A conversation with new Walgreens CEO Greg Wasson
Drug Store News: First, congratulations on your appointment. Our questions probably can all be boiled down to two fundamental ones: What are the biggest challenges Walgreens faces? And how do you fix them?
First, what steps need to be taken short-term, and how will that lead to a long-term vision? It seems to be really about integrating all these different capabilities that Walgreens has brought to bear, and bringing those directly to employers and health plan payers, as well as to customers in the stores—recharging both the pharmacy/health services end of the business, as well as the front end.
Obviously, in this economy that’s a huge challenge. But can you lay out what you see in terms of both immediate needs and long-term potential?
Wasson: Right. Let me maybe start at the 30,000-ft. level and work down.
We want to be a provider—the most convenient provider of consumer goods and services and pharmacy, and even health and wellness services, in the country. That means leveraging the 6,600 drug stores we have across the country—which we think is one of the best retail networks out there—to continue to offer more and more high-consumer-value goods and services, as well as more health and wellness services, such as nurse practitioner services and so forth.
At the same time, by slowing store growth, we also want to take a little of that freed-up capital to reinvest back into those stores—to reinvent the front-end experience. It’s everything from reviewing our merchandise selection and our department adjacencies, our profile, our look and feel and so forth within the stores, and also taking a good, hard look at our costs and our efficiencies and our processes, as to how we do business. We announced a corporate and field management reduction of 1,000 positions a few weeks back, and we’re feeling good about where we are there.
So that’s where we want to head. We’ve got a solid winning strategy. It’s all about execution now, and driving execution of that strategy. We’ve made good progress, and I think both short- and long-term, it’s about continued execution and driving our strategy to help us move both through the short-term environment we’re in, but also longer-term.
Short-term, I think the fortunate thing about the industry we’re in is that we sell a lot of what people need. So we’re focusing on all we can do to meet the new consumer needs and make sure we’re relevant in their everyday lives by offering high-value and good products and services.
DrSN: I know you’re trying to rejuvenate the front end and rationalize the SKU mix and adjacencies. Have we seen anything yet in the stores that dramatically demonstrates that effort?
Wasson: So far, it’s mostly in promotional items, what we call “Affordable Essentials.” It’s more prominence in our ads and in our stores for those items we believe people are looking for with good price and good value, so we can really swing the doors. We are about 40% or more through the reworking of our merchandise categories, and we’ve got some [planograms] in test stores. You’ll begin to see more of that by mid-summer as [EVP marketing and merchandising] George Riedl’s group works through those.
Once we’re through all categories in the next couple of months in several stores, we’re going to begin to roll out those categories. Hopefully, by mid-summer we’ll be well on the way.
DrSN: Do you have any sense of when things might begin to turn around economically in the United States?
Wasson: I think every week that goes by, things get a little more bearish. The work we’ve done with leading economists show us it’s probably going to be the middle of 2010 before we potentially begin to see any time of up-tick in the economy. We could see unemployment anywhere from the high, single digits to the low, double digits.
So we’re gearing toward that. We’re saying, let’s focus on that being reality and on what adjustments and plans we need to make to maneuver through this time period. And again, I think a lot of it is merchandising mix, selection and value. And the cost reductions we’re looking at with the “Rewiring for Growth” effort will begin to see benefits between now and then.
One thing we are encouraged with is that we’re beginning to see improved trends in our prescription numbers, as I talked about at the shareholders’ meeting. There’s been a lot of acceptance with our Prescription Savings Club card.
At the front end of the store, we’re really focused on trying to be relevant to what the consumer is looking for. And in the pharmacies, we’re driving service and our Club card.
DrSN: Walgreens’ prescription numbers appear to be holding up pretty well, particularly in the last couple of months. As you’ve said yourself, you’d rather be in the drug store business right now than in a lot of other kinds of retailing.
Wasson [laughing]: I tell a lot of people, I’m glad I’m selling toothpaste and prescriptions and diapers and not high-ticket electronics.
DrSN: The overall trend at Walgreens’ front end also appears to be of paring down the number of multiple SKUs.
Wasson: Yes, and I think it’ll vary by category. We’re taking basic principles to every category. In some, there may be single-digit reduction in SKUs; in others, there may be upward of 20% to 30% reductions. There may be some categories we [no longer] even carry.
