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Walgreens’ mission: To be nation’s top source for ‘health and daily living needs,’ leaders say

BY Jim Frederick

CHICAGO — Bolstered by a strong recent uptrend in sales and earnings and by clear signs that its massive realignment is beginning to bear real fruit, Walgreens’ top executives delivered an upbeat assessment of the company’s progress and its potential as a multichannel retail and healthcare powerhouse at the company’s annual shareholders’ meeting Wednesday.

In a celebratory gathering at Chicago’s Navy Pier auditorium, Walgreens’ leaders gave hundreds of largely supportive shareholders a glimpse of a company in the midst of a paradigm shift. The ultimate goal, according to chairman Alan McNally and president and CEO Greg Wasson, is to make Walgreens the nation’s top destination for accessible, community-based health services and everyday convenience products.

“Our vision is to be ‘My Walgreens’ to everyone in America — their first choice for health and daily living needs,” a confident Wasson told the crowd.

Walgreens’ leadership is convinced the company is on the right track. Two years into the transformation of its retail strategy and health mission, McNally said, Walgreens has “transitioned from a company intensely focused on maximizing the number of new-store openings, to a company intensely focused on making the 7,600 stores we already have more valuable, productive and relevant to customers and patients in satisfying more and more of their health and daily living needs.”

Wasson spoke to Walgreens shareholders for the third time as the company’s top manager and second-in-command. McNally, named chairman in the shakeup that launched the company’s massive strategic overhaul in the fall of 2008, praised Wasson for having “led one of the most important strategic and operational transformations in [the] company’s history," and for assembling “an exceptionally talented world-class leadership team” that blends “internal talent and externally developed expertise. Together with his leadership team, Greg has developed a clear, compelling growth strategy and is executing it with focus, discipline and intense commitment, leveraging the best store network in America, enhancing the customer experience and achieving major cost reduction and productivity gain,” McNally added.

Wasson, said Walgreens’ chairman, also has “fostered a culture of innovation and operating excellence.” 

The result, McNally said, has been “double-digit growth in earnings per share in the last two quarters, record free cash flow of $2.7 billion in fiscal 2010 and a dividend increase of more than 27% last July.” Fundamentally, he added, “In the past 24 short months, the operations … have been substantially strengthened, and Walgreens has become a higher-performing company.”

Walgreens’ chairman also praised last year’s acquisition of the 257-store Duane Reade drug store operation in New York. The buyout “not only established Walgreens as a market leader in New York City, it has provided our company with great strengths in urban retailing and store design that are already influencing and enhancing the operations of Walgreens stores nationwide,” he said.

In a real sense, Walgreens has shifted much of its expansion firepower to timely, opportunistic acquisitions of strong regional chains to give it instant access to new or undeveloped markets — while throttling back on its once-torrid store-construction strategy. “Two years ago, we had 9% new-store growth; this fiscal year we came in around 4.2%, and we’re on track to hit the 2.5% to 3% for this fiscal year that we had targeted,” Wasson explained. Despite the fact that “we are slowing our new-store openings … we are still opening more drug stores than all our drug store competitors are opening combined today,” he told investors.

What’s more, Wasson said, “We’ve acquired more drug stores over the last two years than at any other time in our company’s history.” That includes Duane Reade, Dean’s Apothecary in Boston, Happy Harry’s in Delaware, Snyder’s in Minnesota, Drug Fair in New Jersey and Farmacias El Amal stores in Puerto Rico. “Combining the organic growth and the new store openings that we are still targeting with these key acquisitions, we are now No. 1 or No. 2 in 115 markets across the country,” he pointed out.

McNally said Walgreens’ market strengths remain “the best, most convenient store network in America, our trusted and iconic brand and our strong balance sheet and financial flexibility.” Together, he said, those strengths “serve as the bedrock for this transformation” to what company leaders said will be the nation’s most fully integrated and accessible multichannel provider of retail health and convenience shopping services.

Wasson said the company has “made substantial progress” on that transformation. “Two years ago, we did lay out our plan to win and our three core strategies to get more from our core business: To leverage the best community-based store network in America, to enhance the patient and customer experience across the entire enterprise and to achieve major cost reductions and productivity gains,” he told shareholders. “I can assure you that we are laser focused on those core strategies.”

One clear example of progress, Wasson told shareholders: “We completed our 36th consecutive year of record sales” despite a down economy, with $67.4 billion in revenue. “Only one other company in the S&P 500 can claim that,” Wasson pointed out. Walgreens’ net income for fiscal 2010 also rose to nearly $2.1 billion, he added.

