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A SWOT Analysis of Walgreens in the Competitive Pharmacy Marketplace Katy Mullis 2 Table of Contents Page Contact Information.............................................................................................................3 I. Walgreens Overview ........................................................................................................4 II. Strengths.........................................................................................................................5 III. Weaknesses ....................................................................................................................7 IV. Opportunities .................................................................................................................9 V. Threats..........................................................................................................................11 VI. Recommendations........................................................................................................13 VII. Sources .......................................................................................................................14 3 Contact Information Katy Mullis 29724 Main St. Shedd, OR 97377 Phone: 541-231-4392 mullisk@onid.orst.edu Dr. Minjeong Kim College of Health and Human Sciences Oregon State University 219 Milam Hall Corvallis, OR 97331-5101 Phone: 541-737-3468 Minjeong.Kim@oregonstate.edu 4 I. Overview Established over a century ago, Walgreens has since grown into a national corporation with over 5,000 stores (Walgreens Corporation, 2006d). America's top selling drugstore, ahead of competitors CVS and Rite Aid, Walgreens serves 4 million customers daily and fills 490 million prescriptions every year (Walgreens Corporation, 2006a). Priding itself on innovation and technology, Walgreens was the first drug store chain to use child resistant prescription containers and the first drugstore chain to use satellite technology to connect its pharmacy systems (Walgreens Corporation, 2006b). Walgreens first began in Chicago in 1901 when pharmacist Charles R. Walgreen purchased a drugstore where he had once worked. A second store opened in 1909, and seven years later nine stores were incorporated to form Walgreens Corporation. Walgreens Co. became a public corporation in 1927, and by 1953 it was the country's leading self-service retailer (Walgreens Corporation, 2006b). Walgreens now operates in 47 states and Puerto Rico. The company has long been committed to customer convenience, and in doing so Walgreens offers items and services beyond those of a typical drugstore. These services include drive-thru pharmacies and one-hour photo services, and many stores are open 24 hours a day. Walgreens has traditionally followed an organic growth strategy in order to expand. More recently, however, it has grown through the acquisition of companies such as the northeast chain Happy Harry's and Mermark, a specialty pharmacy (Walgreens Corporation, 2006a; "Walgreen Co. reports...", 2006). The company's continual growth has resulted in consistently increasing sales and earnings. In 2005 Walgreens had sales of $47.4 billion and the company generated over $1.5 billion in earnings (Walgreens Corporation, 2006a). 5 II. Strengths As the nation’s leading drugstore in sales, earnings growth, same-store sales increases, prescription drug market share, and prescription sales per store, and first on the list of Global Most Admired Companies in the food and drugstore category, Walgreens' position as the market leader is perhaps its greatest strength (Walgreens Corporation, 2006c; Carpenter, 2004). Its next closest rival, CVS, trailed Walgreens in sales by nearly $7 billion annually and Walgreens outsells number three Rite Aid by over $30 billion (Walgreens Corporation, 2006c). The average Walgreens store fills about 256 prescriptions daily, compared to the average 100 prescriptions filled by independent pharmacies and the average 180 prescriptions filled by other chain pharmacies (Merrick, 2006). A national presence, Walgreens has established itself as a known and trusted brand name across the country. Along with the company's strong market performance, the Walgreens Corporation continually shows considerable growth. 