Walgreens Analysis

Walgreens Strategy Analysis Retailing: MKTG 3740 B April 7, 2013 I. History and Mission Statement Walgreens has grown from a small, neighborhood-oriented drug store to a trusted, national pharmacy. Founded in 1901 by Charles R. Walgreen, the company bloomed from a commitment made to perseverance. Walgreen came from Dixon, Illinois at the age of sixteen, working an unpleasant job at a drug store after he lost a portion of a finger that left him incapable of continuing a career in athletics.He left with an ambition of entrepreneurship as the flourishing city of Chicago welcomed him with the booming pharmacy business. Devoted to his goal, Walgreen worked his way through gaining experience and financial stability within the growing industry. His work experience through jobs with different pharmacies allowed Walgreen to analyze the strengths and weaknesses in their business operations. Focusing on the gaps in service and the needs by customers that were not being met, Walgreen had an oppo rtunity to capitalize on the industry’s shortcomings by opening his own pharmacy.After earning enough money to put a down payment on a loan for the store that he was working in at the time from Isaac Blood, Walgreen finally owned a store in a great location just south side of Chicago in a prosperous area. He renovated the space, employed a colleague, broadened the selection of products offered, and priced at a fair rate to improve efficiency. One of the differentiating strategies that Walgreen implemented was through utilizing his development of the â€Å"two-minute† drill.This service allowed a local customer to call Walgreen’s store, request an item, and have it delivered by one of Walgreen’s handymen within two minutes of the customer calling. The good reputation of his service spread quickly among the community. The next chapter in Walgreens store innovation and competitive edge was his idea to sell hot food items during the winter, cooked by his wife , Myrtle Walgreen. The trend of that time for many businesses was to have a soda fountain that served cold drinks and milkshakes, which Walgreen also served during the hot summer months.His approach to customer service carried through to winter months with the hot food serving, while his competitors failed to keep up with what would eventually become an essential part of drug store business. Walgreen’s store was growing at a strong pace. By 1929, he had 525 operating stores, 633 in 1975, and hit one thousand open stores in 1984. Today, Walgreens opens around 425 new stores, on average, each year. Through the company’s mission statement, Walgreens strives to be the most trusted and innovative pharmacy with health and wellness solutions and serve consumers across the U.S. Walgreen set out to help people get well and stay well. With constant innovations in technology and customer satisfaction, the company is expected to continue to soar. II. Key events that shaped the com pany Over the past century, there have been economic conditions, changes in demographics, technological advancements, and competitive pressures that Walgreens has had to face and overcome. The first major event that shaped the company was the featuring of the soda fountain in the store in 1909, which lead to the introduction of the malted milkshake that became an American icon.Although a minor triumph at the time, the milkshake attributed to the growth of the company overall. The next event to affect the company hit hard. The Great Depression was a difficult time for most businesses and many were dying out and closing. Walgreens, though vulnerable itself, was able to push through this time by implementing the value of marketing. Through smart advertising and innovations in customer service, Walgreens not only survived the depression but also was able to help by employing workers and added to its testament of always being able to adapt to the changing times.After the death of Charles Walgreen in 1939, his son took over the president position in the company. Fast-forwarding to the next significant even in 1950, when Walgreens opened its first small, self-service store. This event is representative of the innovation and move toward the future that Walgreens will continue to see. A jump to 1975 is a marker of importance as the company reached $1 billion in net sales. In 1999, Walgreens. com opened, offering a convenient shopping experience for its customers online.Today, them most influential growth strategy Walgreens has implemented is the partnership with Alliance Boots to form the world’s first pharmacy-led enterprise. The two brands coming together will position Walgreens for growth in the long-term by transforming Walgreens drug stores into a community, daily living destination while expanding across new avenues of markets and reinventing cost structures. III. Key Financial Data The financial highlights from the income statement of Walgreens Co. n 2012 include a net sales figure of $71,633 million; a decrease of 0. 8% from the previous year. Net sales combined with a cost of sales of $51,291 million lead to a gross profit of $20,342 million; again, down from the previous year by 0. 7%. A net earnings comparison shows a 21. 6 % decrease from $2,714 million in 2011 to $2,127 in 2012. Some in-store sales figures help explain some declines with a prescription sales decrease of 3. 1% and front-end sales increase of 3. 