What I’m really excited about is that we brought in Kim Feil as our CEO. She has a tremendous background in consumer research and customer insights from her IRI days, and she’s really helping us get our arms around and understand more and more what our consumers are looking for, what our trends are, what our segments are—and helping us really determine what we should be offering in the stores to make that shopping experience better.
So you’re going to see a lot of exciting things coming out of the front of the store in the next several months.
DrSN: On the pharmacy and health side, one of the most promising things we see is the direct outreach Walgreens is making to employers through the Complete Care and Well-Being program and the worksite pharmacies and clinics. It’s going right into the worksites of those health plan sponsors and offering Walgreens as a solutions provider, saying to employers, ‘We have solutions to your health plan costs.’
Have you had much reaction yet to the launch of that program?
Wasson: There’s a lot of interest; the employer interest, first of all, to the on-site services themselves and, more recently, to our announcement of Complete Care and Well-Being, has been incredible.
I think large employers, as we all know, are not going to wait for healthcare reform. We’re all looking at ways to reduce costs and still attract employees, and I think there’s a lot of interest in being able to offer health and wellness services and pharmacy services on the campus, and being able to design a benefit that links those services to our retail clinics and pharmacies within the community—and to provide a complete, integrated network.
Peter Hotz, who’s the president of our Take Care Health employer solutions group…is a sharp, sharp individual. They’ve got some good data they’re able to show large employers and even managed care [plans] as to the improvement in chronic and disease management programs that large employers have been offering when services are provided on the campus. We’re showing improved enrollment, improved engagement, continued adherence [to drug therapy]. There are some pretty amazing numbers he’s able to share.
DrSN: Does having the WHI pharmacy benefit management component help to get that message out there?
Wasson: Certainly; anywhere we already have an employer relationship helps. But the neat thing about this and our employer solutions model is that large employers are interested in contacting; managed care organizations are interested in working with us because they see us as a provider of services they can work with; and pharmacy benefit managers look to us, too. We don’t have to be the PBM.
That’s the big advantage and the tremendous opportunity I believe we have. As I said at the beginning, we want to be a provider of what we do well: consumer goods and services, pharmacy services and, now, a growing ability in health and wellness services.
DrSN: In these tough times, when you’re trying to allocate resources the right way, do you feel that the resources you’ve devoted so far to this employer-based model are adequate at this point, or are you still in the stage of staffing up and throwing more firepower at that effort?
Wasson: Good question. I feel pretty good with where we are now. I think we’ve put together a heck of a management team. Back when we first started looking at retail clinics, we went out and partnered with three providers, and over the course of time decided on Take Care because we felt that Hal Rosenbluth [SVP and president of Walgreens Health and Wellness] and Peter Miller [divisional CP and president and CEO of Take Care Health Systems], who founded that organization, had the premier model. I believe they still do, and I think they’ve brought tremendous value to us.
When we began to see the value of the onsite services for employers in filling this model out, we looked at the two leading providers out there [Chadds Ford, Pa.-based I-trax and Cleveland-based Whole Health Management, both of which Walgreens purchased last spring]. They both had great management teams, and Hal Rosenbluth has done a terrific job in a short period of time bringing those two organizations together and retaining the best management talent of both. And now he’s doing the same bringing what we now call Take Care Consumer Solutions together with the employer solutions side, building a strong management team. I feel really good about it. I think we’ve got some top-notch talent in both our health and wellness division under Hal, as well as [Walgreens Health Services] under Stan Blaylock.
Stan has brought us some tremendous talent. When we acquired Medmark a couple of years ago, followed by OptionCare, they were two very good platforms in specialty pharmacy and infusion with good management teams and systems. Stan’s bringing that together aggressively.
As far as resources go, I think that slowing new-store growth and focusing on our costs frees up some capital, so we can make sure we’re investing properly in our strategy. And it allows us to continue to open new stores in the markets where we need to, and to continue to invest in these other opportunities.
DrSN: As you develop more of these worksite pharmacies and health and wellness centers, do you think that will translate into new business in the stores, too, as these employer-sponsored patients become more familiar with Walgreens? Do you see them shifting some of their pharmacy purchasing to your stores?
