Differentiated offerings key element to WBA growth strategy
With more than half of all prescription drugs today being dispensed to a baby boomer in the U.S., which contributes significantly to an overall U.S. healthcare expenditure equivalent to 18% of the country's GDP, it has never been more important for pharmacies to deliver on the promise of differentiated offerings.
Rather than chaffe under the pharmacy reimbursement pressures that market dynamic generates, Stefano Pessina, executive vice chairman and CEO Walgreens Boots Alliance, and his team on Wednesday morning pointed to the number of levers Walgreens has to help mitigate escalating healthcare costs and make the retail pharmacy chain a key partner to providers and payers. "Fundamentally we see ourselves as being in very attractive markets," he said. "The pressures on pharmacy are just elements of the overall pressures on the healthcare system. ... It is a sign that everyone recognizes the need to control the inevitable growth in demand [for healthcare services]."
Thanks in part to the differentiated offerings already in play, Walgreens earlier Wednesday morning posted sales of $33 billion for its second quarter ended Feb. 28, an increase of 12.1% from the year-ago quarter, and an increase of 9.4% on a constant currency basis.
Walgreens has both the experience and track record to help manage those healthcare costs.
"The attractiveness of medication-based treatments to keep people leading productive lives in the community continues to increase as the cost of medication remains materially lower than total cost of healthcare," Pessina said.
Pessina outlined a five-point strategy to capitalize on that growth opportunity:
These efforts have contributed to a commanding prescription market share of 21.4% for the company. That market share is increased 200 basis points over the past three years.
Walgreens is applying similar efforts against developing its front-end business, where gross margins have improved more than 300 base points in the most recent quarter vs. the comparable quarter three years ago.
"This progress has been made through a combination of solid retail management in focusing promotions and applying rigorous financial discipline," Alex Gourlay, co-COO Walgreens Boots Alliance, said. "Through changes in merchandising and product mix we have furthered our strategy of differentiation and increased penetration of own brands while significantly improving margins. This has been achieved in competitive markets by driving improvements in our health and beauty offerings."
For example, the Walgreens differentiated beauty offering has been rolled out to approximately 2,900 locations to date, Gourlay reported. "Since we completed the roll out, beauty sales in the beauty differentiation stores have outperformed our non-beauty differentiation stores," he said. "In the quarter this accounted for a retail margin differential of around 2 percentage points."
To help deliver a differentiated health offering, Walgreens plans to bring to bear its optical hearing care and lab testing services as part of a new pilot store initiative. "The pilot stores will also provide a platform for the existing initiatives we have already introduced such as our strategic partnership with FedEx," Gourlay said. "The development of the new store formats and the iterative evolution as we learn more from their performance in the market also provides us with the opportunity to develop a wider range of services and a different value proposition."
The recent completion of the Rite Aid store acquisitions will help accelerate these front-end growth initiatives, Gourlay added.
Walgreens also has invested $500 million in improving its front-of-store systems and anticipates investing an additional $500 million in the next three years, Gourlay told investors. "We are starting to get good data from our stores and we are making progress toward what we need," he said. "We are now running the Balance Rewards program as a data and consumer insight tool as much as a marketing program as it was orginally designed."
That loyalty program today boasts 88.6 million active users, Gourlay said.
Rather than chaffe under the pharmacy reimbursement pressures that market dynamic generates, Stefano Pessina, executive vice chairman and CEO Walgreens Boots Alliance, and his team on Wednesday morning pointed to the number of levers Walgreens has to help mitigate escalating healthcare costs and make the retail pharmacy chain a key partner to providers and payers. "Fundamentally we see ourselves as being in very attractive markets," he said. "The pressures on pharmacy are just elements of the overall pressures on the healthcare system. ... It is a sign that everyone recognizes the need to control the inevitable growth in demand [for healthcare services]."
Thanks in part to the differentiated offerings already in play, Walgreens earlier Wednesday morning posted sales of $33 billion for its second quarter ended Feb. 28, an increase of 12.1% from the year-ago quarter, and an increase of 9.4% on a constant currency basis.
Walgreens has both the experience and track record to help manage those healthcare costs.
"The attractiveness of medication-based treatments to keep people leading productive lives in the community continues to increase as the cost of medication remains materially lower than total cost of healthcare," Pessina said.
Pessina outlined a five-point strategy to capitalize on that growth opportunity:
- Leverage partnerships or acquisitions to consolidate volumes and use these volume efficiencies to buy "best in class" services that are significantly better than the competition;
- Control costs and optimize financial synergies;
- Differentiate services through a combination of exclusive services and innovative own brand offerings;
- Build a portfolio of complementary businesses across a broad geography; and
- Reinvest in the business to drive both organic and external growth.
These efforts have contributed to a commanding prescription market share of 21.4% for the company. That market share is increased 200 basis points over the past three years.
Walgreens is applying similar efforts against developing its front-end business, where gross margins have improved more than 300 base points in the most recent quarter vs. the comparable quarter three years ago.
"This progress has been made through a combination of solid retail management in focusing promotions and applying rigorous financial discipline," Alex Gourlay, co-COO Walgreens Boots Alliance, said. "Through changes in merchandising and product mix we have furthered our strategy of differentiation and increased penetration of own brands while significantly improving margins. This has been achieved in competitive markets by driving improvements in our health and beauty offerings."
For example, the Walgreens differentiated beauty offering has been rolled out to approximately 2,900 locations to date, Gourlay reported. "Since we completed the roll out, beauty sales in the beauty differentiation stores have outperformed our non-beauty differentiation stores," he said. "In the quarter this accounted for a retail margin differential of around 2 percentage points."
To help deliver a differentiated health offering, Walgreens plans to bring to bear its optical hearing care and lab testing services as part of a new pilot store initiative. "The pilot stores will also provide a platform for the existing initiatives we have already introduced such as our strategic partnership with FedEx," Gourlay said. "The development of the new store formats and the iterative evolution as we learn more from their performance in the market also provides us with the opportunity to develop a wider range of services and a different value proposition."
The recent completion of the Rite Aid store acquisitions will help accelerate these front-end growth initiatives, Gourlay added.
Walgreens also has invested $500 million in improving its front-of-store systems and anticipates investing an additional $500 million in the next three years, Gourlay told investors. "We are starting to get good data from our stores and we are making progress toward what we need," he said. "We are now running the Balance Rewards program as a data and consumer insight tool as much as a marketing program as it was orginally designed."
That loyalty program today boasts 88.6 million active users, Gourlay said.