6%.These key financial figures represent a trend in diminishing profits for Walgreens in prescription drugs for the past fiscal year, but a growth in front-end sales, which is an indicator of pharmacy-related issues. IV. The drug store industry analysis As an industry that has been around since the late 19th century, the drug store is comprised of staples and pharmaceuticals retailing. History of the industry recalls the first drug store being opened in 1823 and strictly worked with pharmaceuticals under the first regist ered pharmacist. As the tores became more popular and customers’ needs grew for different products, the industry transitioned into including staple items. Today, the average retail products include (but not limited to): prescriptions, food, cosmetics, toiletries, and tobacco products, but dominate in the pharmaceutical department that holds the highest profit. Chain drug stores currently possess the greatest market share in the industry when compared to independent stores and the majority are incorporated at 76% of all drug store firms. Among the top three company chains are CVS, Walgreens, and Rite Aid.This segment within the industry is highly competitive with demand growing. V. The future of drug stores With demographics changing, especially within the U. S. , the future of drug stores is expected to transform their product offerings. A shift to concentration on prescription drugs sales, as the general public grows older, will be responsible for a decline in products that are no longer demanded as staple items (ex. beauty aids and fragrances). A growing trend seen in the current market is self-diagnosis and self-treatment along with the addition of generic drug sales.Customers are being offered a generic drug alternative for a lower price and are becoming more inclined to self-treating without the help of a pharmacist. Another movement towards the future includes implementing advancements in technology. Many stores currently use self-serve checkouts and photo printing booths. Advancements in electronic prescription filling and ordering refills online are playing a big role in development. Therefore, a broader depth of target market research and differentiation in product offering based on research results may be beneficial to the survival and growth of the drug store industry.VI. SWOT analysis of Walgreens Strengths and weaknesses Walgreens, as mentioned before, is one of the leading examples of success within the drug store industry. A continuous ne ed for improvement and adaptation to the changing market keeps Walgreens alert and attentive, in step with customer wants, which serves as one of its major strengths. The past 3 decades for Walgreens have been those of growth and exceeding competitive sales. The use of technology incorporated in Walgreens store operations allows the company to receive and analyze real-time sales data and customer interaction.Systems such as the POS (Point of Sale) and RFID (Radio Frequency Identification) generate up-to-date information on impact of certain store displays on sales and record marketing data needed to maximize profits. In order to serve customers more effectively, Walgreens offers convenient services online, such as photo printing and prescription call-ins. The implementation of technology as a tool for tracking data and servicing is another strength of the company. Walgreens offers a loyalty program to its customers to further improve on customer satisfaction.The reward program, call ed Balance Rewards, is a point-based system that gives discounts and coupons to customers whenever they use the loyalty card and earn points. Many ways to earn points include filling prescriptions, purchasing certain items in-store and online, using the mobile app to purchase items, and a Steps with Balance Rewards that tracks when the customer is living a healthy lifestyle. The customer can redeem his or her rewards for more coupons and discounts on future purchases. While the success of Walgreens is prevalent, weaknesses within the company prevent Walgreens from reaching perfection.A major weakness and concern for the company is opening too many stores. This may seem strange, considering the growth in demand for more stores is perceived as a positive characteristic, but cannibalizing their own market at the growing pace could lead to a mass reduction in sales and revenue by stealing customers from their current top selling stores. As Walgreens is always adapting to its market and looking for new opportunities, an important factor to look into would be limiting how many new stores they are opening and evaluating their product portfolio. Threats and opportunitiesThreats are inherent in any business. Competition would not be possible without external threats. The biggest threat to Walgreens is the rise in grocery store and supermarket discounters. Before, drug stores competed against other drug stores and pharmacies in a highly competitive market. Now, stores like Target and Kroger are offering prescription drug services and are able to do so at a discounted rate. Since these stores carry a much larger assortment of products and more SKUs than a typical drug store, they operate at lower costs and charge a cheaper price.The current economic state poses a threat to businesses everywhere. Within the drug industry, the cut from Medicaid in 2007, by $3. 