Walgreen Company

views updated

Walgreen Company

also known as: walgreens

founded: 1901

Contact Information:

headquarters: 200 wilmot rd.
deerfield, il 60015 phone: (847)940-2500 fax: (847)914-2804 toll free: (800)289-2273 url: http://www.walgreens.com

OVERVIEW

Walgreen leads the chain drug store industry in the United States in sales, profits, store expansion, and use of technology. The company dispenses more prescriptions than any other retailer in the United States. Fortune magazine has named Walgreen "one of the most admired corporations in America" for five consecutive years. Walgreen has more than 2,400 stores, 900 of which have drive-through prescription service. More than half of the company's drug stores are freestanding (as opposed to being located in strip malls or indoor shopping malls). The company has stores in 34 states across the United States and in Puerto Rico. The states with the heaviest concentration of Walgreen stores include Florida, Illinois, Texas, California, Arizona, Wisconsin, Indiana, Tennessee, and Massachusetts. Walgreen opens about 200 stores annually and has been expanding in many territories. In 1997 the company opened 251 new stores, both in new markets and existing ones and planned to open 280 more in 1998 and 1999. Some of its newer markets include Dallas/Fort Worth, Texas; Philadelphia, Pennsylvania; Richmond, Virginia; Las Vegas, Nevada; Portland, Oregon; and Springfield, Missouri. In Dallas, Walgreen planned to open about 100 new stores over a 10-year period. Nationwide, it hopes to have 3,000 stores operating by the year 2000. Walgreens has also developed new marketing and service plans including automated prescriptions, newspaper inserts, and pharmacy benefit management programs. In January 1998 Charles R. Walgreen III handed the CEO reins over to president L. Daniel Jorndt, the first non-family member to head the company. Charles Walgreen will continue to serve as chairman.

COMPANY FINANCES

In fiscal 1997 the Walgreen Co. had its twenty-third consecutive year of sales and profit increases. The company posted net earnings of $436 million on sales of $13.36 billion in 1997, compared with profit of $372 million on sales of $11.78 billion in fiscal 1996. In fiscal 1995, the company reported net income of $321 million on sales of $10.40 billion, compared with a net of $282 million on sales of $9.24 billion in fiscal 1994. According to Walgreen CEO Daniel J. Jorndt, almost half of the company's 1997 sales came from prescription drug sales.

ANALYSTS' OPINIONS

The Walgreen Co. is one of the most respected companies in the United States, known for its strong earnings record and spectacular expansion over the last 20 years, as well as for its management and customer service innovations, such as its drive-through window pharmacy service. And by all accounts, the company's expansion rate and earnings should continue to chalk up new records. According to a company spokesman, Walgreen plans to have 3,000 stores operating by the year 2000. Referring to its profits record, Dan Poole, vice president and analyst with First of Michigan Corp. in Detroit, was quoted in a September 1997 issue of The Kansas City Star as saying: "I don't see the earning and sales trend changing anytime soon for this wonderfully managed company." Commenting on the increasing importance of customer service in the industry, Derek Leckow, an investment analyst at Barrington Research Associates Inc., told Computerworld: "Pharmacies don't compete on price, because customers typically get reimbursed (by health maintenance organizations) for prescriptions." Service, in other words, is becoming more crucial. Referring to Walgreen, Leckow believes that its "technological innovations" (such as the company's dial-in prescription network) allow its pharmacists more time to give customers better individualized service. Leckow also mentioned the company's "consistent store layout" as helping it compete for the industry's top spot. Other factors analysts contend are fueling the company's expansion are the aging of the baby boomers and the pharmacy industry's preference to negotiate drug pricing and health plan reimbursement with the chain drug stores rather than the independent pharmacies. Another factor is the trend among drug stores, like Walgreen, to attract a wider clientele by offering more nonprescription, convenience items. Because of these trends, drugstore stocks are expected to "outperform the market in 1998," according to The Value Line Investment Survey.

HISTORY

Charles Walgreen started his first drugstore in Chicago in 1901, financing the venture with a $2,000 loan from his father. By 1909 he was ready to open a second store and sold half of his first store to finance it. The second store served lunch and was equipped with a soda fountain. By 1916 Charles Walgreen had nine stores, and Walgreen Co. became the corporate name for the fledgling chain of drugstores. During the 1920s, Walgreen Co. grew rapidly, from 20 stores in Chicago early in the decade to 397 stores in 87 cities by 1929. In 1927 the company was first listed on the New York Stock Exchange. Despite the Great Depression in the 1930s, Walgreen flourished. The company concentrated on efficiency to keep costs down. Walgreen fared worse during World War II when stores with slow sales were forced to shut down.