2006 ended with Walgreens' 32nd consecutive year of record sales and earnings ("Walgreen Co. reports..., 2006). Walgreens' 2005 sales of $47.4 were a 12.5% increase over the previous year and over $1.5 billion in earnings were a 15.5% increase over the previous year (Walgreens Corporation, 2006a). Furthermore, a new Walgreens store opens approximately every 19 hours (Carpenter, 2004). Consequently, the Walgreens name carries considerable brand equity as a nationwide retailer known for quality and convenience. In fact, Walgreens has positioned itself as the drugstore offering the most convenience (Walgreens Corporation, 2006c). As such, Walgreens offers drive-thru pharmacies in over 80% of its stores, and nearly 30% of stores are open 24 hours a day (Walgreens Corporation, 2006a). The company strives to offer a merchandise mix in line with this focus, providing customers with one-stop stopping for not only prescription drugs, 6 but also over-the-counter-drugs, health care products, grocery selections, gifts, holiday and seasonal items, and one-hour photo developing (Biesada, 2006b). Walgreens is also known for its superior locations. Following an organic growth strategy has allowed the company to carefully select the locations where it opens new stores (Biesada, 2006b). On the other hand, competitors, such as CVS, have expanded mainly through acquisitions and have had to make do with the existing locations acquired of stores (Biesada, 2006a). Walgreens stores are usually stand alone locations, which has allowed the company to easily expand into 24-hour and drive-thru services in recent years (Walgreens Corporation, 2006a). These locations are definitely advantageous to the company, as some estimate that freestanding stores usually generate more than 30% more in sales than the more traditional strip center stores (Reeves, 2006). Furthermore, while other competitive strategies can usually be copied over time, locational advantages cannot. These superior locations offer Walgreens longterm sustainable competitive advantage (Levy & Weitz, 2004). As a market leader Walgreens is also committed to leading the way in innovation and technology. In 1968 Walgreens was the first to use child-resistant prescription containers. In 1981 Walgreens began taking steps to become the first drugstore chain to have its pharmacies linked by satellite. In 2002 Walgreens began to offer non-English prescription drug labels and was the first to do so (Walgreens Corporation, 2006b). The company’s continued emphasis on developing and utilizing technology makes its business more efficient and serves its customers better. 7 III. Weaknesses While Walgreens it the current market leader, the company's greatest weakness may be its inability to set itself apart from competitors based upon price. Wal-Mart's recent announcement that it will sell a month's supply of many generic prescription drugs for only $4, later matched by Target, exemplifies the impact of large discounters. Following this announcement by Wal-Mart, who is currently the number four pharmacy provider, the price of Walgreens stock dropped 11% (Miller, 2006; Patsuris, 2004). While a large company, Walgreens is not the low-cost leader in the industry and faces serious competition from discounters, who are willing to accept lower margins on prescription drugs because they can make up for lost profit in other categories. Walgreens will not match these prices, meaning that Walgreens has chosen not to compete on price in its most important category. While Walgreens cannot compete against discounters on price, the company has failed to fully exploit its main advantage over these retailers, its ability to provide convenience to its customers. While the company is increasing the presence of 24-hour locations and drive-thru facilities, the interior layout of a Walgreens store does not always reflect its commitment to convenience. For example, Walgreens stores in Salem, Oregon, appear crowded with merchandise, an atmosphere that is contrary to the clean image of fast service that Walgreens would like to portray. There, upon entering a Walgreens store, one encounters aisles of merchandise stacked to the ceiling. The first items evident are seasonal merchandise and novelty goods. Health care items are not readily visible and are located toward the rear of the store. The actual pharmacy may be located in the farthest corner from the door, without distinct design or clear signage. As a company that attempts to set itself apart from competitors by being the drugstore of convenience, this store layout and design directly contradict these goals. 8 In stores such as the ones described Walgreens attempts to encourage impulse buying by creating a deep loop to its core pharmacy and health care items, similar to the way grocery stores often place milk and other staple goods at the rear of the store. This layout is especially surprising given that nearly 64% of Walgreens' sales are generated by prescription drugs (Hoovers, 2005). While this layout does encourage customers to browse other merchandise on their way to the pharmacy, it does not provide the most convenience for pharmacy customers who would like to get in and out of the store quickly. On the average trip to a drugstore a customer will spend only ten minutes in the store, only eight minutes if the trip does not include a prescription purchase ("SIC 5912...", 2006). Walgreens CEO Jeffrey Rein acknowledged at a recent conference, "We don't necessarily need to carry everything we carry. In many cases, we have too many products. The customer