6 billion, impacted many pharmacies and affected the sales of generic drugs in the U. S. Today, uncertainty around the long-term viability of the Affordable Care Act is threatening the insurance industry, or at least the affordability of coverage. Currently, about half of the states in the U. S. are refusing to participate in the new insurance exchange program, which is driving insurance rates up drastically.Moving away from the challenges of business, opportunities also present themselves within the industry. One opportunity that Walgreens may be looking into is how to market more towards the generation it has been growing with: the baby boomers. This market is the general population that is now getting older and has the most experience with Walgreens. As this generation ages, their needs change and require different products. More prescriptions for aging health issues need to be filled and less beauty supplies are being purchased, for example.The opportunity to transition and focus on this particular market could benefit Walgreens’s sales. Further prospects for Walgreens includes going global. International business opportunities offer drug stores an entire new market, which if executed correctly, can be a major growth possibility. It’s easy to oversaturate a market when operated domestically, as is the case is for Walgreens in the U. S. , so expanding past our borders to different nations may be a prospective move for the company. If there was only one opportunity Walgreens should take on, it would be most important to increase the sales of non-prescription items.Although marketing towards the older generation and profiting from more prescription fills is demanded, incorporating the sales of items that people will buy, as a related product to their main purchases, will boost profit. VII. Competitor’s strengths and weaknesses Walgreens’s biggest competitor is CVS (Convenience, Value, and Service). CVS Caremark is the largest, most profitable drug store/ retailer in the U. S. Strengths CVS Caremark operates under three different retailing segm ents: the CVS pharmacy, Caremark pharmacy services, and its MinuteClinic.Under these three segments, CVS is able to offer its customers lower prices, loyalty programs, cover over two thousand healthcare plans, and operate a walk-in clinic service. Through their services, CVS is able to hold the strongest market share at almost 20% of the prescription drug market. It also has one of the largest loyalty programs for customers; more than 500 million customers who use the loyalty card through the Extra Care program. CVS has made substantial investments in technology and incorporating it into their programs.The company’s strengths have lead them to push a revenue of over $100 billion and net income of $4 billion. Weaknesses The only complaints to come from a customer’s point of view at CVS is that the store consistency varies occasionally, meaning one CVS store may be too different in product offering than another CVS store, which confuses some customers. The employee turno ver rate is also higher than ideal for a large company operating many stores, meaning focus should include keeping employees happy with more benefits. VIII. Key competition comparison SimilaritiesBoth Walgreens and CVS have loyalty programs that they use to reward customers and offer valuable customer data. Using a customer rewards program to offer coupons and discounts builds loyalty to that company’s brand and image. This incentive strategy has worked well for both companies. However, they differ in the way each one works. At CVS, when a customer purchases multiple items in one transaction, the reward points/ coupons are split amongst the items within the one transaction. The customer receives more incentive with each purchase whereas at Walgreens, the reward is based on the number of transactions only.A customer can purchase the same number of items in each store, but receive more reward points/ coupons at CVS. Differences When compared to CVS, Walgreens carries more of a â€Å"mom and pop† store reputation, which benefits their image. The company’s stores are all linked, making it easier for customers to get prescriptions filled at any Walgreen store, which is an advantage over CVS. Walgreens also offers prescription labels and in-store advertising in other languages and is open 24 hours in many locations across the U. S. , another incentive that CVS does not offer.These distinctive traits represent Walgreens’s commitment to pleasing its customer and fulfilling needs. CVS is differentiated from Walgreens through store layout and product offering. CVS stores are known to be larger and customer more customer-friendly in space and appearance than Walgreens. CVS has also brought in more net revenue, over $100 billion as compared to Walgreens at $75 billion, leading by about $25 billion. As mentioned earlier, Walgreens has seen a diminishing performance, financially, while CVS is rising. IX.Recommendations The first recommendation fo r Walgreens to move towards better sales and profits in the future would be to capitalize on the baby boomer generation. As explained before, this would require readjusting the marketing platform to appeal to more prescription sales and aging health products. This strategy has potential for short-term and long-term growth. The second recommendation would be to become aware of cannibalizing its own market. This strategy would lessen the investments in real estate space being made currently.Instead of opening more and more new stores each year, the company should focus on evaluating and expanding the current services in each existing store. Innovations in store layouts and product differentiation in the existing stores may help individual store sales and not oversaturate the market with too much of the same thing. The final recommendation for Walgreens is to enhance its customer service through the convenience factor. Developing more online services will help also help the aging gener ation as it becomes more difficult for them to get in a car and drive to a brick-and-mortar store.This kind of innovation is what customers like to see in businesses and the company will be benefiting from the multichannel strategy. X. References CVS Caremark |. (n. d. ). CVS Caremark |. Retrieved April 7, 2013, from http://info. cvscaremark. com/ Page Through Our Past: Page 4 | Our History | Walgreens. (n. d. ). Welcome to Walgreens – Your Home for Prescriptions, Photos and Health Information. Retrieved April 7, 2013, from http://www. walgreens. com/marketing/about/history/hist4. jsp