Inside This Issue - Opinion
Alliance Boots begins where other companies leave off
June 25th, 2012
by David Pinto
Quickly now, who is the most innovative, enlightened and successful drug retailing/wholesaling executive on the planet?
Is it a) Larry Merlo, b) Greg Wasson, c) John Standley or d) Stefano Pessina. If you answered d), you clearly know your way around the retail and wholesale drug business. If you’ve never heard of d), your education needs refreshing.
Stefano Pessina heads Alliance Boots, the world’s dominant retail/wholesale drug company. Alliance Boots is a sprawling United Kingdom-based retail and wholesale business that stretches across three continents.
The company’s revenue in the fiscal year that ended last March advanced some 18%, to 23 billion pounds ($36 billion), while underlying profit (after taxes) rose 10.2% to 693 million pounds ($1.10 billion).
The company operates some 3,300 drug stores in 10 countries across Europe, the Middle East and Asia. Last year they generated over 7.6 billion pounds in combined sales. The majority — some 2,500 — operate in the U.K. under the Boots banner. Additionally, Boots operates 154 drug stores in Norway, 71 in the Republic of Ireland, 72 in the Netherlands and over 200 in Thailand, all under the Boots logo. They combine to make Boots the largest drug store operator outside the United States.
But the company’s retail unit pales in size beside its wholesale operations, which trade under the Alliance Healthcare b2b flag. Indeed, wholesaling is Alliance Boots’ major business, if the company can be said to have one major business. Last year the company’s wholesaling unit generated almost 17 billion pounds in revenue, a 28% increase.
What makes drug wholesaling so important at Alliance Boots is not the size of its business, however, but the extent of its reach. Specifically, the company’s wholesaling operations stretch across 21 countries in Europe, the Middle East and Asia. More specifically, it recorded sales of almost 4.5 billion pounds in France last year, over 3.7 billion pounds in Germany and over 3 billion pounds in the U.K. Its wholesaling volume topped 1.6 billion pounds in Turkey and exceeded 1.2 billion pounds in Spain. Its joint venture in China is one of that country’s fastest-growing wholesale businesses.
In total, Alliance Boots’ wholesaling division recorded a profit of more than 414 million pounds last year on a 28% increase.
Importantly, Alliance Boots is not a wholesaler in the traditional sense, at least not the way drug wholesaling is defined and viewed in this country. At Alliance Boots, wholesaling is service-based. As such, it offers its independent pharmacy customers such value-added services as branding packages, professional training, patient care advice, and retail and IT support services, all packaged under a membership program called Alphega Pharmacy.
At present, Alphega Pharmacy counts as members more than 4,400 pharmacies in six countries. In addition, there are over 1,000 members of vivesco, the independent pharmacy network of Anzag, Alliance Boots’ business in Germany.
But even recounting Alliance Boots’ success in drug store retailing and wholesaling doesn’t begin to do either the company or its chief executive justice. Pessina’s perspective and business model are global and multi-branded. As an example, there’s the Boots brand, a catalogue of health and beauty labels across a range of product categories. Foremost among them is No. 7, the company’s beauty brand, which is the market leader in the U.K. and a significant brand across the globe.
In the U.S., No. 7 is sold in some 1,750 Target stores, many of which feature a Boots beauty advisor, as well as in over 400 Ulta stores, and online at Walgreens’ drugstore.com unit, at ulta.com and through ShopBootsUSA.com, the company’s consumer website. In total, the company’s beauty brands produced over $100 million in revenue in the U.S. last year.
Similarly, Boots’ health care offer is the U.K.’s dominant brand, combining extensive assortments with innovative new products. Earlier this year the company launched the Shapers food range, an offering it intends to roll out to customers around the globe.
Most significant in all this is the fact that Alliance Boots remains a work in progress, but one where the ultimate objective is world leadership in drug retailing, wholesaling and branding. To that end, the company is working simultaneously to grow each of its businesses. Some examples:
• Alliance Boots is aggressively marketing a range of generic medicines under the Almus brand and a line of patient care products sold under the Alvita name, both of which are generating strong sales increases in the various markets that the company serves.
• To broaden the distribution of its Boots brands in Europe, Alliance Boots is collaborating with Procter & Gamble Co., utilizing P&G’s marketing and distribution skills to gain distribution for the Boots beauty brands in independent drug stores in those European countries where Boots does not yet have a major presence.
• The company is dramatically expanding the customer services it offers through its Boots drug stores in the U.K. In the England and Wales, where the duties of pharmacists have been expanded to allow them to monitor a range of medical conditions, Boots pharmacists carried out over 760,000 medicine “check-ups” last year, many designed to improve patient compliance with newly prescribed medication. Additionally, the company has installed physicians in 14 Boots stores in the U.K., while introducing a travel health service in 11 Boots stores designed to prepare customers for the requirements of travel to specific countries. Finally, some 95% of all Boots pharmacies now incorporate private consultation facilities.
• Boots is in the retail optical business with over 600 Boots Opticians units now open. Its loyalty program, with some 18 million members, is among the most valued in England. Its online business, though accounting for just 4% of sales, is growing rapidly, and its “order online and collect in store” program, available in nearly all U.K. Boots stores, has succeeded in encouraging some 45% of online customers to collect their merchandise at the store.
The list goes on. To put these efforts into perspective, it’s clear that Alliance Boots begins where other drug retailers and wholesalers end.
Equally obvious, Stefano Pessina is truly a visionary, if indeed that word retains any meaning in a business environment in which most practitioners can afford to look no further than their next earnings statement.
Should Pessina remain firmly focused on the future while effectively and creatively managing the present — as we believe he will — the day will dawn before this decade is out when Alliance Boots becomes the largest and most important drug retailing and wholesaling company in the world — a world that will certainly include the United States of America.