is confused" (Anderson, 2006). Furthermore, prototype Wal-Mart stores are creating a shallow loop by placing the pharmacy counter closer to the entrance (Troy, 2006). Wal-Mart is also introducing 24-hour pharmacies in some locations (Patsuris, 2004). If Wal-Mart becomes better able to provide its customers with convenient pharmacy services, Walgreens may lose its main competitive advantage over the discounter. Additionally, while Walgreens is the market leader in many categories, it trails CVS in number of stores. Walgreens has 5,461 stores, while CVS has 6,163 stores (Walgreens Corporation, 2006d). Walgreens also is not the leading online pharmacy based on number of website visits, with only 11.38% market share behind both Drugstore.com and MedcoHealth.com (Greenspan, 2003). While online sales currently account for only a small percentage of total prescription drug sales, as this category continues to grow, it will become more important for Walgreens to gain market share. 9 IV. Opportunities Perhaps Walgreens greatest opportunities for increases in sales lie in the changing composition of the American population. On the verge of a significant demographic shift, the aging of the Baby Boomer generation will impact no industry more than the pharmaceutical industry. In fact, Walgreens expects a 30% increase in demand for prescriptions from customers 65 and older in the next few years (Merrick, 2006). For Walgreens, 30% of prescriptions and 42% of prescription sales revenue came from older Americans in 2002, and the population over 50 years of age is expected to grow to 95 million by 2010 ("SIC 5912," 2006). Furthermore, changes in Medicare plans have benefited Walgreens by making the prices Medicare participants pay the same no matter where they shop (Merrick, 2006). This dramatic increase in the number of older Americans will provide Walgreens with an increased demand for prescriptions and the potential to increase sales and revenue in that category. Overall demand for prescription drugs is also increasing. Fueled in part by the country's changing demographics, the demand for prescription drugs is also increasing due to an increase in the percentage of prescription drugs that are reimbursed by insurance companies and government programs, new prescription drug choices, and increases in the availability of generic substitutes ("SIC 5912...", 2006). Increased demand for prescription drugs, Walgreens' largest category, potentially means increases in sales and profit for the company. This category is especially important as pharmacy sales rose 12% in the last quarter, significantly more than the 5.2% increase in non-pharmacy sales (Miller, 2006). Further opportunities for Walgreens lie in international markets. Currently only a domestic business, as the United States market becomes saturated, Walgreens will be forced to look internationally for expansion. While government regulations and cultural differences will 10 likely prove challenging given the nature of Walgreens' business, international markets provide significant opportunities for market expansion. Furthermore, competitors, such as CVS and Rite Aid, have yet to enter international markets. Beating these competitors into international markets could ensure that Walgreens remains the market leader. Moreover, this would also help Walgreens stay competitive against large discount chains, such as Wal-Mart, many of which already have a significant international presence. Additionally while Walgreens stores currently devote significant space and inventory investment to their non-pharmacy items, prescription drugs still constitute the majority, nearly 64%, of Walgreens sales (Biesada, 2006b). Walgreens has already recognized the importance of non-pharmacy items, but has yet to fully realize the impact of sales increases in these categories. According to the National Association of Chain Drug Stores the greatest growth opportunity for stores like Walgreens is increasing non-pharmacy purchases that existing shoppers make. This is especially important given that the number of customers shopping at drug stores is declining, but those customers are visiting drug stores more frequently. Trips to the drug store are typically prompted by needs related to prescriptions, beauty items, over-the-counter drugs, and photo processing, and these categories comprise over 80% of purchases on these trips. However, only 30% of these shoppers make impulse purchases. This leaves enormous potential for Walgreens to increase impulse buying in its stores. The average non-pharmacy drug store purchase in 2001 was $19.38. Therefore, adding just $2.00 to each purchase increases the average sale by nearly 10% (NACDS/American Greetings Research Council, 2002). 