Question

Is Walgreens’ rapid growth strategy realistic? Why or why not?

How will changes in U.S. health care policy affect Walgreens? Explain.

Case 2: Walgreens

Walgreens was founded in 1901 and incorporated in 1909 in Chicago. Like other drugstores in the early 20th century, Walgreens emphasized a soda fountain and a lunch counter. By 1929, the firm had amassed 394 stores and $47 million in revenues. By the 1950s, Walgreens had begun a shift to self-service stores, but rapid growth did not occur until the late 1970s and early 1980s. Walgreens passed the 1,000-store milestone in 1984 and continued to grow steadily.

Today, Walgreens is the leading drugstore chain in the United States, operating almost 8,000 stores throughout the United States, Guam, and Puerto Rico. The firm also operates two mail service facilities and 13 distribution centers throughout the country.

Prescriptions account for about 65% of company sales, with the rest coming from OTC medications, cosmetics, toiletries, photo processing, and grocery items. Approximately 90% of prescriptions are paid by insurance companies or other third parties. Most stores offer drive-thru pharmacies and almost all offer in-store photo processing. Walgreens’ closest rival is CVS, although competition from pharmacies in grocery stores and discount retailers such as Wal-Mart has intensified.

More consumers are using health insurance to pay for prescription drugs. Retailers receive the same payment from insurers for a given drug and consumers pay the same co-pay regardless of pharmacy. As a result, convenience appears to have replaced price as the most important factor in the pharmacy side of the business. In this regard, “convenience” includes such factors as the acceptance of a given insurance plan, store hours, waiting periods, options for telephone and Internet refills, and the availability of grocery or other items that a consumer might wish to purchase while picking up a prescription.

Walgreens has responded to this emphasis on convenience by developing highly visible and accessible freestanding stores in high-traffic locations. Many of the stores are open 24 hours a day. As such, Walgreens continues to emphasize building new stores rather than acquiring them from smaller rivals.

Walgreens has benefited from constant increases in U.S. expenditures on prescription drugs, a trend that is projected to continue well into the future. The effects of the Patient Protection and Affordable Care Act of 2010 (and any subsequent revisions) on Walgreens remain unclear.

Answer 1