Why Alliance Boots?
Much has been written already about Walgreens’ epic, two-step acquisition of Alliance Boots that in the end could be valued at $16 billion. As the largest single purchaser of prescription drugs in the world, with a global pharmaceutical wholesale operation to match, in-house manufacturing capabilities in over-the-counter health and wellness and generic drugs, Walgreens-Alliance Boots will have a whole lot more influence on the pharmacy side of its business.
There is no denying these game-changing aspects of the deal. But it’s important to understand just how strategically the two companies fit together. Walgreens set about this course with a definitive plan for how it planned to transform itself — the acquisition just enables it to step up the pace considerably. Walgreens president and CEO Greg Wasson walked DSN through how the deal acts as an accelerant for Walgreens’ five strategic imperatives to achieve its goal of becoming the preferred destination for health and daily living:
To transform the traditional drug store into a health and daily living destination. “[Boots] is probably the leading retailer in the world in beauty,” Wasson explained. “The store design, the experience — everything that helped them capture literally 50% of the beauty business in the U.K.”
But to be clear, that is a transformation that began long before the Boots stores came into the picture. “When we acquired Duane Reade … Joe [Magnacca] had taken his Shoppers Drug experience and his knowledge of what [retailers in Europe] were doing, and he went back and created the LOOK Boutique, and you’ve seen that begin to appear in stores across the chain,” he said. “Now you look at what Boots has, and you put that together, and we think we will be able to move a lot more aggressively into beauty.”
To advance the role community pharmacy plays in health care. “The big thing here is that Alliance Boots will help us become the world’s biggest supply chain and allow us to work in different ways with pharmaceutical manufacturers, front-end suppliers, payers, etc.,” Wasson said, that will lead to new opportunities to grow the business for all parties. “The way I looked at this [Alliance Boots deal] was, as our suppliers become more global, and they are looking for new and unique ways to grow their businesses, what an opportunity to create the first global retail pharmacy supply chain.”
To raise the game on employee engagement and customer service. “The one example I would give there would be the loyalty program,” Wasson said. “When I came into this role more than three-and-a-half years ago, one of the first things I decided was that we needed a loyalty program. … Alliance Boots has the leading program in all of Europe, and it is a big part of why they are able to play such a big role in beauty in the United Kingdom.”
To expand access across new markets and channels. “If you look at the progress we’ve made over the last three years and where we’re headed, Alliance Boots fits squarely into strategy No. 4,” he told DSN. “Channels implied ‘multichannel,’ that’s e-commerce, and Sona [Chawla, president of e-commerce] and her team are doing some great stuff [with] Drugstore.com and Beauty.com, mobile and some of the other things we’re doing there. … Obviously [Alliance Boots] has a leading e-commerce site and mobile channel themselves, and Sona and her team will get in there and see what’s the best of both worlds and accelerate that on both sides [of the company].”
“But markets means outside of the United States,” Wasson noted. “This gives us our first step outside of the United States, into emerging markets.”
To focus on costs. “There’s no doubt that we will be able to find ways to use our scale to help lower costs throughout the whole organization,” Wasson said. “And this is where the suppliers, I think, get excited. Certainly, we are going to take advantage of opportunities to buy and bring efficiencies together. But what’s really exciting is the fact that this is about innovation as well.”
Wasson uses Asia as an example. “I have been talking to Wall Street quite a bit about this,” he explained. “Two years ago, we decided we needed to have an Asian purchasing office. So we started about two years ago, and today we have six people working in an office in Asia, and we’re starting to bring a lot of products in. Boots has 150 to 200 people [in Asia]. They’ve had them there for 10 to 15 years now. And Alliance Boots will tell you that those people out there in Asia are not only there looking for cost opportunities — more importantly, they’re also looking for new innovation and new ideas for bringing products to market. We’re going to be able to leverage that.”
One area in which Walgreens will benefit greatly is in private-brand development— Boots has a research and development group with 400-plus associates in Nottingham, England, that is constantly at work on private-brand innovation. Walgreens has taken steps in this direction in recent years with the creation of such brands as Duane Reade’s Delish and its own Nice! brands, but Boots has long been acknowledged for its private health and beauty brand development, with a long, rich tradition dating all the way back to the launch of its No7 beauty brand in 1935. The deal will help Walgreens emerge with a private-brand presence in color cosmetics that people want to buy.
In addition to No7, it also features the Boots Pharmaceuticals (OTC), Soltan (sun care), Botanics (natural skin care), Boots Laboratories (anti-age partnership with Procter & Gamble) and Almus, which currently makes generic pharmaceuticals in five European countries. Given the market for multisource generic pharmaceuticals and future projections for the patent cliff, having an in-house generic pharmaceutical manufacturing capability is a decided advantage for a drug store operator with 11,000 stores in 12 countries.