Transforming the hedgehog
For years, Wall Street — and customers, too — rewarded Walgreens for being the hedgehog of retail. A homage to the old Aesop fable, unlike the fox, the hedgehog is steady and methodical. And, that’s just how Walgreens operated its business. It didn’t make big acquisitions; it grew organically and built its own stores. It didn’t hire a lot of experts from other fields; it tended to cross-pollinate and promote from within.
For decades, that was the key to its success. And while today the company’s values are very much the same as they have ever been, there is no denying that the hedgehog has grown a bit more nimble. “I wouldn’t say that the hedgehog mentality has been thrown out — I think we are building upon it,” Walgreens president and CEO Greg Wasson told DSN in an exclusive interview. “There are still some things that we do that are very deliberate, where we really pilot [new concepts and ideas] and spend time making sure things work, and then accelerate [from there].”
After all, being the hedgehog is what got Walgreens where it is today — the largest retail pharmacy chain in the United States, with sales of some $72 billion and providing 1-of-every-5 retail prescriptions filled, and on the verge of transforming the business of community pharmacy into a global industry while also transforming the experience of shopping a drug store into something no one has ever imagined — no one but Wasson and his team, that is.
“I think the hedgehog mentality was spot on and quite frankly what made us successful over the last two decades when we were opening drug stores on the best corners in America, to move us from 1,000 stores to the 8,000 we have now. Because of that, we have a tremendous foundation to take this company — and the profession of community pharmacy — forward in an even bigger way.”
What does that mean? For one thing, Walgreens doesn’t even consider itself a drug store anymore. That’s so 20th century. Enter the age of the health and daily living store, embodied in its new Well Experience stores rolling into a number of markets. Right now, there is nothing else like it in retailing. To further elevate the customer experience, this month Walgreens rolled out its new loyalty program, Balance Rewards, which the company has quietly crafted and tested over the last few years. It was one of the very first things Wasson decided Walgreens needed to have to effect the kind of transformation he envisioned for the company.
And it is a good example of how the hedgehog has learned to pick up the pace of innovation when it needs to. “There are times when I don’t think we can stay in hedgehog mode,” Wasson explained. “There are things that we do, where we do have to move things along more quickly. I’d say we’re a little bit of a hybrid.”
Indeed, in the past three years under Wasson’s leadership, Walgreens moved quickly to seize opportunities that helped accelerate its long-term strategic goals. It acquired Duane Reade in 2010 and Drugstore.com in 2011. Most recently, its two-step mega-deal with Alliance Boots (valued at a little more than $16 billion in total), announced in June, redefines its mission. In the United States, Walgreens stores are now destinations for health and daily living located at the corner of “Happy and Healthy.” With Alliance Boots, it becomes a self-described “global pharmacy-led, health and well-being company,” with more than 11,000 locations, each set at the “corner of global reach and local relevance,” as Wasson has explained to analysts.
Indeed, the very nature of the two-step transaction speaks volumes to the “hedgehog hybrid,” Wasson described. It is a classic example of how Walgreens can move fast and still execute in the deliberate manner that has made it successful. The plan is largely for both sides to learn from each other over the next two to three years as the two companies march down the aisle to full completion of the deal, expected some time in 2015. (Details of the transaction provide a six-month window for Walgreens to exercise its option to acquire the remaining 55% of the company beginning two-and-a-half to three years following the initial close of the transaction, which occurred Aug. 2.)
Perhaps nowhere in the company is the “hedgehog hybrid” mentality reflected more than in the makeup of Wasson’s leadership team, which he said reflects “the perfect blend of internal, long-term talent” — like Wasson himself, a 32-year veteran of the company whose career began in the stores — and “external expertise and talent that has helped accelerate the transformation that we’re in the midst of,” he said.
In the three-and-a-half years since Wasson was tabbed for the top job at Walgreens, he has assembled a dream team of sorts, adding top minds from other fields to help inject the company with new thinking, and to look with fresh perspective for new ways to execute its five key growth strategies:
To transform the traditional drug store into a health and daily living destination;
To advance the role community pharmacy plays in health care;
To raise the game on employee engagement and customer service;
To expand access across new markets and channels; and
To focus on costs.
Driving all of this are a couple of undeniable forces that have created an immediate sense of urgency for Walgreens and the community pharmacy industry, in general. Affecting all retailers is the impact of the Internet and e-commerce — convenience and price take a backseat to experience in the brave new world of retail. Certainly, Walgreens’ new Well Experience stores, and the concepts it is testing in its growing number of flagship stores, are redefining content relevance at the local level and producing plenty of retail theater along the way. And its considerable progress in e-commerce has enabled it to cultivate a significant multichannel offering that allows its customers to shop Walgreens in just about any way imaginable.
But Walgreens as a health provider is facing a whole other set of challenges and opportunities. Wasson refers to these as the “push” and “pull” that is driving the transformation of community pharmacy. And, there is no denying that as head of the biggest chain in the industry, and chairman of the National Association of Chain Drug Stores, there is a discernible sense of obligation that Walgreens needs to lead from the front on this one.
“What is evident is that the industry has changed dramatically over the last three to five years,” Wasson explained. “There were both threats and opportunities. One of the threats is just being in health care. [All stakeholders] are going to be forced to reduce costs; continued reimbursement pressure; commoditization, whatever that may look like. … That’s what I call ‘The Push’ — what’s pushing this industry, not only Walgreens, but this entire industry, to step forward and move this profession further along. And being the leader in this industry, as Walgreens, the onus is on us to do that.”
“‘The Pull’ is that, frankly, the nation needs new innovation. And the profession of pharmacy and our presence in 8,000 communities across the country gives us the opportunity to build on that foundation that hedgehog mentality built.”
What does that mean exactly? For years, community pharmacy has talk