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Has Wal-Mart set its sights on health care?

BY Mike Troy

BENTONVILLE, Ark.

With the development of a new format or formats under way at Wal-Mart, the prospect of how the company will pursue continued growth in the United States has piqued the collective curiosity of the retail industry.

The prospect of new format development comes amid a slowing rate of U.S. supercenter expansion and the looming arrival of a highly successful European competitor on Wal-Mart’s home turf. Wal-Mart’s response to these challenges was brought to the forefront in late July when the company posted a job listing on its Web site for a senior director/multi-format strategy, responsible for proposing the development of new formats to complement the company’s current format portfolio and to address the opportunities of new markets.

“This position will analyze the organization model of successful multi-format companies and recommend a suitable organizational approach for Wal-Mart,” according to the job description. “[The position] will also evaluate the interaction among our existing formats, monitor the performance and recommend format combination and location strategies to increase market share and minimize cannibalization impacts.”

The job posting, coupled with Tesco’s entry into the United States next year with a small format store called Fresh & Easy Neighborhood Market, caused most of the speculation to be focused on Wal-Mart’s development of a small-format food concept. Largely overlooked was the possibility that Wal-Mart would entertain the development of an entirely new concept targeting growth in other sectors of the economy where application of the company’s business model could deliver value to consumers. That was the strategy in the 1980s when Wal-Mart entered the food business with supercenters and more recently was the rationale behind the expansion of financial services.

It is entirely likely that Wal-Mart will develop food formats that are complementary to its existing offering or will find a way to continue to shrink the 9-year-old Neighborhood Market concept. Such formats are evolutionary, though, considering Wal-Mart is already the largest food retailer and it would merely be segmenting the market. The more revolutionary notion, and potentially bigger opportunity, exists to bring what Wal-Mart president and chief executive officer Lee Scott has referred to as disruptive change to the nation’s healthcare delivery system. The introduction of the $4 generic drug program last fall and the commitment to expand a fledgling network of in-store clinics to 2,000 locations over time are examples of Wal-Mart’s interest in playing a bigger role in health care.

More recently, the company’s healthcare initiatives were placed under the leadership of a new executive, following the appointment of John Agwunobi as senior vice president and president for the retailer’s professional services division. Agwunobi previously served as assistant secretary for Health for the U.S. Department of Health and Human Services and an admiral in the U.S. Public Health Service Commissioned Corps. In his new role, he will be responsible for Wal-Mart’s health and wellness business unit, which includes pharmacies, vision centers and the expanding network of healthcare clinics. He reports to Bill Simon, president and chief operating officer of Wal-Mart’s $226 billion stores division, which includes the company’s 3,443 domestic supercenters, discount stores and Neighborhood Markets.

“John is the country’s expert on public health, and I look forward to his contributions in furthering Wal-Mart’s health and wellness efforts. He will bring new perspective, diverse talents and tremendous expertise to our company in his new role,” Simon said.

Agwunobi served as adviser on matters involving the nation’s public health and science, oversaw the U.S. Public Health Service and was responsible for disease prevention, health promotion, women’s and minority health and the reduction of health disparities. He also was responsible for the federal response to the fight against HIV/AIDS, pandemic influenza planning and vaccine preventable diseases. Prior to his role at the national level, Agwunobi served as Florida’s secretary of health and state health officer from October 2001 to September 2005. In that role, he led the state’s public health and medical response to four major hurricanes in 2004 and managed the response to the nation’s first-ever intentional anthrax attack.

Despite an impressive resume, Agwunobi’s decision to join Wal-Mart, and the potential implications of the hiring, was overshadowed by a series of other Wal-Mart announcements during the past four months that included a reduction is supercenter openings, second-quarter earnings that fell below analysts estimates and an uncharacteristic downward revision to full-year earnings guidance. Even so, it doesn’t change the fact that with the hiring of Agwunobi, Wal-Mart has secured an executive who brings a broad healthcare perspective to the nation’s largest retailer at a time when it is looking to expand involvement in the healthcare system.

“Wal-Mart touches many lives in many communities, and this position provides me with a new opportunity to reach people in the places where they live, work and shop,” Agwunobi said.

Health care also is an area where the company would have an opportunity to capitalize on a large and growing market filled with price sensitive consumers likely to embrace any provider capable of improving access and reducing costs while increasing transparency and efficiency.

A new food format may come first, but health care is the space to watch.

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