Alliance Boots deal changes the game for WAG

Walgreens and Alliance Boots — it’s a trans-Atlantic retail pharmacy game-changer. 


As the largest single purchaser of prescription drugs in the world, with 11,000 retail pharmacies in 12 countries that currently dispense more than 260 million prescriptions a year, and a global pharmaceutical wholesale operation to match, serving more than 180,000 healthcare outlets worldwide, the new company will have a whole lot more leverage on that side of the business. 


And the area in which Walgreens will benefit immediately is private brands. While Walgreens has beefed up its private-brand development in recent years with brands like Delish and Nice!, it will benefit greatly from the 400-plus associates Boots currently has dedicated to private-brand innovation. Boots has long been acknowledged for private brands, most notably the venerable No7 beauty brand, but also Soltan (sun care), Botanics (natural skin care) and Boots Labs (anti-age partnership with Procter & Gamble).


And given the market for multisource generic pharmaceuticals and future projections, having an in-house generic pharmaceutical manufacturing capability — Alliance Boots’ Almus division currently makes generic pharmaceuticals in five European countries — could be a decided advantage for a drug store operator.


Two more areas where Walgreens might be able to learn from Boots: optical — Boots operates some 625 optical stores in the U.K.; and loyalty cards — approximately two-thirds of U.K. women are members of Boots’ program, and Walgreens is expected to roll out its own card in September. 


How transformational is this deal? Consider Walgreens’ revenue mix today and how it expects that to change over the next five years. Currently, about two-thirds of Walgreens’ $73 billion in sales is in pharmacy. In 2016, sales of the combined companies are projected to top $130 billion, with only about one-third coming from the U.S. pharmacy business. 


As an encore, Walgreens celebrated Independence Day by buying USA Drug’s 144 stores for $438 million.

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