Trained to ‘skate to where the puck will be’

If retail chains could be compared with car engines, Walgreens in recent years has been akin to a powerful, 440-cubic-in. hemi whose timing was off. But as the company progresses on the major tune-up it ordered in the midst of the economic crisis of 2008, its engine is beginning to fire on all cylinders.

Two years ago, Walgreens was faced with an economy in freefall, fading sales momentum at the front end, rising operating and inventory costs, an increasingly cluttered approach to store merchandising, and a growing disconnect between both top management and stores and between its health- and retailing-business components.

That was then. Now, a year and a half into its massive corporate rejuvenation program, the company is beginning to resemble the more streamlined, integrated and cost-effective retail and healthcare powerhouse its leaders envisioned when they launched that overhaul in fall 2008. The effort, chairman Alan McNally asserted early this year, has spawned “a culture of new thinking, innovation and business momentum throughout the organization,” coupled with “a clear, compelling strategy.”

Walgreens is pursuing a three-pronged approach to rejuvenation. The end result will make it a more compelling draw for America’s consumers, a cost-effective and widely recognized resource for patients and health plan payers coping with rising healthcare costs, and a more profitable enterprise overall, according to president and CEO Greg Wasson. Simply put, Walgreens’ strategy is “to leverage the best store network in America, enhance the customer experience, and drive cost reductions and productivity gains,” Wasson recently said. “Our focus will be to continue to grow and gain market share.”

Much progress already has been made, he asserted, “even in the midst of a very challenging economic climate. We’re a more agile, forward-looking and innovative company than we were a year ago,” Wasson proudly reported at the company’s annual shareholders’ meeting Jan. 13. In fiscal 2009, he said, “we pursued new and better ways to connect with our customers and the communities we serve, while achieving strong revenue growth, significant cost reduction and record cash flow of more than $4 billion.”

“We accomplished a number of important milestones in 2009, including opening our 7,000th drug store,” Wasson added, “but we also know we can accomplish much more.” That much was evident in January, when the chain reported a 1.1% drop in same-store sales. Walgreens laid some of the blame on calendar-day shifts that pared sales days versus last year in month-to-month comparisons, but it’s clear that the nation’s halting economic recovery and consumers’ continuing aversion to spending are still a drag on the chain’s forward progress.

Walgreens—along with its drug store, big-box and supermarket pharmacy competitors—still is bobbing in a very storm-tossed sea. The economic collapse, massive job losses and the evaporation of trillions of dollars in personal savings on Wall Street throttled consumers and wracked the retail industry. The pullback in consumer demand may be a long-term phenomenon. “We’re operating in a new economy, focused on a consumer who is savings-minded…and definitely wary of debt,” Wasson acknowledged.

To navigate these treacherous waters, Walgreens’ leaders are focusing on long-term trends in U.S. demographics and society. Among them: the aging of America and the anticipated rise in demand for medicines and medication therapy management that will result; the rise of store-specific and health information technology, along with Web-based communication; the critical need to reduce both healthcare costs and Walgreens’ own operating expenses; and the growing demand for accessible, affordable healthcare services where patients live and work. “We’re skating to where the puck will be,” Wasson recently said. “We are on the front lines of health care…where 50% of the population lives within 2 miles of one of our stores.”

The transformation in health care is occurring, with or without health-reform legislation, Walgreens’ CEO added. “Healthcare reform will shape our future,” he asserted. “Anybody in health care today must have a relentless focus on cost reductions…and believe me, we do.”

By now, Walgreens’ reinvention has swept through every aspect of its business and changed the culture of this storied, 109-year-old drug store chain. The goal, said company leaders, is to draw “more from the core” of Walgreens’ far-flung but powerful capabilities in community pharmacy, store support, product distribution and merchandising, along with its reach and expertise in clinical care, pharmacy benefit management, mail-order and specialty pharmacy.

The company is furiously working to weave those core components into an integrated, comprehensive set of solutions for employers in desperate need of ways to lower the costs they incur to keep their employees and plan members well. And it’s applying its massive reach in community and specialty pharmacy, home health care, employer-based health care and ambulatory care—all told, the company wields “8,000 points of care,” its top leaders asserted—to that mission.

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