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Walgreens stands by its rapid growth strategy

BY Jim Frederick

CHICAGO Neither the downward-turning economy nor its own recent profit woes will derail Walgreen Co.’s strikingly aggressive store-growth strategy or its long-range pursuit of new business opportunities in specialty pharmacy and front-end merchandising, company leaders affirmed today.

Addressing hundreds of shareholders at the company’s annual meeting here, a chastened but determined chairman and chief executive Jeff Rein outlined bold growth plans for Walgreens. Rein’s optimistic forecast for Walgreens long-term came despite recent difficulties in reining in operating costs, and despite a sliding stock price that hit a new 52-week low even as shareholders packed into Chicago’s Navy Pier ballroom for the event.

Walgreens’ chairman acknowledged that the past year has been a tough one for the nation’s premier drug chain—particularly the fourth quarter, when unexpectedly high operating costs, a mild flu season and difficult comparisons with the previous year cut earnings by 3.8 percent. “I’m sure most of you are asking, how could we miss a quarter like that?” Rein noted. “We lost focus on payroll and expenses.”

While citing the need to remain vigilant in areas like expense controls, Rein said Walgreens began the new year “on a really, really strong financial footing,” with first-quarter per-share earnings up 5.5 percent in the midst of a record store-opening campaign that saw the addition of 168 new stores. And he laid out a store-construction plan that he said would easily put Walgreens ahead of its long-stated goal of 7,000 stores coast to coast by 2010.

“We’re ramping up our organic growth to 550 new stores this fiscal year, for a net increase of 475 after relocations and closings,” Rein told shareholders. “We’ll step this up to more than 600 new store openings in fiscal 2009.”

The primary focus of that new-store construction, he said, will be the Northeast and Southern California.

“We’re targeting about 8 percent growth annually in our square footage through fiscal 2009 and beyond,” he said. “Long-term, we see the potential for 13,000 Walgreens stores across the U.S. Yes, there’s some cannibalization in the first year or so after we open a new store, but eventually every store in the area keeps growing, and overall share jumps.”

Walgreens is also stepping up its purchase of prescription files from hard-pressed independent pharmacies going out of business, he said. Last year, the company bought some 200 independents’ files, in many cases retaining the owner as well to work in a nearby Walgreens pharmacy. More recently, Walgreens purchased the patient files from 27 Rite Aid stores in Las Vegas.

Another major focus: Walgreens’ growing push into highly specialized pharmacy services. Rein also reiterated the company’s commitment to in-store clinics through its Take Care Health format.

Behind the non-stop growth strategy: the company’s “absolute” determination, said its chairman, to be in the “sweet spot…where health needs converge with those convenient points of care” as the nation’s population ages.

Rein also drew a clear distinction between his company and CVS, whose purchase last year of giant pharmacy benefit manager Caremark drew praise from Wall Street and talk of a new pharmacy business model. “We have no plans at all … to purchase a major PBM,” he asserted. “We believe our independence from a large PBM differentiates us and enables us to successfully compete for business as the provider of choice.”

That hands-off approach “promotes transparency as we work with health care providers and insurance plans to offer the best overall pharmacy care for their patients,” he added.

Joining Rein onstage was Walgreens’ recently elected president and chief operating officer, Greg Wasson. In a forceful reaffirmation of the company’s core operating principles, Wasson revealed new plans for “leveraging the box” inside Walgreens stores with new services and partnerships with other major service provider companies like Starbucks and DHL. Among the new offerings: Cafe W, offering full-service coffee and fountain drinks in more than 200 locations; DVDs on demand in the photo department, printer cartridge refills, and Red Box video rentals for $1, now offered in four Walgreens units on a pilot basis.

“We want to leverage our prime real estate and 6,000-plus stores,” he said, with “more high-value products and services.”

In line with that effort, Wasson said the company would expand its Take Care Health Services clinics to more than 400 Walgreens stores by the end of calendar 2008, up from 135 operating today. “Some of our first clinics, just over a year old, are surpassing the break-even point,” he revealed. “Take Care is the platform we intend to use to bring additional health care services to markets, such as immunizations and wellness programs.”

