Walgreen Co. has grown its retail pharmacy market share as it continues to execute on core strategies laid out two years ago, president and chief executive officer Greg Wasson said at the company's Analyst Day conference here.

Walgreens, Greg Wasson, Analyst Day, Rewiring For Growth, CCR, Customer-Centric Retailing, Mark Wagner, Kermit Crawford, Wade Miquelon, drug store, pharmacy, health care, Bill Dreher, Deutsche Bank Securities

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Wasson: Walgreens 'laser-focused' on strategic plan

November 4th, 2010

CHICAGO – Walgreen Co. has grown its retail pharmacy market share as it continues to execute on core strategies laid out two years ago, president and chief executive officer Greg Wasson said at the company's Analyst Day conference here.

Wasson and other Walgreens executives on Thursday outlined what they described as substantial progress made since the company's last Analyst Day in October 2008, where the drug chain sketched out a plan to bolster its vast store network, enhance the customer experience in stores, and realize major gains in cost reduction and productivity. That event signaled the dawn of two mission-critical initiatives: the Rewiring For Growth restructuring effort and Customer-Centric Retailing (CCR) store optimization program.

At the same time, Walgreens is working to capitalize on growth opportunities as the nation sharpens its focus on preventing and managing chronic disease to help rein in health care costs.

"As patients gain greater access to health care information and take more responsibility for making health care decisions, they are increasingly becoming shoppers of health care. That's why we're evolving from a retail drug store to a retail health and daily living store, putting us squarely at the intersection of two great industries: retail and health care," Wasson stated Thursday at Analyst Day.

"No one is better positioned to execute this strategy, as every day we provide nearly 6 million people with convenient access to health and daily living goods and services in communities across the country. Two years into one of the greatest strategic and operational transformations in our history, Walgreens is laser-focused on executing the key initiatives that will bring our strategy to life while creating shareholder value."

Since 2008, Walgreens has expanded its retail pharmacy market share from 18.2% to 19.5%. The chain filled 778 million prescriptions in fiscal 2010, up 15% from 2008.

And that retail pharmacy share growth came amid fewer store openings. Walgreens reported it has slowed the pace of new store openings from 9% growth in 2008 to 4.2% in 2010. Going forward, the company expects growth of 2.5% to 3% in fiscal 2011, which it said will still lead to more store openings than its drug store competitors.

As of the end of October, Walgreens operated 7,608 drug stores as of Oct. 31, 503 more than a year earlier. The company said it has top-two drug store market share in 226 metropolitan areas, including New York City, the nation's biggest drug store market. Walgreens noted that to get to that point, it has made more drug store acquisitions in the last two years than at any time in its history.

"A store base like ours doesn't happen overnight. It has been decades in the making," Mark Wagner, Walgreens' president of community management, stated at Analyst Day. "With nearly two-thirds of the U.S. population living within 3 miles of a Walgreens, we are truly 'My Walgreens' to millions of Americans."

And since kicking off its CCR in 2008, the company said it expects to have converted more than 2,000 stores to the format by the end of calendar 2010 and to finish the rollout of the concept to 5,500 stores by the end of calendar 2011.

"The CCR initiative is consistent with one of the company's key strategic goals, outlined at the 2008 Analyst Day, of improving the shopping experience, which could be a key gross profit driver," Deutsche Bank Securities analyst Bill Dreher wrote earlier this week in a preview report on Walgreens' 2010 Analyst Day. "Management highlighted [in its fiscal 2010 report] how if the average customer added just a single item to her basket, it would lift Walgreens' EPS by $1 — so a meaningful opportunity."

Other key retail efforts include fine-tuning merchandising and expanding its line of private brand products, which has included the introduction of Duane Reade's DR Delish premium label food and beverage products in Walgreens stores. Also, Walgreens said it has grown into a leading multichannel retailer in the last two years with the relaunch of Walgreens.com and a more than 50% increase in traffic to the site since 2008.

Walgreens executives stressed at Analyst Day that another pillar of the drive to enhance the customer experience is transforming community pharmacy to improve the health of patients at a lower cost.

"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," explained Kermit Crawford, Walgreens' president of pharmacy services. "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."

The company said it has created the largest retail network of certified immunizers, with more than 27,000 pharmacists and clinicians providing flu shots and other immunizations. Walgreens' flu shot program has grown from administering 1.2 million flu shots in 2008 to more than 7 million last year. The company added that it expects to provide more flu shots during the current flu season.

Walgreens also reported that it's the nation's No. 1 provider of infusion pharmacy services and is broadening its offering with its announcement in September to acquire Omnicare Inc.'s home infusion business. The company, too, noted that it's expanding and deepening its relationships with health care payers. Earlier this year, Walgreens realigned its health care services companywide and restructured its client service and sales organization to provide payers with what it dubbed a "seamless pharmacy, health and wellness solution."

And on the restructuring front, Walgreens executives at Analyst Day said the Rewiring for Growth initiative is on course to meet its goal of $1 billion in savings in fiscal 2011. "Just as important, we are embedding continuous process improvement and innovation into the fabric of our company," stated chief financial officer Wade Miquelon.

In reporting its fiscal 2010 earnings in late September, Walgreens told analysts that its net benefit from Rewiring during the year came in above the company's initial target.

For its 2010 fiscal year, Walgreens saw revenue rise 6.4% year over year to a record $67.4 billion and net earnings per share edge up 5% to $2.12 — in part fueled by a strong fourth quarter, which lifted the company's stock price 11.4% the day that results were reported.

Also at Analyst Day, Walgreens said it has returned more than $2.6 billion to shareholders in the form of dividends and share repurchases. Last month, the company unveiled a new $1 billion share repurchase program through the end of calendar 2012.

"Everything we outline today is designed to meet the needs of customers, patients and payers and create value for our shareholders," Wasson commented.