Wasson: Absolutely. The patients who are using our retail clinics—about 20% to 25% of them, and in some markets even more than that—are new patients to Walgreens. There obviously are a lot of employees throughout the country who don’t utilize Walgreens today, and if we’re extremely convenient on their [worksite] campus, I absolutely believe we’ll see greater usage of Walgreens services in the community.
DrSN: Will the increasing emphasis on integrated healthcare services—moving beyond the pharmacy and into a broader healthcare role—also possibly shift the mix somewhat at the front end of the store? In other words, do you see Walgreens allocating more space to other health services and products like durable medical equipment, or targeted wellness services aimed at specific patient groups?
Wasson: I think that’s part of what gets us excited about this whole initiative. As we optimize the departments and potentially free up space, I think there are other opportunities, such as DME.
I don’t think it will be a one-size-fits-all approach, though. In other words, I think there’ll be much more of a focus on select stores and demographics. With DME, for example, maybe there are locations that carry a more complete offering than others. But yes, I think there’s an opportunity for us to potentially bring in new and higher-value services as we optimize our existing selection.
DrSN: Typically, when Walgreens enters a new market, it goes in aggressively, with as rapid a store buildup as possible to capture market share and good locations quickly. What impact will the store-construction cutback have on plans to move in force into newer Walgreens markets like Hawaii? Does that remain a priority focus?
Wasson: I think what it does is allow us to strategically manage our real estate portfolio in strategic markets. Keep in mind, even a growth rate of 2.5% to 3% is still a lot of [new] drug stores. And we’re certainly looking to grow still in the Northeast and Southern California and Hawaii. This still allows us to continue to penetrate those markets we see as strategic.
The good thing is, we’ve entered most every major market out there. And there are many markets where we’ll probably spend more of our investment in refreshing and remodeling stores and shift our real estate focus to the more strategic newer markets.
United Drugs and Associated Pharmacies merger to combine strengths
Behind the decision by United Drugs and Associated Pharmacies to merge is one overriding theme: a national, integrated cooperative of more than 2,000 pharmacies all rowing in roughly the same direction is a force to be reckoned with.
In today’s economic maelstrom, it may also mean the difference between success and failure for many of the independent pharmacy operators operating under the combined United-Associated umbrella.
This economy — which is chewing up many smaller businesses, drying up demand for all manner of goods and services, and throwing hundreds of thousands of workers a week off corporate payrolls — leaves little room for error. And the financial meltdown makes operating an independent drug store — not an easy proposition in the best of times — a daunting prospect. Any combination of buying and marketing co-ops that can boost efficiencies and/or beef up the menu of services or purchasing clout of their members has to be a topic of serious consideration.
What’s more, merging the memberships of United and API creates one of the nation’s largest independent pharmacy networks, on a par with McKesson Corp.’s Health Mart franchise operation, Cardinal Health’s Leader umbrella program for independents and its Medicine Shoppe franchise pharmacy brand, or AmerisourceBergen’s Good Neighbor Pharmacy store-service and branding program. Only a handful of drug, supermarket or mass merchandise chains field as big a store network.
But many questions remain, even assuming the merger is approved. Among them: how will the combined programs squeeze new operating efficiencies and a stronger service program for their members out of their marriage? What additional steps need to be taken in this kind of unforgiving market to unite the 2,000 pharmacies under a stronger marketing, advertising and branding umbrella? Will there be a unified national advertising and pricing strategy? And, finally, will the members of both groups embrace the combination as a long-term benefit to their business?
Carmel Pharma designates April National Safe Handling Awareness Month
COLUMBUS, Ohio Carmel Pharma has designated April as National Safe Handling Awareness Month, and April 20 as National Safe Handling Awareness Day.
The company said the purpose of the month was to educate healthcare workers about safe handling of drugs and protect them from hazardous drug exposure. According to an alert published by the National Institute for Occupational Safety and Health, exposure to hazardous drugs can lead to skin rashes, infertility, miscarriages, birth defects and possibly cancer.
Carmel Pharma will sponsor a free webcast April 20 from 1 p.m. to 2 p.m. EST, followed by a live “ask the experts” session. The webcast will be part of a month of regional and national continuing education activities.