Swot Analysis Walgreens

In 2009 Walgreens hired IDEO, a global firm that helps redesign companies, to research what their customers were demanding most. They found a “huge push to improve quality and reduce overall healthcare costs”. (Wagner & Orvis, 2013) Walgreens decided they needed a new strategy that would satisfy customers while keeping promises of quality returns to their shareholders. The strategy they chose, that has put them in the position of customer service leader in the retail pharmacy industry, is identified as the unique industry wide differentiation strategy that consists of the following three areas:

• Create a Well Experience

• Transform the role of community pharmacies

• Establish an efficient global platform

These three characteristics have

been combined to create a unique strategy that focuses on producing loyal returning customers. The old strategy consisted of a set of procedures that were passed down from upper management to lower level employees that just simply followed instructions, but then the competitive scene started changing and Walgreens knew they needed to change also. Skinner & Wasson (2013) explains how they made “major strategic progress” by focusing on “long-term sustainable growth and value creation”. They created customer value by giving them the outstanding service and a unique experience that was only available by visiting Walgreens. It is this exceptional service that creates a loyal returning customer that will pay higher prices for merchandise and allowing Walgreens to pay their shareholders annual dividends.

Creating a Well Experience
“Our strategy of Creating a Well Experience is to build on our trusted and historic brand, and our 8,100-plus store network, to step out of the traditional drugstore format to create a truly differentiated experience for consumers and patients who want more from their stores.” (Skinner & Wasson, 2013) Walgreens is using their large brand empire to change the way that their customers experience an ordinary trip to one of their stores. These new experiences are created by a “leading-edge store design, new layouts, enhanced product assortments and state-of-the-art pharmacies, including bringing the pharmacist out from behind the counter for greater interaction with patients”. (Skinner & Wasson, 2013)

Structural Changes
Walgreens management structure was changed from the ground up. Now, frontline and field leaders instruct employees through their newly implemented training program on how to give the exceptional service entailed in the Well Experience.

Store layout changes make it easier and more comfortable for customers to find needed products. Merchandise now consists of mainly daily necessities that consist mostly of a few known brands, private brands, and Walgreens own name brands like Good & Delish. Walgreens has been doing well with the newer services like sushi and smoothie bars that are being tested in a few of the larger stores. A great company culture has evolved due to the internal modifications and can be seen throughout the firms many stores.

Technological Additions
The “Well Experience also offers best-in-class omni-channel access – harnessing digital, web and mobile applications – to give shoppers the “three Ws”: What they want. Where they want it. When they want it.” (Skinner & Wasson, 2013) This new technology allows customers to use their Smartphone’s to access Instagram and other apps to manage prescriptions and healthcare. Consumers are now able to make appointments online and access health information or guides. Also, Walgreens staff uses innovative technology to look at patient information through a network of their stores.

Walgreens also started the new Balance® Rewards loyalty program in 2012 that has resulted in extraordinary customer response. “More than 83 million members have enrolled in Balance Rewards in less than a year since introduction, making ours one of the most successful launches of a loyalty program in the history of retail.” (Skinner & Wasson, 2013) The program rewards customers with free merchandise for living a healthy life by walking, running, and even weight control. It also provides valuable information to Walgreens about customer preferences. Skinner & Wasson (2013) explains how it gives them “information we are putting to work to enhance pricing, promotions, product assortments and services, and to tailor our daily living strategies to meet individual community needs”.

Transforming the Roles of Community Pharmacies
As Skinner & Wasson (2013) explains “Walgreens is well positioned to serve the growing demand for pharmacy-led health and well-being services through our strategy to transform community pharmacy and its three main goals:

First, to deliver comprehensive care across our strong base of healthcare assets, including more than 70,000 healthcare service providers at our 8,100-plus store locations, nearly 400 Healthcare Clinics staffed by nurse practitioners and physician’s assistants co-located with our pharmacies, 370 workplace health centers on major employer campuses and 200 health system pharmacies.

Second, to offer an easy, expert experience for patients, healthcare providers and payers that differentiates Walgreens from its competitors. Third, to be the strategic partner of choice – seeking targeted partnerships and pursuing joint initiatives with healthcare providers and

payers.”