“All in all, this was a year of substantial progress in a continuing challenging economic climate,” Wasson said. For fiscal 2011, he noted, “we’re off to a good start” with a “solid first quarter” and December selling season. “We are confident we do have the strategies in place to deliver value,” Wasson asserted.

Among the company’s highlights over the past year, according to Walgreens’ chief executive:

  • The opening of Store No. 7,000 in Coney Island;

  • The purchase of Duane Reade, according the Wasson, “the largest acquisition in our company’s history, giving us a leading position in the New York City market”;

  • Filling a record 778 million prescriptions, up 7.5% over the previous year. “We now fill nearly 1-in-5 of all U.S. retail prescriptions,” Wasson noted; and

  • A massive flu shot program, with roughly 7 million immunizations provided, making Walgreens the nation’s top provider of flu shots outside the U.S. government.

“We feel good with these accomplishments, but we have a lot more to be done,” Wasson added.

Walgreens’ “center of gravity,” he said, remains its 7,655 drug stores “located in communities across the country in the best locations.” What’s more, he said, “with 63% of Americans living within 3 miles of our drug stores, we are closer to consumers than anyone else in America.”

Additionally, Wasson said, “We are on the front lines of health care, with [more than] 70,000 healthcare service providers and growing. We have [more than] 8,000 points of care across the country.” Armed with those resources, the CEO said, Walgreens is building “the most complete national network of integrated healthcare providers and locations across the country.” 

That growth, he added, is occurring “in a fast-changing environment” for consumers increasingly concerned with getting the most value for their dollar, and “in a rapidly changing healthcare industry. … With the passage of healthcare reform last year, we now have 32 million more Americans who will gain access to health care, we have an aging population and we have a growing incidence of complex and chronic disease.”

All those forces are leading to what Wasson calls “the convergence of two great industries, retail and health care. And frankly, that trend is good for us, because we are located right at the intersection of retail and health care. That’s why we’re evolving from a retail drug store, to a retail health and daily living store,” he said.

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Asthma rates rise, but at a slow pace, CDC finds

BY Alaric DeArment

ATLANTA — Nationwide rates of asthma have been on the rise in recent years, though they’ve risen at a slow pace, according to a new report by the Centers for Disease Control and Prevention.

According to the report, released Wednesday, around 24.6 million people in the United States had asthma in 2009, meaning a prevalence of 8.2%. Rates have risen by around 1.2% per year since 2001, with asthma attack prevalence staying between 3.9% and 4.3% between 1997 and 2009.

Asthma prevalence also differs among demographic groups, according to the CDC. Among children and adolescents, boys have a higher prevalence than girls, with rates of 11.3% versus 7.9%, while children in general have higher prevalence than adults.

The report also noted that use of healthcare service was high for asthma, with 13.9 million visits to private physicians for asthma in 2007. In 2008, around 96% of people with asthma reported that a healthcare professional had taught them how to use their inhalers, but only 34% reported receiving an asthma management plan with instructions on how to change the amount of type of medicine they were taking.

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Canadian analyst speculates on Katz Group sale

BY Jim Frederick

MISSISSAUGA, Ontario — Katz Group Canada is withholding comment on a report in the Edmonton Journal Wednesday that speculated on the potential sale of the Canadian drug store giant.

“Katz Group does not comment on rumors or speculation,” said company spokeswoman Michelle Lee when asked about the report.

The Edmonton Journal quoted a report from Perry Caicco, a retail analyst with CIBC World Markets. In that report, issued Jan. 9, Caicco speculated that “reduced profitability and remaining uncertainty about drug reforms in 
certain provinces, most notably Alberta,” could prompt Katz management, including Katz Group chairman Daryl Katz, to consider selling the company.

Katz originally was headquartered in Edmonton before moving its central offices to suburban Toronto. The company fields more than 1,800 drug stores across Canada under its flagship Rexall banner and other trade names, including PharmaPlus, Guardian and IDA. Its chairman also owns the Edmonton Oilers.

Among the firms that may have expressed interest in the drug store company, according to Caicco and the Edmonton Journal, is the Jean Coutu Group, which operates nearly 390 franchised drug stores in Quebec, New Brunswick and Ontario and owns a sizeable equity interest in Rite Aid. Although Caicco acknowledged that Coutu has given no indication of interest in Katz Group, he noted that government cuts in generic drug reimbursements are reducing profitability in pharmacy retailing in Canada and could trigger a sale, according to the newspaper.

Katz, Caicco speculated, could command a price of $1 billion to $1.5 billion [Canadian].

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