Wasson: Walgreens executing on core strategies

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Walgreens chief executive Greg Wasson said the drug chain is making steady progress in implementing the company's plans to better leverage its vast store network, improve the shopping experience and bolster productivity.

According to the retailer, the customer response to its new Customer-Centric Retailing (CCR) store format is positive. Plans call for thousands more stores to be converted to the format by next fall.


DEERFIELD, Ill. — Greg Wasson, president and chief executive officer of Walgreen Co., said the drug chain is making steady progress in implementing the company’s plans to better leverage its vast store network, improve the shopping experience and bolster productivity.

One of those strategies involves turning the spotlight on Walgreens pharmacists as convenient and affordable providers of health care. Furthering that goal was the company’s flu shot program, which launched Sept. 1 — a month earlier than last year — and was the largest flu vaccination campaign in the chain’s history.

As of the end of November, Walgreens administered more than 5 million shots, compared with 1.2 million in the entire previous flu season. The retailer said the program drew many new patients to Walgreens pharmacies, as two-thirds of flu shot recipients hadn’t filled a prescription at the chain in the last six months.

"Our seasonal flu shot program was one of the best-executed initiatives in my 30 years at Walgreens," Wasson said in a statement when the company reported fiscal 2010 first-quarter results. "We see big opportunities to deliver preventive services, including pharmacist-delivered immunizations and vaccinations, as we continue to expand our capabilities in this area.

"It’s a great illustration of the accessibility of our pharmacists on the front lines of health care," he added.

Walgreens also finished rolling out its Customer-Centric Retailing (CCR) format in 400 stores in Texas during the first quarter and said that the customer response to the effort has been positive.

The initiative is aimed at enhancing the overall shopping experience, increasing the number of customer visits and basket size, and improving product choices without cluttering stores, as well as strengthening consumers’ value perception, stepping up promotional efficacy, driving costs out of store operations and bolstering supplier relations.

The retailer said it’s adding its new beer and wine selection to most stores and now has nearly 1,600 stores with the products. Expanding that category to most stores is another step toward making Walgreens a destination retailer, the company noted.

Walgreens also launched its new brand campaign, "Walgreens. There’s A Way," in September, followed by the relaunch of Walgreens.com with a variety of new healthy living and product resources, along with simplified shopping tools and services.

And in its first quarter report, Walgreens said its Rewiring for Growth strategy is on course to yield $1 billion in pretax cost savings beginning in fiscal 2011.

"We approach the coming year confident in our strategies and cautious about the economy," Wasson commented. "Despite ongoing economic challenges, our strong balance sheet and unparalleled network of locations and services position us for continued growth. We’ll continue to execute our strategies in order to drive sales, accelerate earnings and deliver strong cash flow."

The company said it opened or acquired 172 new drug stores during the first quarter, a net gain of 150 after relocations and closings, compared with 212 new stores (a net gain of 187), a year earlier. Walgreens said its deal to acquire 12 Eaton Apothecary pharmacies in the Boston area from D.A.W. Inc., announced in October, is slated to close in January.

Walgreens said it expects organic store growth of between 4.5% and 5% in fiscal 2010 and between 2.5% and 3% annually beginning in 2011. As of November 30, the chain operated 7,147 drug stores in 50 states and the District of Columbia.

In a research note on Walgreens’ first quarter, analyst Bill Dreher of Deutsche Bank Securities said the jury is still out on the sales impact of CCR.

"The CCR initiative is currently in 400 stores, but it is too early to tell if it is helping or hurting sales," he wrote. "We will continue to look to receive data surrounding the benefit for this program."

Dreher noted that Walgreens expects to switch roughly 3,000 stores to the CCR format by the end of next fall at an average cost of $30,000 to $50,000 per store. "However, management is pushing back the rollout a few weeks to the beginning of March, in order to include their new store decor package in all of the new rollouts," he said, adding that the addition of beer and wine is "providing another reason to shop at the stores."

The payoff from Rewiring for Growth and CCR should start to become more noticeable a bit farther down the road, according to Dreher.

"We anticipate that Walgreens will see improving operating margins in fiscal 2010 and fiscal 2011, as the costs associated with the Rewiring for Growth and CCR initiatives are outweighed by the savings," he wrote. "As the economy improves next year, we anticipate that the front-end mix, which has been a bit of a headwind to gross margins, could normalize or even become a tailwind next year."


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