The pharmacy changes provide better service by the facilities, their staff, and by bringing their pharmacists out into the front where they can interact directly with the customers. Pharmacists possess an immense amount of knowledge that is valuable to the customers.

Walgreens also started participating in a preferred pharmacy network of top national Medicare Part D plans to help with servicing the older Americans. Walgreens combined efforts with the U.S. Centers for Disease Control and Prevention, U.S. Department of Health and Human Services that made it possible for people to have access to healthcare services. (Skinner & Wasson, 2013) They were able to ensure stability and certainty of their pharmacy revenues by signing multiyear contracts with key commercial payers that provided probable reimbursement rates.

Establishing an effective global platform
Establishing partnerships around the world allows Walgreens to reach more customers and provide them with access to more products. They acquired a 45% share in Alliance Boots, the largest wholesaler and leader in Europe for the pharmacy and beauty retail industry and in 2015 exercised their call option to the remainder. Together they have launched the Boots No7 men’s and women’s skincare lines among other Boots products and all have been very successful. This part of the strategy “provides significant value creation for shareholders” by exceeding the set synergy goal of $100 – 150 million for the first year. This alliance provides the customers with added choices of two iconic brands worldwide. (Skinner and Wasson, 2013)

Reasons for the Strategy

Rivalry
CVS is the main competition for Walgreens in the chain drugstore industry. Both CVS and Walgreens share the pharmacy market in the U.S. with 21% each, but they choose different paths when it comes to strategy. CVS leans more towards technological infrastructure between their stores and electronic medical systems while Walgreens is focused on the inside of their stores and expanding their services. Whenever CVS implements strategic changes they benefit through cut healthcare costs and improved delivery of healthcare services, but Walgreens suffers greatly by customer losses. CVS is expanding their Minute Clinic health centers to an additional 700, a total of 1,500, within the next two years. They already have 63 million captive customers with their ownership of the second largest Pharmacy Benefit Management firm in the U.S. and with a more health-conscious society today they will add to their customer base in 2015 when they no longer sell tobacco products. (Alberrett2, 2014)

New Entrants
Even though Walgreens keeps a close eye on CVS there are always new entrants starting new trends.

A few of the most recent are third-party pharmacy benefits management companies delivering prescriptions through the mail, grocers like Wal-Mart and Kroger offering in-store pharmacies, and the growth of Amazon and Google selling the same products online. Walgreens no longer has to worry only about competing with other drugstores but also with retail, discount, and grocery stores too. Companies such as these have found new ways to sell both pharmacy prescriptions and over-the-counter drugs at very low prices, making new competition for Walgreens. Drugstores are not able to compete with these prices so they rely on higher profit margins and boosting net sales from loyal customers who prefer brand name prescriptions. Competition for the retail pharmacy industry is expected to continue to increase by 2.6% annually until 2019. (Yaparwong,

2014)

Supplier power was rising for Walgreens because suppliers want to be associated with an industry leader and CVS was quickly gaining ground in the market just like many of the new entrants. Customer loyalty is what keeps substitute threats low and entry barriers high. Walgreens did not have a large enough pool of loyal customers to guarantee low substitute threats. Consumers have multiple places they could get their products for cheaper prices. Entry barriers were medium to low, causing decreased margins and increased buyer power because there were many places and products to choose from.

A Changing Healthcare Field
Increasing Elder Population
The baby boomers of our country are aging, “about 10,000 people in the U.S. turn 65 every day” while “healthcare spending continues growing”. “For older Americans, 13 percent of their total living expenses go to healthcare, roughly twice the share for consumers on the whole, and the need for chronic care is rising.” (Skinner & Wasson, 2013) Older populations require more pharmacy services like prescriptions or information about medications. Elderly people account for 17 percent of healthcare sales for medication, and in any average year will fill about 30 prescriptions. Healthcare spending is projected to increase five percent annually and drug spending approximately $35–45 billion by 2016, according to the IMS Institute for Healthcare Informatics. (Skinner & Wasson, 2013) Walgreens noticed that there was a real need growing for healthcare services. Think about it. When do you most want exceptional service? When it comes to any kind of healthcare. You want to think that someone cares about you and is willing and able to explain healthcare issues to you.

