The retailer has a vast array of developmental projects under way.

Alex Gourlay

DEERFIELD, Ill. — During its 119-year history, a spirit of innovation has always been a part of Walgreens’ DNA — from the introduction of child-resistant prescription containers to the first drive-through pharmacy. Since the retailer merged with Alliance Boots in 2014, the evaluation and deployment of new ideas has accelerated even further, and the combined company has pursued a course, both on its own and in partnership with other entities, of continual, fast-paced innovation.

Walgreens Boots Alliance has a vast array of developmental projects under way. Some, like the SAP front-end system currently being deployed, are central to the company’s future; others, including a drone delivery service launched in Christiansburg, Va., with Alphabet’s Wing Aviation LLC division, are still in a pilot stage. The motive force behind all of the initiatives to better serve customers touches every aspect of WBA’s operations and is neatly illustrated by the recent expansion of Walgreens’ collaboration with the nation’s biggest supermarket operator, Kroger Co.

The two companies last month agreed to form a joint purchasing organization called the Retail Procurement Alliance. An outgrowth of the retailers’ ongoing pilot program to enhance one-stop shopping by bringing some of their respective offerings and expertise to bear in one another’s stores, the purchasing group is intended to leverage the partners’ considerable buying power, lower acquisition costs and increase efficiencies. Equally important, says WBA co-chief operating officer Alex Gourlay, “this collaboration will enhance our ability to drive innovation for our customers to further meet their evolving needs for value and ­convenience.”

In recognition of WBA’s commitment to put new ideas to work for the millions of consumers who rely on its stores and, increasingly, its digital properties, the editors of Chain Drug Review have named the company the publication’s Innovator of the Year.

Gourlay asserts that WBA’s strategic focus on what comes next in retailing and health care is the right response to changing views of the drug store’s role in the marketplace. Like other members of the trade class, the company is grappling with shifting consumer perceptions and preferences, driven, in large part, by the growth of e-commerce and the ubiquity of digital devices.

“Customers are telling us two things about the traditional drug store model,” explains Gourlay. “They say there are more convenient ways of receiving products today, and convenience has always been a key driver of our business. And because convenience is such a big part of the value proposition — the combination of assortment, price, expertise and speed — many consumers think drug stores everywhere can do more to enhance the customer experience.”

Members of WBA’s leadership team, headed by vice chairman and chief executive officer Stefano Pessina, are always listening. They have responded by reexamining the way the company goes about meeting the needs of consumers.

“A big part of our core strategy is to make Walgreens the most loved pharmacy, health, wellness and beauty retailer in America,” Gourlay notes. “That’s not an easy thing to do, so we have to always think about what it takes to create that bond with customers.”

That orientation has prompted the company to concentrate on three areas it believes are most important to its customers — value, including the pivotal component of convenience; expertise in the core categories of health, beauty and photo; and merchandise curation and the related challenge of making the shopping experience easy and enjoyable. Gourlay says those are the fundamental areas that WBA is innovating against.

In pursuit of that goal the company has in recent years brought a number of innovations to its stores. FedEx shipping services are now available at most of Walgreens’ 9,200 locations; already in place at some outlets, LabCorp diagnostic facilities will be rolled out to 600 Walgreens by 2022; and Birchbox beauty experiences are open in stores in a handful of major cities.

Walgreens has been busy during the last few months. On top of establishing the joint purchasing organization with Kroger, the retailer has struck deals that will bring health clinics operated by hospital systems and physicians groups into its stores. It also paved the way for UnitedHealthcare to launch Medicare service centers for the health insurer’s members in five metropolitan areas, and established a partnership with Centene Corp. and RxAdvance to launch an innovative pharmacy management model aimed at improving transparency, enhancing outcomes and lowering costs.

Reflected in many of the initiatives is WBA’s intention to transform its drug stores into neighborhood health care destinations. Unlike some of its competitors, the company is pursuing that objective through a reliance on partnerships and an agnostic approach to other providers and third-party payers.

“It’s not the easiest strategy to execute,” Gourlay says, “but we think, in the end, it will be best for our customers and communities. It goes back to the curation of products and expertise. If you see a health destination with a local doctor, a local health system, and a Walgreens range of products and pharmacy services, which are key to your primary health care, along with our pickup and delivery solutions, it’s a much more attractive proposition than doing it all yourself.”

Along with evolving its drug stores, WBA is changing the way it interacts with patients and customers. In what may prove to be the most consequential partnership of all, WBA joined forces with Microsoft at the start of 2019. The seven-year agreement with one of the world’s top technology companies will, among other things, make digital tools the first point of contact for consumers seeking to access Walgreens’ offerings.