11 IV. Threats In the highly competitive prescription drug market, Walgreens' biggest threats come from intertype competitors. No longer competing only against local pharmacies and other drug stores, retailers such as grocers and discounters are increasingly proving to be formidable competitors. Discounters prove a unique threat, especially when it comes to price. The low cost emphasis and economies of scale possible through large companies such as Wal-Mart mean that Walgreens cannot compete against these discounters on price. Walgreens is also at a disadvantage compared to competitors like Target and Wal-Mart because these retailers carry a broad assortment with significantly more SKUs in a typical store and have a large customer base that visits the store regularly. 138 million Americans shop at Wal-Mart every week and many may find it tempting to fill their prescriptions in the stores in which they already shop (Lasanti, 2005). Furthermore, the average American visits a grocery store 2.2 times per week, but a drugstore only once a month ("SIC 5912...", 2006). Walgreens cannot compete against these competitors on price, but also cannot compete against them based on merchandise assortment. Furthermore, Walgreens' reliance on prescription drugs, a highly regulated and controlled entity, makes it vulnerable to changes in laws and regulation. This is exemplified by recent changes to Medicare prescription drug plans which, while on one hand made prescription drugs the same price to consumers no matter where they shop, also further regulated dispensing fees thereby decreasing profit margins for retailers like Walgreens. While Walgreens has so far not been adversely impacted by such changes, the aging of the Baby Boomer generation and concerns over the future of Medicare mean that further reform will be a topic of continuous debate. Under these circumstances additional modifications and reforms which may potentially 12 reduce the profitability of prescription drugs are not unexpected. Walgreens relies heavily on prescription drug sales, and dependence on a category whose regulation is mainly beyond its control leaves it vulnerable. Furthermore rising health care costs in general have become a politically charged topic. The push for health care reform is causing patients to look for low cost alternatives outside of traditional retail outlets. These alternatives include prescription drug sales over the internet and especially the purchase of prescription drugs from other countries where regulation has made prescription drugs less expensive. For example, of the top 100 branded prescription drugs in Canada and the United States, 93% were less expensive in Canada, and in Canada the average branded prescription drug costs 43% less than in the United States (Skinner, 2005). In a 2003 survey 7% of those polled have purchased prescription drugs from another country, but 48% indicated that they would buy prescription drugs from another country (Greenspan, 2003). An additional challenge comes from the chronic shortage of pharmacists. While historically the shortage now is not as critical as it once was, experts predict that future shortages will occur. Factors include the ever increasing demand for prescription drugs and the trend for pharmacists to spend more time on patient counseling (“Retirement…", 2006). Experts estimate there are currently 8,000 unfilled pharmacist positions and predict that there will be a shortage of 150,000 pharmacists by 2020. Such a drastic shortage of professionals who are critical to the company’s core category may potentially make Walgreens stores understaffed, which would increase the time that customers must wait for prescriptions and be detrimental to the company’s emphasis on customer convenience. 13 VI. Recommendations Based on Walgreens' strengths, weaknesses, opportunities, and threats there are several areas on which Walgreens can focus in order to retain its position of market leader and ensure superior company performance and continued growth. First, **Walgreens must further focus on that which distinguishes it from competitors, customer convenience**. **This is especially important in setting Walgreens apart from large discounters and supermarkets. Convenience is why customers choose Walgreens, and Walgreens must do its best to exploit this advantage. The company can enhance customer convenience several ways. Store design is one way Walgreens can cater to customers who wish to get in and out of the store quickly. By creating shallow loops within its stores, especially for its ever important pharmacy customers, Walgreens can better serve customers who want their trip to be as quick as possible. Additionally a narrower product assortment would enable customers to locate items in core categories more easily without the distraction of excessive inventory. Modifying store design would also accommodate Walgreens' growing segment of older customers. Reducing crowding by revising inventory selection, along with improved signage and lighting, would make Walgreens stores easier to shop for all customers. Providing a comfortable waiting area would also be an added feature for pharmacy customers. Additionally, this would create an opportunity to increase impulse purchases by strategically placing promotional materials and displaying impulse items near this area. In order to further focus on convenience and maintain its number one market position, Walgreens must also concentrate on expanding its online services. Online services add convenience and contribute to Walgreens’ brand image while allowing the company to achieve the benefits of a multichannel strategy.