That orientation has allowed us to grow our strength considerably. We perform particularly well in the added value categories, where women are looking for better and newer products, whether they be from our own brands or from those of our manufacturer partners.”
In his new role Gourlay, who will also become a corporate executive vice president and report directly to chief executive officer Greg Wasson, is charged with overseeing the ongoing transformation of Walgreens’ front-end business. The company in recent years has embarked on a drive to make its stores as much a destination for daily living products as they are for pharmacy.
“Walgreens has been focused — and rightly so — on its pharmacy and health care business in the last period,” says Gourlay. “It has now adopted, in quite recent times, a much more focused front-end strategy. That strategy is very aligned to where Boots is and where Boots has been in the last decade. One example is the launch of Balance Rewards, [the loyalty program] where Walgreens has achieved a magnificent 80 million signed-up customers in just 12 months.
“So you can clearly see the opportunities for myself working with the Walgreens team to really accelerate their strategy — whether it be on loyalty or whether it be on beauty or whether it be on own brand development. This is a similar road that Boots is now on or has been down in its recent history.”
Gourlay’s experience and expertise should help raise the front end’s contribution as a percentage of Walgreens’ total business, a desirable objective in a market where prescription drug margins remain under pressure and health care payment models are in flux. The current balance between front-end and pharmacy sales at Walgreens and Boots is almost reversed. Prescription drugs account for some 60% of the former’s total business, but only about 33% of the latter’s.
Gourlay, who was trained as a pharmacist, worked in a variety of positions — store manager, regional manager, head of human resources for stores, and retail director, among them — as he moved up the corporate ladder at Alliance Boots. Along the way, he picked up extensive knowledge of what it takes to run a successful front-end operation. “At the end of the day, you tend to learn a lot just by doing the job, and I’ve certainly been doing it for a long time,” he says.
Beauty care, a category where Walgreens is already one of the leaders in the mass market, is a focal point of the retailer’s efforts to reinvent its front-end business. Gourlay’s presence should prove a catalyst for further innovation.
“If you look at some of the format work the beauty teams at Walgreens have done — including the flagship stores — which is really strong, they’re clearly well on the journey toward developing a different beauty strategy for the drug store chain,” he notes. “It’s not an easy thing to deliver, because there have been other American drug store chains that have tried in this space and failed. But Walgreens has a really strong platform to build on.
“Boots has a European model that’s clearly worked very well in the U.K. and in Ireland. We’ll have to see through tests and trials how much we can learn and how much is applicable to the U.S. market.”
Gourlay says the process will require patience but the potential benefits are substantial. “That’s the one thing that will probably be the most valuable in the long term but the most difficult to pull off, because it means customers have to see Walgreens differently than they see it today,” he explains. “They’ll have to come into Walgreens with a slightly different mind-set than they now have in the area of beauty care.
“It’s really important to women shoppers that they feel good about the whole experience — not just the product, not just loyalty, not just the service, not just the environment. The whole thing has to make them feel that they want to stop and browse and purchase more beauty products. That’s why it’s such a difficult thing to do, but I’m confident that we have more answers than most.”
Boots required at least 10 years to bring about that transition in the perception of consumers, says Gourlay, who adds that Walgreens is already at least three years into that process. The emphasis on beauty care has paid off for Boots, which in recent years has emerged as the top seller in the United Kingdom of such prestige brands as Estsée Lauder, Clarins and Clinique while maintaining its lead in mass market brands. “The majority of women in the U.K. think that Boots understands and responds to their beauty needs better than the department stores,” notes Gourlay.
One factor that enables Boots’ front-end business to thrive is the power of its private label products, which include No7, the leading skin care line in Great Britain.
“The secret to the Boots brands is the fact that they are of equal quality to the brands made by major manufacturers,” Gourlay notes. “The real difference in what Boots brings is our research and development capability.
“That’s part of the reason why Greg [Wasson] and Stefano [Pessina, Alliance Boots’ executive chairman] agreed on this partnership. It’s almost certain that we’ll pool that, not just the brands but also the R&D capability. That will allow Walgreens to deliver for customers in a different way.”
Gourlay’s arrival promises substantial progress in those areas, but its greatest significance may be in what it portends for the Walgreens-Alliance Boots merger.
“Progress toward the integration of the two companies is the most important news of all,” asserts Gourlay. “The front-end business of Walgreens was progressing pretty well, and the strategy is strong. I’m sure there are other people who could have done that specific piece to a good standard as well as me.
“But the important signal here is that there is going to be a merger. I was invited by both Greg and Stefano to do this role, which involves working with both teams on how we make the businesses an even closer fit culturally. That sends a message about the success so far of this partnership and where both business leaders want to take it going forward.”
As Gourlay begins his American sojourn, he won’t make the mistake that has tripped many other retailers who crossed the Atlantic.
“I really look forward to getting to understand the U.S. market,” he notes. “The first thing I’ll be doing is to spend lots of time out in the stores. As a retailer and a shopkeeper, that’s the most exciting thing of all — getting to understand how customers shop in America.
“Data really helps, because it can give you so much information about how customers see you, how they view your offer and what you should be thinking about, but there’s no substitution for really seeing what’s happening in your business. That’s the best way to discover if your strategy is being implemented well enough and also if customers are seeing it come alive in your shops. It’s so important to stay close to where the customers are.”