Walgreens Case Study

Published: 2021-06-24 11:00:05
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INTRODUCTION: It was in 1901 that Charles Walgreen Sr. opted to purchase the Chicago drugstore where he worked as a pharmacist (David, 2013). He offered his own drug line and expanded the drug store with other items (David, 2013). His success allowed him to open a second drug store by 1909; over 100 stores in the next nine years, went public with stock shares by 1933, and in 1946 Walgreens pursued a philanthropic venture, opening a non-profit drugstore in the pentagon (David, 2013). Currently, Walgreens has stores located in all 50 states as well as the District of Columbia and Puerto Rico (David, 2013).
Walgreens dedication to be the first choice in the health and the daily living category has helped it expand globally and maintain a competitive advantage. They currently offers prescription labels in 14 languages and were the first to offer child-resistant containers before law required them (David, 2013). Walgreens has proved to be innovative and adaptable to the times, which contributes to many years of success. However, in the past few years the economy has seen high unemployment rates, changes in the health care industry and price matching in response to consumer price sensitivity (David, 2013).
Walgreens will have to work on offering attractive pricing and other service offerings to maintain its high ranking and competitive advantage. CURRENT MISSION, GOALS, & STRATEGY: Walgreens current mission is “To be the most trusted, convenient, multichannel provider and advisor of innovative pharmacy, health and wellness solutions, and consumer goods and services in communities across America. A destination where health and happiness come together to help people get well, stay well and live well” (David, 2013).
To maintain a competitive advantage, Walgreens offers their employees career advancement and training opportunities for career development. They are extending their pharmaceutical services by offering preventative health care services and daily HDL, glucose and cholesterol testing (David, 2013). Walgreens is conscious of the opportunities that have emerged in the industry and are pursuing strategies focused on: pricing, customer service, patients and other categories that will help enhance the Walgreen’s name.
They are currently marketing their products through different mediums to promote their private-label brands, and focusing on price and quality. Their current focus on pursuing these strategies will help them become aggressive competitors against major stores like Wal-Mart and Costco to become the largest drug retailer in the U. S. INTERNAL ANALYSIS: See attached IFEM Walgreens is a strong company internally with an IFEM score of 2. 98. FINANCE: Walgreens is very strong financially, as indicated by the following financial measures.
Walgreens most recent year-end results indicate that demand is still high. Revenues increased by 6. 4% and net income increased by 4. 2% year over year (David, 2013). This is good news for a company that has faced increased costs and extreme competition. Walgreens increased the rate of store conversions which increased conversion costs over the prior year from $5 million to $45 million (David, 2013). Although Walgreens has seen an increase in operating costs over the prior year, their gross margin of 28. 15% is the highest among the industry (David, 2013). The current ratio stands at 1.
60 which suggests that Walgreens is fully capable of paying its short-term obligations (David, 2013). The company’s quick ratio is at . 61 which suggests that a high rate of the company’s assets derive from product inventory which isn’t considered as liquid as other assets (David, 2013). Although the quick ratio doesn’t suggest a favorable liquidity rating of short-term obligations, the company has a low debt to assets ratio. The debt to assets ratio stands at . 09 which is a small decrease over the prior year of . 2% which indicates that Walgreens is less dependent on debt to grow their business (David, 2013).
Should Walgreens face any drastic downward market changes, they are in a position that would allow them to borrow, or liquidate assets. MANAGEMENT: Over the course of 113 years, Walgreens has grown from a single location pharmacy to a chain of nearly 8,000 locations (David, 2013). The great leadership of Walgreens has helped to grow the company into one of the largest pharmacies in the world. The company has a strong organizational structure, culture, vision, and mission. The company’s management has continued to build its core pharmacy business as well as find ways to innovate and expand its product offerings.
Fast Company ranked Walgreens as the sixth most innovative health care company for leadership in health care services (David, 2013). This ranking is well deserved and identifies the management’s determination to move forward, in the competitive business world. Walgreens management faces the challenge of diversifying its business portfolio. Nearly 65% of Walgreens business derives from prescription drugs and 10% derive from non-prescription drugs (David, 2013). As the number of competitors continues to grow, management must continue to innovate through technology and introduce new products and services to limit risk.
Walgreens can also benefit from providing career growth opportunities for its employees. The company offers a variety of career advancement and training opportunities for their employees. On-the-job training, professional career development, financial assistance programs for pharmacy students, and management and pharmacy internships are among the career development opportunities Walgreens has provided to its employees (David, 2013). The company’s commitment to employee growth will provide a satisfied and well trained workforce that will help the company succeed for years to come.