**14 VII. Sources Anderson, G. (2006, September 11). Walgreens thinking smaller to grow. RetailWire. Retrieved November 5, 2006 from http://www.retailwire.com/Discussions/Sngl_ Discussion.cfm/Discussions/Sngl_Discussio... Berman, B., & Telen, S. (2004). A guide to developing and managing a well-integrate multichannel retail strategy. International Journal of Retail & Distribution Management, 32(3), 147-156. Biesada, A. (2006a). CVS Corporation. Hoovers. Retrieved October 22, 2006 from http://www.hoovers.com/cvs/--ID__10984--/free-co-factsheet.xhtml Biesada, A. (2006b). Walgreen Co. Hoovers. Retrieved October 1, 2006 from http://www.hoovers.com/walgreen/--ID__11601--/free-co-factsheet.xhtml Carpenter, D. (2004, May 6). Walgreens' world. The Washington Times. Retrieved November 5, 2006 from http://www.washingtontimes.com/business/20040505-092614- 4387r.htm Davidoff, J. (2006, September 23). Walgreens won't match Wal-Mart's $4. The Capital Times. Retrieved October 1, 2006 from http://www.madison.com/tct/mad/topstories/index.php?ntid=100128&ntpid=1 Greenspan, R. (2003, November 19). Web swallows chunk of prescription sales. ClickZ Marketing Network. Retrieved October 1, 2006 from http://www.clickz.com/showPage.html?page=3111481 Johannes, L. (1999, June 11). Neighborhoods: As drugstores pop up everywhere, towns cry foul. The Wall Street Journal. Retrieved October 1, 2006 from ProQuest database on the World Wide Web: http://0- proquest.umi.com.oasis.oregonstat.edu/pqdweb?index=21&did=4299655&Srch... Levy, M., & Weitz, B.A. (2004). Retailing Management (5th ed.). Boston: McGraw Hill/Irwin. Merrick, A. (2006, June 21). Walgreens found way to profit from drug plan. The Wall Street Journal. Retrieved October 1, 2006 from LexisNexis Academic database on the World Wide Web: http://0-web.lexisnexis. com.oasis.oregonstate.edu/universe/document?_m=402e1f7d8438... Miller, J.P. (2006, September 26). Walgreens net climbs 25%; drug sales jump. Chicago Tribune. Retrieved October 1, 2006 from http://www.chicagotribune.com/business/chi- 0609260258sep26,1,5174751 NACDS/American Greetings Research Council. (2002). Selling one more thing. 15 Patsuris, P. (2004, November 10). Wal-Mart's next victims. Forbes.com. Retrieved October 1, 2006 from http://www.forbes.com/commerce/2004/11/10/ex_pp_1109wmt. html Reeves, S. (2006, August 4). Aging boomers to boost CVS sales, but look out for Walgreens. Forbes. Retrieved October 1, 2006 from http://www.forbes.com/markets/2006/08/04/cvs-earnings-0804markets04.html "Retirement, part-time allure spell rising pharmacist shortages." (2006, June 26). Drug Store News. "SIC 5912 Drug Stores and Proprietary Stores." (2006). Referenceforbusiness.com. Retrieved October 1, 2006 from http://www.referenceforbusiness.com/industries/Retail-Trade/ Drug-Stores-Proprietary-Stor... Skinner, B. J. (2005, February). Canada's drug price paradox. Medical Benefits. Troy, M. (2006, April 10). New Wal-Mart store puts pharmacy front and center. Drug Store News, 28(5). "Walgreens Co. reports 32nd consecutive year of record sales, earnings." (2006, September 25). Business Wire Inc. Retrieved October 1, 2006 from LexisNexis Academic database on the World Wide Web: http://0-web.lexisnexis. com.oasis.oregonstate.edu/universe/document?_m=e8fe29c70452f... Walgreens Corporation. (2006a). Financial and other numbers. Retrieved October 1, 2006 from http://www.walgreens.com/about/press/facts/fact1.jsp Walgreens Corporation. (2006b). Walgreens historical highlights. Retrieved October 15, 2006 from http://www.walgreens.com/about/press/facts/fact3.jsp?cf=ln Walgreens Corporation. (2006c). Walgreens mission statement. Retrieved October 1, 2006 from http://www.walgreens.com/hel/faq/faqById.jsp?faqId=ourcompany_ corpmission.xml Walgreens Corporation. (2006d). Walgreens rankings & ratings. Retrieved October 1, 2006 from http://www.walgreens.com/about/press/facts/fact4.jsp?cf=ln **Walgreens Goes On Alert to Protect Customers ** Walgreens is teaming up with American Medical Alert Corp. (AMAC) to offer a national service to help support caregivers and protect aging Americans from falls around the home. According to a joint press release from the two companies, the Walgreens Ready Response system is intended to help older Americans maintain their ability to live independently at home. The service, which will be offered at the drugstore chain's 5,600 pharmacies, was initially tested in three markets over a three-month