“Physical and digital have to be integrated,” says Vish Sankaran, chief innovation officer at WBA. “We have to define solutions that customers can get wherever, whenever, however they need them. That is the underlying theme of a modern retailer.

“To find out what the customer wants, we intend to learn fast, adjust quickly and move on if necessary, so we can make course corrections and deliver what the customer is expecting, rather than doing this Big Bang every couple of years, and then discover, ‘Oh, gosh, that’s not what the customer expected.’ So we’re applying that rapid pace and working differently throughout the company.”

The challenge WBA faces, according to Sankaran, is how to reorient a huge organization away from the traditional retailing model toward the emerging omnichannel paradigm.

“The way we organize our thinking is across what we call horizons,” he explains.  “In order to become what the customer expects of any retailer today, we need to bring in modern technology that produces three primary outcomes: It has to lower the total cost of ownership throughout the company, because traditional retailing is a very complex, expensive process. We also have to bring down the unit cost of the goods and services we take to market, because it’s not enough to just  deliver the best experience.

“And we have to rely on heavy automation to allow our most skilled professionals, like the pharmacist, to perform at the top of their license. Rather than just filling prescriptions, automation will let them move more into the space of personalized care delivery, care coordination and take advantage of the unmatched touchpoints we have with the patient.”

Partnerships with Microsoft, which will shift all of WBA’s operations to its Azure cloud computing platform; Verily, Alphabet’s health sciences unit; and others have put that process on the fast track. The modernized technological infrastructure that is quickly taking shape will give WBA a strong foundation for transforming other parts of its business.

“Next we need to evaluate how do we become a modern retailer in the areas of value, experience and convenience for the customer,” notes Sankaran. “An important aspect of shifting from the traditional retail model into the new world is moving from transactions to relationships. So WBA curates a relationship with you; then we create a long-term plan with you, which involves understanding your needs and preferences. In short, personalization.

“The final step is about creating a customer-centric health care ecosystem in the United States. That is a bigger bet for us. That requires stepping back and working with other health care stakeholders to look at pain points in the system, from a patient experience perspective but also reexamining cost structures, the value structures, quality of care and access to care. Walgreens pharmacies are within five miles of more than 75% of the U.S. population, so, together with our partners, we have to think strategically about how we use that accessibility as we create next-generation solutions and services. How do you make the process easy, seamless for customers?”

Even as WBA moves aggressively to harness the power of cutting-edge technology, the Walgreens drug store is being reimagined.

“We believe the intersection of the physical and the digital is very, very powerful, and helps make our stores compelling,” says Richard Ashworth, Walgreens president of operations. “The health care and retail experience only in the digital sense or, in the old days, only in the physical sense is not what the patient and the consumer is looking for. They don’t think of it one way or another, they think of it as a totality.”

The growing importance of the digital component in the customer experience will, however, necessitate changes in what’s on offer in the physical store. WBA is not only testing new products and third-party services within the stores, it is experimenting with the format itself. To cite two prominent examples, the company in April 2018 launched a pilot program in the Gainesville, Fla., market that embodied radical new approaches to pricing; promotions; product assortment, including a substantial reduction in inventory; and services. More recently it rolled out small, apothecary-style stores in areas not suitable for a full-scale Walgreens outlet.

“My view is that the drug store channel needs to double down on deeper customer connections and experience,” Ashworth notes. “A big part of that is the value story; prices have to come down in the drug store channel, no doubt. The way you do that is by specializing in certain categories. For us, that means health, personal care and beauty, as well as the convenience side of our business, which is still very substantial, but will become less so over time. Along with that comes expertise, whether it’s delivered by the pharmacist or the beauty consultant, wrapped around the Walgreens brand. Those are areas where an online player or brick-and-mortar retailer in another trade class wouldn’t have the right to win.

“The drug store channel in general has been pretty homogenic. As a category, we’ve generally had a 15,000-square-foot box and that’s been pretty consistent. Over the next few years, there will be different manifestations of Walgreens, where we work with suppliers to reframe the number of SKUs and categories that we carry and the layout of the stores.”

Amid the whirl of activity at WBA it may be difficult for casual observers to see where the company is headed. But Gourlay makes it clear that management is unified in he pursuit of a well-defined strategy: “We’re focused on being more efficient, more innovative, developing better customer solutions, and making even better use of our drug stores than we do today. The keys are getting the value right, getting the curation right, and getting more of our people to spend time giving human kindness to customers.

“We’re not short of ideas, nor are we short of focus — which is utterly and completely centered on the customer.”