RESEARCH AND DEVELOPMENT: Walgreens has a clear vision and mission of who they want to be and what their business is. This clarity has helped them identify and quickly respond to changes in consumer shopping habits. Walgreens is a fierce competitor and through acquisitions has increased their market share in the industry. Drugstore. com, with $456 million in sales and an addition of 3 million customers, was acquired to compete with CVS Caremark, a leader in mail-order prescriptions (David, 2013). They also added an online chat service and a mobile application for prescription refills.
Walgreens must keep this momentum to meet the demand expected to rise for prescription drugs due to the increase of insured Americans in the upcoming years, resulting from the Patient Protection and Affordable Care Act. According to the U. S Census Bureau, 32 million Americans will have health coverage in the next decade, 95 percent by 2019 (www. census. gov). MARKETING: Walgreens has extended their advertising to publicize their private-brand as well as branded health and wellness products to its customers (David, 2013).
However, they need to better promote their mobile application and online services and sell the convenience of shopping online and filling up prescription refills via their mobile application to maintain their competitive advantage. Many current and potential customers are not aware of these helpful tools. EXTERNAL ANALYSIS: See attached EFEM Walgreens appears to be responding to external threats and opportunities well as indicated by the EFEM score of 2. 74. COMPETITION AND THE INDUSTRY: Three of the fourteen EFEM factors are “competitive,” including two major threats and one minor threat.
The external environment is certainly competitive due to the recognition and resources available to competitors such as Wal-Mart and CVS. The industry itself includes a minor threat of prescription sales slowing over the past half century (David, 2013). This is something that is affecting all competitors and will likely be alleviated by the new Patient Protection and Affordable Care Act which is predicted to increase health care coverage to 95% of Americans by 2019 (David, 2013). The growth of in-store health clinics is a major opportunity.
“Retail clinics offer superior convenience by curing the ills and the frustrations of waiting patients (i. e. , no appointments needed, evening and weekend operating hours, and 15-minute-or-less wait times) and by situating themselves in convenient locations” (Deloitte Center for Health Solutions, 2008, p. 6). Walgreens already operates in all 50 states (David, 2013). Growing the number of in-store health clinics seizes the opportunity for additional revenues and recognition by customers on the convenience of their stores.
The increase in consumer spending on nondurable goods provides the opportunity for Walgreens to offer promotions for non-health related items to increase foot traffic in the stores and use of the online store. This will continue to make Walgreens a staple in customer’s routine of going to Walgreens to become more of their one-stop shopping experience. TECHNOLOGY: During Fiscal year 2010, the Walgreens online pharmacy received an average of 15,000 visits per month (David, 2013). A U. S.
Census Bureau “E-Stats” online publication showed that for 2010, Online sales were less than 40 percent of total sales” for prescription drugs (U. S. Census Bureau, 2012, p. 3). However; “[r]etailers’ e-commerce sales increased by 16. 3 percent. As a share of total retail sales, e-commerce sales was 4. 4 percent ($169 billion), up from 4. 0 percent ($145 billion) in 2009” (U. S. Census Bureau, 2012, p. 1). This shows how a minor opportunity could very well transform into a major opportunity for Walgreens. Competition is certainly high with retailers such as CVS and Wal-Mart that already have a major online presence.
Walgreens success will depend on how they invest and market their online presence as the consumer trend towards ecommerce continues. ECONOMIC: High unemployment rates and the increasing costs of energy are both considered minor threats. Although higher rates of unemployment coupled by increases in costs will decrease their spending, Walgreens offers over the counter and prescription medical products that in many cases are considered by consumers as a basic need. Consumers will likely trend towards decreasing spending on items of entertainment rather than those of basic needs.
Subsequently, “[a]s the economy expands further, the rate of unemployment is projected to continue declining until, in 2016, it reaches 5 percent” which is much more favorable than the 2010 rate of 10 percent and will likely allow for the trend of consumer spending on nondurable goods upwards (Congressional Budget Office, 2010, p. 23-25). Increased revenues at Walgreens from all product types and more income available for consumers will decrease the effect of higher energy costs on both the business and the consumer. STRATEGIC OPTION ANALYSIS: See the I/E, SPACE, TOWS and QSPM THE I&E MATRIX:
The I&E Matrix places Walgreens in a difficult position. The matrix officially places Walgreens in the Hold and Maintain position, but borders on Build and Grow. Both the EFEM and IFEM averages are favorable and strong consecutively. This would be expected since the company does have a large amount of stores. The issue lies in building those stores to customer demand and company standard instead of building new stores. This can be seen with the suggested strategies to advance the old and incorporate the new. Walgreens has a strong foundation giving it the ability to expand and evolve. The Space Matrix:
The Space Matrix shows Walgreens positioned in the AGGRESSIVE quadrant in the lower left portion towards COMPETITIVE. With a strong financial position (FS+4. 5), moderate competitive position (CS-2. 8), moderate environmental position (ES-2. 33), and very strong industry position (IS+4. 75), confirm the plot position. The SPACE Matrix follows the placement of the I&E Matrix’s Hold and Maintain position. The very strong industry position confirms the previous suggestions of evolving existing products to compete with competitors. THE TOWS MATRIX: The TOWS MATRIX YIELDED FOURTEEN STRATEGIES.
