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Walgreens reaffirms growth plans

BY Jim Frederick

CHICAGO —The leaders of the nation’s top-performing drug store retailer are giving no quarter to a faltering U.S. economy.

Chastened by a recent slowdown in the company’s sales and profit momentum, and buffeted for now by strong economic headwinds, Walgreen Co.’s leaders nevertheless reaffirmed their determination to saturate the nation’s best retail locations with Walgreens stores, exploit new business opportunities and gobble up an ever-increasing share of the U.S. prescription market.

Neither the uncertain economic outlook nor its own recent profit woes will derail Walgreens’ breathtaking store-growth strategy, chairman and chief executive Jeff Rein told shareholders and guests at the company’s annual meeting here Jan. 9. He and Greg Wasson, president and chief operating officer, outlined a bold plan for filling in markets across the country by opening roughly one new store every 16 hours and buying up the prescription files, and sometimes the stores, of rival independent and small-chain pharmacies. They also said the company would aggressively pursue new opportunities in specialty pharmacy and front-end merchandising.

Rein’s optimistic long-term forecast for Walgreens came despite recent difficulties in reigning 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 such areas as expense controls, Rein said Walgreens began the new year “on a really, really strong financial footing,” with first-quarter pershare earnings up 5.5 percent in the midst of a record store-opening campaign that saw the addition of 168 stores. And he laid out a store-construction plan that he said would put Walgreens ahead of its long-stated goal of 7,000 stores 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 construction, he said, will be the Northeast and Southern California. In line with that effort, Rein and Wasson trumpeted Walgreens’ return to Times Square with a unique drug store now under construction in the heart of New York’s revitalized Theater District. The store, set to open this summer, will feature a giant, 17,000-square-foot video screen for advertising and messaging, and multiple floors for selling and storage.

Overall, Rein said, “We’re targeting about 8 percent growth annually in our square footage through fiscal 2009 and beyond.”

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

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

“Today we have 135 clinics in stores operating in 15 cities across 11 states,” Wasson said. “We plan to have more than 400 open by the end of this calendar year.”

Behind the nonstop 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.”

Addressing the shareholders’ meeting for the first time as Walgreens’ president, Wasson also revealed new plans for “leveraging the box” inside Walgreens stores with new partnerships with such major service providers as Starbucks and DHL, the shipping services company. Among the new offerings: Café 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.

Wasson also expressed the company’s determination to grow in specialty pharmacy and home infusion. “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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Report says Tesco looking at expansion in Chicago

BY Doug Desjardins

CHICAGO Tesco is looking to roll out Fresh & Easy Neighborhood Markets in the Chicago area, according to a report in the Chicago Sun Times.

The newspaper attributed the report to a “knowledgeable source” and said Tesco could offer the Chicago area something “unique because of its strong offering of prepared foods, packaged perishables and selection of produce, meat and bakery.”

Tesco has not commented on the report and has said it plans to expand on the West Coast in 2008, opening stores in California, Nevada and Arizona. The chain opened its first store in December and plans to have up to 50 Fresh & Stores open by the end of February.

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Lubin promoted to Walgreens vp and new second position

BY DSN STAFF

DEERFIELD, Ill. Walgreens today promoted Steven Lubin to divisional vice president and the new position of general manager of marketing for non-mainland operations. In his new role, Lubin will ensure the company’s marketing meets the needs of customers in Puerto Rico and Hawaii.

As general manager of marketing for Puerto Rico, Lubin spent the past three years living on the island. He is relocating back to the company’s Deerfield, Ill., headquarters for his new duties.

“Steve was a huge asset in Puerto Rico as we worked to better meet the unique needs of our island customers,” said Walgreens chairman and chief executive officer Jeffrey Rein. “He also was invaluable as we opened our first Hawaii store last year, quickly grasping what Hawaiian customers want in a drug store and working with a Walgreens team to buy from many local vendors. Steve’s a big part of our early, strong success in Honolulu.”

Lubin joined the company in 1970 as a stock clerk in Chicago while attending college. He managed several Chicago-area stores before moving into Walgreens’ purchasing department in 1980. He was promoted to a divisional merchandise manager in 1988 and to general manager of marketing for Puerto Rico in 2004. 

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