Walgreens shares vision for 2013 and beyond

CHICAGO — "[The year] 2012 was definitely an important year for Walgreens," Greg Wasson, Walgreens president and CEO, told shareholders here, at the Navy Pier, Wednesday afternoon, at the chain's annual shareholder meeting. "We did make some tough choices to protect and solidify … our position for the long term," he said. "[But] our vision is crystal clear to become the first choice for health and daily living in America."

At this time last year, the primary focus for Walgreens executives at the chain's annual shareholder meeting was justifying the decision to walk away from Express Scripts pharmacy network. What a difference a year makes.

"We did make some tough choices to product and solidify … our position for the long term," Wasson said. "[But] try to put last year in a little bit of context," Wasson said. Because even with that negative, short term impact, Wasson noted, Walgreens filled 784 million prescriptions last year. The company administered more than 6.5 million immunizations. The company opened more than 400 Wellness Experience stores and made substantial acquisitions like USA Drug, Crescent Pharmacy and BioScrip. And more than 50 million customers enrolled in Walgreens' Balance Rewards loyalty program — "that far exceeds our expectations of where we would be at this time," Wasson said.

And Walgreens acquired a 45% stake in Alliance Boots in a move that will catapult the Chicagoland retailer onto the global stage.

Looking toward 2013, Wasson acknowledged a number of headwinds that continue to face not only Walgreens, but all of retail. "Certainly we have a continuing tough economic climate," Wasson said. "As a result of that we certainly have tougher competition," he added. "We're seeing new competition emerge [outside of the drug channel] that we have to recognize and anticipate."

But there is significant opportunity as well. "Regarding Walgreens specifically, many of last year's headwinds are indeed this year's tailwinds," Wasson said. "Last year we exited the Express Scripts network; this year we have a multi-year agreement," he said. The company has cycled through a complete overhaul of its private label offerings, he added. And, by March, Walgreens will have cycled through a change in the company's promotional strategy — a strategy that incorporates more of the new media that shoppers are engaging. "[And] last year we were America's largest pharmacy chain," Wasson said. "This year we are well positioned to be the world's largest pharmacy and health and wellbeing company."

Wasson identified three focal points for 2013 that will help Walgreens reach its primary healthcare goals for the more than 2,000 shareholders gathered for the company's annual shareholder meeting. "We are combining leading-edge design with enhanced products and services, increased engagement with team members and customers and an omni-channel approach that blends our brick-and-mortar stores with e-commerce and mobile commerce," Wasson stated. "We are deliberately blurring many retail channels to fit how consumers shop today."

The focal points Walgreens will be bringing to bear in blurring those channels include further expansion of its Well Experience stores — now numbered at more than 400 — advancing the role of community pharmacy and realizing synergies from the Alliance Boots deal. All of that feeds into Walgreens' big picture plan for its pharmacy operation — enhance the core pharmacy business, expand beyond that core business into new services and evolve the traditional business model to become a partner for doctors, health plans and health systems.

"Our goal … is to step completely out of the drug channel as it exists today and [create] something new and unique," Wasson said.

The most significant move in 2012 was the 45% stake Walgreens took in Alliance Boots, with the option to acquire the remainder 55% stake over the next three years. To characterize this as a retail pharmacy game changer is a bit of an understatement, because it creates an entirely new field of play.

And the Alliance Boots deal is not just the expansion of the U.S. retail pharmacy pedigree into the global arena. When it's all said and done, Walgreens/Alliance Boots will manifest as the single largest purchaser of pharmaceuticals worldwide with core competencies that extend far beyond traditional retail pharmacy business models. "The one big difference is the integrated wholesaler business that Alliance Boots brings to the table," Wasson said. "Together we're going into growing markets. Between the U.S. and Europe there are nearly one billion people [approaching retirement age]," Wasson noted. The new company also is well positioned to grow into emerging markets like China, South America and India, Wasson added.

Of course, stateside Walgreens had already been moving in that direction — redefining the revenue streams that feed a national drug store chain. Walgreens in the past year has acquired both Crescent Pharmacy and BioScrip which afforded the Chicago retailer a greater presence in infusion pharmacy and specialty pharmacy, respectively.

Walgreens is also changing the perception of what it means to be a national drug store chain at the street level.

Through fiscal 2012, Walgreens opened more than 400 Well Experience locations as well as several flagship locations that Wasson characterized as "Wellness Experience stores on steroids" The stores feature Wagreens' new bridge pharmacy design, which puts the pharmacist in front of the counter and closer to the patient. Many of the locations feature a Take Care Health clinic to satisfy acute care and diagnostic needs. "We believe if the pharmacist and nurse practitioners are allowed to practice at the top of their profession, our community pharmacies can provide a higher level of [community] healthcare services," Wasson said. "Our product used to be dispensing pills safely and efficiently. Today and going forward our product is an improved [healthcare] outcome," he added.

Across the front-end, Walgreens' substantial investment in private brands, including DeLish and the value brand Nice!, have led to a 200 basis point increase in private brand penetration year-over-year to 22%. And the chain has enhanced beauty departments that now include an array of niche and prestige brand not found in traditional drug stores, including the introduction of Boots No7.

Beyond the in-store experience, Walgreens is meeting the customer where she wants to shop, which more and more is on her iPhone. Walgreens' multichannel offerings today include transfer by scan and text refills, QuickPrints for mobile phone photos, a shopping app with in-store navigation tools to make finding product easy and special coupon events through social media outlets like FourSquare. Walgreens in 2012 opened a 50,000 square foot e-commerce distribution facility to support its Walgreens.com and drustore.com businesses.

Walgreens in September launched its loyalty card program Balance Rewards, and in less than three months has already signed more than 50 million card members. The program, designed by Graham Atkinson, SVP and chief marketing and customer experience officer — who came to Walgreens by way of United Airlines, where he was president of Mileage Plus — is designed to makes it easy for members to accumulate and spend points. The back-end of the program creates a big data treasure trove that will both help improve "retail compliance" as well as help dictate future marketing, merchandising and real estate decisions. And it's a platform that can be expanded to incorporate other partners.

Going forward, Walgreens is developing a business model that can serve as a turnkey model for healthcare cost reduction — an ideal partner solution for payors. For example, earlier this week Walgreens announced the opening of a worksite healthcare center that will be operated out of BMW Manufacturing's headquarters in Spartanburg, S.C. where patients will have access to services including physical exams, chronic disease management, dental, vision, physical therapy, high blood-pressure management and personalized health coaching. The center also will provide a laboratory for medical testing, digital x-rays, biometric screenings and mobile mammography scans. And an expanded full-service pharmacy will include private consultation rooms, an extensive selection of over-the-counter medications and a drive-through window.