period. Having deemed the test a success, the chain decided it was time for a national rollout. Frederic Siegel, executive vice president of AMAC, said, "Falls have become the leading cause of injury related deaths for seniors. According to a recently published CDC report, in 2003, 1.8 million older Americans (65+) were treated in emergency departments due to falls. The Walgreens Ready Response system has delivered positive results for subscribers and their loved ones, confirming Walgreens decision to integrate this product as part of its caregiver initiative to help address this national epidemic." Ric Leonardi, Walgreens director of pharmacy acquisitions and business development, said a benefit of the program is that it can help "postpone the need for more costly assisted-living programs" and enable seniors to "continue leading a secure and independent life." Consumers may enroll in the Walgreens Ready Response Medical Alert System for a one-time activation fee of $34.95 and an additional $34.95 a month. The system, which can be purchased through any Walgreens or online at www.walgreens.com/readyresponse beginning on June 1, includes a two-way voice console unit, a personal help activator, a bathroom activator, a telephone, power cord and 24/7 monitoring. Discussion Questions: What will the Walgreens Ready Response system do for the drugstore chain's reputation and its top and bottom line results? Do you see pharmacies getting more involved in selling services (monitoring, in-store clinics) than simply sticking with product sales ** Walgreen Follows CVS Into Clinic Business ** Article Preview: Walgreens has followed the lead of its chief rival, CVS, and bought an in-store health clinic operator of its own. What is your reaction to the news that Walgreens will purchase Take Care Health System? With CVS and now Walgreens purchasing in-store clinic companies, do you expect others such as Wal-Mart to do the same or is the smart move to continue leasing space to various clinic operators? **Walgreens and CVS take on Insurance Companies ** By George Anderson Walgreens and CVS have stopped accepting prescriptions covered by some insurance companies over the amount the insurers are willing to pay for medicines. Consumers, of course, are caught in the middle of this test of wills. Frank Ascione, dean of the University of Michigan's College of Pharmacy, told The Detroit News, "You're going to have these folks battling it out more and more as we get more chains and they get more and more power. It could be very detrimental." The growing clout of major chains such as Walgreens and CVS has enabled these companies and other pharmacies to draw a line in the sand in dealing with insurers they deem unreasonable. "Stores aren't required by law to take every insurance plan out there," said Michelle McKenna, spokesperson for the National Association of Chain Drugstores (NACDS). "It all comes down to a business decision." The decision for many pharmacies is quite easy. The demands of a small number of insurance providers can not be met and turning away from their business is seen as the best course of action. :::I**n a case involving Walgreens and Midwest Health Plan, the drugstore chain wanted at least $8.99 to fill each prescription. The company said a lower amount demanded by Midwest did not account for its full costs including filling and delivering prescriptions and other services such as 24-hour operations, drive-through windows and customized label printing in 14 separate languages.**::: Discussion Questions: Where do you see the relationship between pharmacies and third-party insurers going? What will this mean for how pharmacies conduct their business? **Walgreens to Track Displays ** A lack of in-store compliance with manufacturer promotional programs may be a thing of the past now that Walgreens, in partnership with 15 package goods companies, is rolling out a system to track displays in the drugstore chain's more than 5,000 stores. The pilot program will involve placing radio frequency identification (RFID) chips on displays to electronically track when, how long and where the merchandising units are placed in stores. The units will enable manufacturers to time displays being put up with advertising and promotional programs and to alert local account people when stores are not in compliance. George Riedl, senior VP-marketing for Walgreens, told Ad Age that the RFID-enabled displays can help the chain and its partners "customize merchandising on a store-by-store basis and ultimately increase sales and profit per square foot." "It also will help both our own purchasing department and our vendors evaluate past promotions and plans for future programs," he added. Ken Harris, managing director of Cannondale Associates, said, "This could be perhaps one of the most important new developments in promotion materials in the last 20 years if it works. It provides real-time feedback on what's working