Retailing changed after the war when self-service merchandising became the trend. Walgreen opened its first self-serve store in 1952, becoming an early leader in this self-service concept. By 1953 Walgreen had 22 self-serve stores, more than any other chain in the industry. Self-service stores did so well that the small, older stores were replaced with larger, self-service establishments. Walgreen purchased three Globe discount department stores in 1962 and expanded them to 13 stores by 1966. The stores did well at first but were closed by 1973. In the 1960s, soda fountains were removed from the stores due to their lack of popularity. Walgreen continued to expand rapidly throughout the 1970s, and by 1980 it became the first drug store company with annual sales exceeding $1 billion.

STRATEGY

Walgreen has been able to maintain its edge over the competition because of its efforts to stay ahead of trends. A large part of its strategy has been to be the most convenient health care provider in the United States. To achieve this goal it has developed state-of-the-art information systems that keep it at the forefront of technological innovation. Walgreen uses its technology to lower costs and improve customer service. For example, its Intercom Plus system is a dial-in prescription service that takes refill orders 24-hours-a-day and delivers the orders to the pharmacy. The company also offers prescription service via its web site. Another service aimed at customer convenience is its drive-through pharmacy service, which is especially convenient for the elderly and parents with small children, as it allows customers to pick up their prescriptions without leaving their cars. Some Walgreen stores even offer triple-lane drive-up windows. As another convenience to the customer, Walgreen created a toll-free number for emergency prescription delivery and refills available in some markets. Walgreen also has introduced a variety of other services, including flu shots, childhood immunizations, and blood pressure and glucose readings.

The growing importance of health maintenance organizations (HMOs) or managed care plans has forced Walgreen to establish new systems. In 1994 the Pharmacy Direct Network was created with the help of some independent drug stores. The network was designed to manage the rapidly expanding business of prescription drug management for group health plans. The company also started a subsidiary called Healthcare Plus, which targeted the large, national accounts with the capacity to handle high-volume, efficient mail service. Another key element of the Walgreen strategy has been to reinvest in its business. The company invested more than $1.2 billion from 1991 to 1996 in new and relocated stores, new systems, and distribution centers. With the organization of Health-care Plus in 1993, a $15 million distribution center was opened, and in 1995 another distribution center was opened in Woodland, California. Walgreen has been known to close unprofitable stores and rebuild new ones using the latest strategic design to attract customers. Walgreen began the free-standing store concept in 1991 when it moved into the Indianapolis market, and most stores are now freestanding and in high traffic areas. Drive-through prescription windows have been installed whenever possible. The costs to locate stores in prime business areas are high, but the company finds that the benefits outweigh the costs. Walgreen's large sales volume per store allows the company to pay off its expenses quickly. Financing has never been a problem for Walgreen, and the company has almost no long-term debt. Regarding advertising, the company does so conservatively and focuses on efficiency, cost cutting, and improved in-stock conditions. The company has found that the more convenient its stores are, the less it needs to advertise.

FAST FACTS: About Walgreen Company

Ownership: Walgreen Co. is a publicly owned company traded on the New York and Chicago Stock Exchanges.

Ticker symbol: WAG

Officers: Charles R. Walgreen III, Chmn., 62, 1997 base salary $1,525,000; L. Daniel Jorndt, Pres. & CEO, 56, 1997 base salary $1,117,000; Vernon A. Brunner, Exec. VP, Marketing, 57, 1997 base salary $613,323; Glenn S. Kraiss, Exec. VP Store Operations, 64, 1997 base salary $613,000

Employees: 85,000

Principal Subsidiary Companies: Walgreen's principal subsidiaries include: Walgreens Healthcare Plus; Walgreens Advance Care, Inc.; and WHP Health Initiatives, Inc.

Chief Competitors: Walgreen's principal competitors include all other large chain drug stores. Its biggest rivals include: Arbor Drugs; CVS Corporation; Eckerd; and RiteAid.