Of the fourteen strategies, eleven are B/C strategies and three are functional strategies. The functional strategies fall into the categories of management and innovation. The B/C strategies developed include an assortment of retrenchment, combination, marketing, market penetration, market development, service development, technology and innovation. The QSPM and the QSPM score Summary Sheet: The eleven distinct B/C strategies were evaluated by the QSPM and QSPM Summary. The strategies developed aligned with the TOWS Matrix yielded low Max Possible Scored (MPS) on all strategies.
The highest strategy was #2, determining strategies to increase online sales revenue and membership, with a MPS of 36%. This would be considered as weak to moderate. This being said, this strategy and other B/C strategies should still be considered based on the results of the I&E Matrix and Space Matrix. RECOMMENDED STRATEGIC THRUST AND SUPPORTING STRATEGIES: Walgreens should plan its strategic thrust on evolving and developing established locations. The industry is aggressive and Walgreens is a key player. As seen in the case, Walgreens is one of the top three competitors with 7,562 drugstore locations across all 50 states (David, 2013).
It would be unnecessary to develop too many more new facilities without evolving and expanding on current locations. FUNCTIONAL STRATEGIES The following functional strategies should be carried out in the time frames indicated. F/MK: Focus on online shopping format and build it bigger and stronger. Time Frame: Short-Range. F/MK: Launch of new label marketing campaign. Time Frame: Mid-Range. F/SK: Focusing on getting the attention of the 600K people who connect via Social Media such at Facebook and Twitter. Time Frame: Short to Mid-Range.
F/SV: Building and growing so that they can operate globally. Time Frame: Long-Range. B/C (BUSINESS/CORPORATE STRATEGIES) SHORT RANGE-INITIATE IMMEDIATELY AND IN PRIORITY: Strategy #1– MK (SO): Incorporate more advertising and deals via media. Try to focus on adding more advertising on television, radio, and online. Speak with different social media groups to advertise with them. This should include but not be limited to Facebook and Twitter to reach the younger generation. Strategy #4 – MP (SO): This is also similar to strategy #1, but expands on reaching the younger generation.
This is all about advertising and creating products and marketing them to the younger generation. Strategy #6 –MK (WO): Add more incentive programs for getting prescriptions filled with Walgreens by promoting other store goods. Offer customers deals for switching their prescriptions to Walgreens as well as offering deals for each time they refill by offering free store products. Strategy #10 – RT (WT): Look at leasing options within existing retail outlets to avoid construction expenses. Instead of building and spending the time and money it would easier and more cost effective to lease buildings already in existence.
MID RANGE – BEGIN PLANNING IMMEDIATELY FOR IMPLEMENTATION IN 2 TO 3 YEARS. Strategy #9 – MD (ST): Increase marketing expense for Walgreens. com and phone application. This expense should go towards updating the website so it’s easier to navigate and making the telephone system easier for the elder population to use. Strategy #2- TC (SO): Determine strategies to increase online sales revenue and membership. Work on different programs and specials to interest people into purchasing products as well as membership. Strategy #3- SC (SO): Expand on in-store health clinics.
Expand current clinics to handle a different variety of vaccines, physicals, and diagnosing as well as prescribing commonly used medications. Strategy #11 – CB (WT): Look to partner with popular health brand as some competitors have done. Securing the partnership would help to gain and keep brand-loyal customers. LONG RANGE-BEGIN PLANNING NOW FOR IMPLEMENTATION IN 4 TO 5 YEARS. Strategy #8 –SD (ST): Invest in remodeling out-of-date stores to add convenience. Customers are more inclined to visit stores that make them feel comfortable and especially for a store selling medications, cleanliness and modernization is a must.
Strategy #5 – MK (WO): Add In-Store Health Clinics. While some of the stores offer in-store health clinics, this should be expanded to include all of the stores. NOT RECOMMENDED: Strategy #7 – IN (ST): Continue to acquire like businesses to build strong national recognition. Work with and join forces with other companies to build their national recognition. Walgreens has strong national recognition already. They need to continue to build the company to increase revenue. In Conclusion, there are many different threats to the success of Walgreens.
The threats include direct competition from large retailers such as Wal-Mart and CVS as well as a variety of grocery stores, and even small “Mom and Pop” pharmacies. The economic market is also affecting the sales and profits of Walgreens. Walgreens should focus on factors that will help raise Walgreens from sixth most innovative health care company to first or even second as well as work on their online products, and make getting products or prescription easier for the older population. This includes utilizing on-line access to refilling prescriptions and ordering products. END

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