Laws and Regulations
Governmental legislation can pose a real problem to the pharmaceutical industry. If Walgreens doesn’t conform to new laws and regulations it will have an adverse effect on their business. “Healthcare reform is further driving the demand for affordable, high-quality healthcare and is estimated to provide another 30 million people with access to health insurance coverage.” (Skinner & Wasson, 2013) The Affordable Care Act has positive outcomes for Walgreens customers by reducing long-term healthcare spending but it interferes with Walgreens profitability. The effects on medical drugs reimbursement rates will cause drops in profit margins. With the Affordable Care Act the healthcare industry is going to continue to see more traffic in their stores and at their pharmacies. More people now have the coverage they need and will not hesitate to use it.

Distribution Issues
Today more brand name drugs are now available in generic form and some that were only available by prescription are now being sold over-the-counter. Walgreens knew that with more drug options available there would also be an increase in pharmacy/store traffic and they would need a better distribution channel to meet the increasing demand. In order to distribute needed pharmaceuticals to more store locations “Walgreens and Alliance Boots announced a strategic, long-term relationship with the largest pharmaceutical supply chain company in America, AmerisourceBergen, to form a collaborative wholesale-retail model here in the United States.” (Skinner & Wasson, 2013) Decreased costs and increased access to patient medications is a result of working together on plans that will advance service levels and proficiencies. This alliance allows global healthcare problems to be addressed by making products available to markets and supplying the benefits of global sourcing and better pharmacy practices. (Skinner & Wasson, 2013) In order to survive and stay at the top of the leaders ladder for this industry you have to have what people want when they want it, otherwise they are not delivering an exceptional experience. Today people want everything as quickly as possible and with Wal-Mart and Amazon readily available people have many choices so Walgreens needed to make sure their distribution issues were taken care of and fully functional.

Internal Issues Doubled with a Bad Economy

Organization Structural Issues
Walgreens has always prided themselves on internal promotions and for many years it worked but the old way of doing business was no longer working. Part of the problem was the executive lifers that believed they should just keep doing business as usual but it became clear that they needed to retire and start filling those chairs with a new vision. Walgreens old strategy just involved buying the available competition out and opening new stores. The personnel operated like robots that were given instruction and they carried out the orders on a daily basis. Employees were showing evidence of being under a lot of pressure due to the rate of growth of Walgreens. In order to cover growth, turnover, and retirements they would need to hire 875 new managers a year and complaints about the customer service was getting out of hand. (Walgreens: Strategic Evolution) IDEO results showed issues with the management structure and how Walgreens was handling business on a daily basis. Employees felt unimportant, were stressed, and not happy working there. The staff was not trained properly on how to give good customer service and how to communicate with each other on an organizational level. Each department worked separately and independently from others, answered only to their own department, and had no involvement with any of the others. With recommendations from IDEO Walgreens knew they needed major restructuring of the company management/staff and more interaction with every department.

Store Layout
Walgreens did an assessment of the layout of their stores floorplan and found that it was very inefficient and focus was on non-pharmacy merchandise more. IDEO results showed that the isles needed to be widened and decluttered by cutting out slow selling merchandise. But the biggest thing was that there was no emphasis on helping customers with questions about their health and healthcare. The pharmacists were not able to be seen by customers, making their talent and knowledge ineffectively used. There was no privacy when giving immunizations and no clinical care being given that could be handled by hiring nurses. There were long lines for picking up and dropping off prescriptions, both in the store and at the drive-thru windows. The drive-thru windows are efficient but if the customers come in the store they would probably see something else they needed. Walgreens knew they needed a whole new layout in order to get loyal customers.

Financial Issues
In 2011 Walgreens noticed that their operating costs were continuing to increase while profitability and earnings were continuing to decrease. Returns on equity and assets were slipping with every day that passed and stock prices dropped by 14% in five years. Walgreens pharmacy revenue stability and certainty were steadily decreasing because of reimbursement rates. Rising same store sales was increasing because more stores were offering convenience groceries and other general merchandise. Walgreens joined their competition and offered these same types of products. In order to increase profitability and stay on top Walgreens also added value to customers by offering and emphasizing their private label products. Walgreens chooses to continue using these products because of continuous increases in net sales each year from $63,335 (bill) in 2009 to $72,217 (bill) in 2013. Providing customers with better products and more options usually results in loyal returning customers.