INFLUENCES

Throughout its history Walgreen has been quick to respond to the challenges of the marketplace. In 1973 a Walgreen customer survey revealed that stores were seen as "junky, disorganized, and hard to shop." In response, Walgreen began to modernize the chain, improve its store layout, and place more emphasis on health aids and pharmacies. The rise of HMOs and drug benefit plans, and the emphasis of these organizations on cost-cutting presented another challenge. While many independent drug stores have not survived, Walgreen has continued to grow. Clearly one reason is that Walgreen has sometimes agreed to handle plans that lost them money just to keep its competition from getting their business. In providing these money-losing prescription drugs, Walgreen found that customers were also purchasing profitable nonprescription items as a matter of convenience, thereby offsetting the chain's loss on the prescription drugs. HMOs have been able to dictate pricing of prescription drugs but because of Walgreen's buying power, including strong market share, geographic dispersion, and its services, the company is in a strong position to negotiate better pricing deals than its competitors, enabling it to maintain a profit.

CURRENT TRENDS

Walgreen attributes its recent growth to the overall rise in prescription drug use, the trend toward mergers within the industry, and more independent pharmacies going out of business. It is thought that another reason for its growth is the aging of the baby boomer population, which has been increasing demand for prescription drugs. Walgreen has found that people 55 and older use prescription drugs twice as much as the rest of the population as a whole. Other reasons for the trend in increased prescription drug use are the developments in new drugs and the growing consumer awareness of the importance of maintaining good health through pharmaceutical use, versus paying the high costs of hospitalization and surgery.

PRODUCTS

Walgreen has six general lines of merchandise, with prescription drugs making up about half of the company's sales. General merchandise, over-the-counter drugs, liquor and beverages, cosmetics and toiletries, and tobacco products account for the rest of Walgreen's sales. The company also has a pharmacy program called Walgreen PBM (pharmacy benefits manager). This program's services include long-term care prescriptions, durable medical equipment, and the Patient Care Center (PCC). The PCC monitors pharmaceutical use to improve quality for the patient and cut costs for managed care plans.

CHRONOLOGY: Key Dates for Walgreen Company

1901:: Charles Walgreen opens his first drugstore in Chicago, Illinois
1916:: Walgreen incorporates and Walgreen Co. becomes the corporate name for the nine-drugstore chain
1927:: Walgreen Co. goes public
1933:: Pays its first dividend; acquires a liquor license and begins selling whiskey and wine in 60 percent of its stores
1943:: A Walgreen store opens in the Pentagon in Washington, DC
1952:: The first self-service Walgreen store opens in Chicago
1962:: Walgreen purchases Globe discount department stores
1975:: Sales surpass $1 billion for the first time; the first phase of a new drug and cosmetics laboratory is completed
1981:: Walgreen buys 21 Kroger SuperX drug stores
1986:: Buys 66 Medi Mart stores in New England
1991:: The first free-standing Walgreens store opens
1993:: A $15 million drug distribution center is created to work with the new Healthcare Plus system of health care
1994:: Walgreen opens its two thousandth store

CORPORATE CITIZENSHIP

In April 1998 Walgreen launched its "Hope Blooms with You" program, to "raise awareness and funding for breast cancer research." All Walgreen stores will participate, and the money raised from this program will go to the American Cancer Society for breast cancer research and educational programs. The program involves selling paper blossoms in the stores and then displaying them with the donors' names on them "signifying his or her personal commitment to bringing about the end of breast cancer." The company also sent out circulars to 35 million homes announcing the program.

GLOBAL PRESENCE

Walgreen operates more than 2,400 stores in 34 of the United States and in Puerto Rico. Global expansion has not yet been planned.

SOURCES OF INFORMATION

Bibliography

Bedford, Melissa. "Walgreen Looks to Expansion to Fill Boomers'Needs." The Kansas City Star, 14 September 1997.

Block, Todd Gutner. "We Need You, You Need Us." Forbes, 8 May 1995.

Breu, Joseph. "Changing of the Guard: Walgreen's New CEO Expects to Turn the Tide in Rx Business." Drug Topics, 2 February 1998.

Hoffman, Thomas. "Walgreen Heals Prescription Net." Computerworld, 20 April 1998.

Levenson, Maurice. "Drugstore Industry (Part 3-Ratings & Reports)." The Value Line Investment Survey, 10 April 1998.

Radice, Carol. "Focus on Pharmacy: Retailers Have Seized the Opportunity Presented by Pharmacy by Offering More Services and Features." Progressive Grocer, July 1996.

Shieder, Dan. "Prescription Calls for Pain: Eckerd Corp., Walgreen Co. Drawing Up Aggressive Strategies to Knock Each Other Out." Dallas Business Journal, 12 July 1996.

"Walgreen and American Cancer Society Launch Hope Blooms with You Program to Fight Breast Cancer." PR Newswire, 30 April 1998.