and what's not and could be an exceptional tool for manufacturers to use." One of the concerns with the displays is cost. An anonymous person Ad Age reported was familiar with the system said the "semi-active" RFID tags needed for the displays cost $6 each compared to less than $1 for the passive tags being used in studies elsewhere. Robert Michelson, CEO of Goliath Solutions, the display system's creator, would not publicly comment on the cost. Moderator's Comment: What do you see as the opportunities and issues facing Walgreens and its CPG partners in connection with the use of the RFID-enabled displays? - George Anderson - Moderator **Walgreens Thinking Smaller to Grow ** Walgreens' CEO Jeffrey Rein says the company is thinking smaller. Speaking before an audience at the Goldman Sachs' retail conference last week, Mr. Rein said the company is considering opening stores smaller than its current 10,000 to 14,000 square-foot units. "I think you will see in future years more stores that are less sized than the current prototype," said Mr. Rein. The retailer is also looking to reduce the amount of inventory it carries, with fewer line extensions of analgesics, for example. We don't necessarily need to carry everything we carry," he said. "In many cases, we have too many products. The customer is confused. We are working on narrowing that." Walgreen, according to a Bloomberg News report, is looking to operate 12,000 stores in the U.S. Mr. Rein said the company is focusing on the Northeast, the Carolinas, the Southwest and the western U.S. to expand. Discussion Questions: What does Walgreens' CEO Jeffrey Rein's announcement the company may look to build smaller stores while reducing inventory in all stores mean in practical terms for the business? Are smaller stores necessary in areas where space may be limited, such as urban locations in the Northeast, for example? Will the focus on inventory reduction adversely affect the retailer's relationship with vendors? **Who Is In First, Walgreens or CVS? ** Who Is In First, Walgreens or CVS? By George Anderson The Monday Matchup feature on the Forbes' Web site this week looked at how drug store chain competitors, Walgreen and CVS, stacked up against each other. Walgreens was given high marks for its satellite system that links stores, **enabling consumers to pick up their prescription at any location**, and for providing pharmaceutical information in English and Spanish on its Web site. CVS was credited with being "the first drug retailer to integrate Internet and traditional store services." It also has created a loyalty program that, among other things, creates individually tailored discount coupons for CVS shoppers on a weekly basis. Walgreens' corner pharmacy strategy generated $28.68 billion in sales last year in 4,227 stores. Sixty percent of the chain's sales come from prescription drugs, 22 percent from general merchandise, 11 percent from over-the-counter (OTC) remedies and seven percent on cosmetics and toiletries. CVS operates 4,122 stores. The chain's sales in 2002 reached $24.18 billion with 68 percent being generated in prescriptions, 16 percent general merchandise, 10 percent in OTC and 6% in cosmetics and toiletries. Moderator's Comment: Which is the stronger operator, Walgreen's or CVS? Why? The most impressive thing about each operation for us is that store count growth is being achieved organically. CVS has an edge on the pharmacy side of the business, while Walgreen's has carved out a stronger front-end business. [George Anderson - Moderator] Walgreens Votes No on War Toys By George Anderson **Walgreens is pulling Easter baskets containing war toys and soldiers from its shelves, reports USA Today.** Carol Hively, spokesperson, Walgreens said, "We reconsidered the appropriateness of having them in Easter baskets and considered the impending war and thought it would not be appropriate to sell baskets with soldiers or military men." The Easter baskets in question "include troops in battle dress, assault rifles, planes, tanks and other toys, along with traditional candies." Other retailers such as Wal-Mart and Kmart that carry similar Easter baskets to those being pulled at Walgreens have no plans to follow the drugstore's lead. Abigail Jacobs of Kmart told USA Today, "We've sold these for years and haven't gotten any attention until this year." She added, "We wouldn't continue to sell action figures if they didn't sell well." Moderator's Comment: Should retailers selling Easter baskets with war toys remove them from store shelves? We do not see the connection between Easter, a religious holiday, and action figures of combat troops. Personally speaking, we wouldn't buy an Easter basket containing war toys for a child. Many others, evidently, do no share our opinion. Abigail Jacobs of Kmart was right: retailers wouldn't continue to sell them if consumers weren't buying.
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