Wasson also expressed the company’s determination to grow in the specialty pharmacy and home infusion business. “This is a $60 billion sector growing at nearly 20 percent annually,” he said. “That’s why we acquired Medmark Specialty pharmacy a year ago and Option Care Specialty/Infusion Pharmacy this [past] spring. Combining these two companies with our organically grown business, we’re now the No. 1 independent specialty pharmacy company.”

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IRI study shows half of consumers consider environmental issues when shopping

BY Michael Johnsen

CHICAGO Approximately 50 percent of U.S. consumers consider at least one “green” factor in selecting consumer packaged goods items and choosing where to shop for those products, according to a recently released survey conducted by Information Resources, Inc.

The 22,000 U.S. consumers surveyed were asked to determine the impact of four key sustainability features in their product and store selection—organic, eco-friendly products, eco-friendly packaging and fair treatment of employees and suppliers. One-fifth of those surveyed were determined to be “sustainability driven,” taking at least two sustainability factors into account when making their selections.

“Sustainability has evolved from a niche segment concern to a major factor influencing purchasing and shopping behavior across a sizable consumer base,” stated Andrew Salzman, IRI chief marketing officer. “Our survey indicates that consumers are focused more and more on the social and environmental impact of their CPG purchases, creating a viable and growing U.S. market for sustainable products and packaging with the potential to mirror well-developed markets in Europe and Japan. U.S. retailers and manufacturers are beginning to respond to that demand,” he said.

“Consumers aged 55 and older are the real driving force behind this expansion,” Salzman added. “Generally, with the time to seek out specialty items and the resources to afford premium priced products, aging consumers are a critical target market today. As sustainable products and packaging become more widely available, we anticipate that the market will expand across consumer segments.”

Among the IRI results highlighting the evolution of sustainability factors in consumer decision-making:

  • Approximately 30 percent look for eco-friendly products and packaging in their brand selection;
  • Up to one-quarter of those surveyed consider fair trade practices along with eco-friendly or organic designations in selecting a shopping destination;
  • Nearly 40 percent of consumers search specifically for organic products

“Currently, organic products are scoring extremely well with consumers,” says Salzman. “Benefiting from the winning combination of a ‘better for you’ association and a ‘better for the environment’ attribute, the organic designation has moved to the front of consumer consciousness.”

Once dominated by niche manufacturers and specialty retailers, CPG industry leaders now maintain a sizable stake in the organics market and with leading retailers. This includes Safeway and Kroger with their highly successful organic private label lines. Several leading manufacturers are also beginning to offer organic versions of favorite products, such as Kraft’s organic Wheat Thins and Chips Ahoy.

Among non-food items, the IRI study highlights replacement of chemical-based items with eco-friendly products as an emerging sustainability category. One example is green laundry detergent. Though currently just 2 percent of the total detergent market, the growing demand for biodegradable, non-toxic and plant-based products is reflected in a 66 percent increase in green product sales during the past year within a category that has overall flat sales.

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Kimberly-Clark calls new Cottonelle campaign its largest non-traditional marketing drive ever

BY Tara Smith

DALLAS Kimberly-Clark Corp. on Monday announced it is launching the largest non-traditional marketing campaign in its history to help drive further growth for its Cottonelle brand.

The campaign, “Be Kind to Your Behind,” debuts this month and integrates experiential marketing, branded Web sites, Internet advertising, bus and train station ads, in-store promotions, redesigned product packaging and public relations activities, as well as traditional TV and print advertising. In addition, the campaign will use the iconic Cottonelle puppy across all communications channels to embody the brand’s key benefits of soft, soothing comfort.

The campaign kicked off Monday in the United States and Canada and in March the company will roll out the Cottonelle Comfort Haven. The Haven features a puppy-themed bus that will travel to major metropolitan cities across North America with four themed comfort areas offering consumers access to massages, yoga and a sweepstakes promotion. Kimberly-Clark plans to launch the “Be Kind to Your Behind” campaign throughout Europe in the summer of 2008 under multiple brands, also using the iconic puppy.

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