WALGREENS NEW COMMERCIAL STRATEGY AND COST CUTTING MEASURES

Part Of The Walgreens Boots Alliance New Business Strategy: In-Store Clinic Closings Plus Grocery, Weight Loss And Healthcare Provider Partnerships

Walgreens ( NASDAQ: WBA ) will close about 40% of its in-store clinics as it initiates new strategies to boost profitability. The clinics selected to close are those which are operated by Walgreens; the remaining stores operated through partnerships with healthcare provider organizations such as healthcare systems will remain open.  About 150 clinics will be impacted by the new strategy and closed by end of the year.  Over 200 clinics will continue to run through the healthcare provider partnerships. Walgreens was proficient at operating their company-owned clinics but was not satisfied with their profitability levels and prefers to allocate resources to other more profitable ventures.

In-Store Consumer Clinic Care

Walgreens clinics typically provide care for minor healthcare needs such as vaccinations, flu, moderate respiratory infections, urinary tract infections, strep throat, school physicals and other patient services.  The closing of the clinics will draw the attention of healthcare provider organizations and perhaps serve as a catalyst for new partnerships to be formed between Walgreens and healthcare systems in those markets. For those stores in which the clinics are not taken over by an outside entity, the space dedicated to clinic care will be repurposed.

Advantages Of Partnering With Healthcare Systems

Health systems, for example Advocate Health Care System in the Chicagoland area, have benefited from operating clinics in Walgreens stores.  They are an extension of care services provided outside of hospitals and help to retain patients within the health system’s realm for other medical needs in the future. For consumers, in-store clinics are all about convenient access to care and for Walgreens ( or other in-store clinic operators like CVS, Walmart, etc. ) they seek to pull more customers into their stores which helps drives pharmacy as well other sales throughout a retail unit.

In-Store Clinic Competition

As an immediate care provider, in-store clinics do face competition on several fronts. Competing health systems often own / operate care clinics and there are metropolitan and regional chains of immediate care clinics which compete for the convenience care needs of consumers.  Telehealth is an emerging competitor in the convenience care space with services provided through kiosk terminals, smartphones and other digital platforms ( tablets, laptops, etc.).

CVS And Walmart Always A Threat

Competitors like CVS ( NYSE: CVS ) and ( NYSE: WMT ) have been making some big splashes lately. CVS acquired health insurer Aetna and operates clinics and pharmacies in its own stores as well as mass merchandiser Target ( NYSE: TGT) stores.  Walmart is expanding its patient care business with pilot programs in their stores including featuring primary and urgent care, labs, x-ray and diagnostics, counseling, dental, optical and hearing services all in one facility.

Walgreens Has Ample Locations, Brand Recognition, Multi-National Presence, Several Business Units

Walgreens operates over 9,000 stores in the United States and overall just over 13,000 worldwide in 11 countries. They also own 26% of giant drug wholesaler AmericansourceBergen ( NYSE: ABC ) and a minority share owner of home infusion provider Option Care Health. 78% of the U.S. population lives within 5 miles of a Walgreens store (or Walgreens-owned Rite Aid or Duane Reed store). Founded in 1901, Walgreens interacts with over 8 million customers per day in stores and online.

Walgreens Pivotal Cost Cutting Goals

A big focus of Walgreens new strategy is cost cutting and they have shared their goal of $1.8 billion in expense eliminations by 2022. This amount was increased from an original mark of $1.5 billion. Staff reductions, strategic outsourcing and assertive vendor contract negotiating are some of the key elements involved.  

Beyond Cost Cutting And Into New Revenue Generating Options Or Even Bigger Deals

While reducing expenses is important, it is certain Walgreens has other commercial initiatives within their plans to increase sales and drive innovation both in retail consumer and healthcare sectors. The company is beginning a new initiative with weight loss leader Jenny Craig in 100 of its stores. Walgreens has established partnerships with Blue Cross Blue Shield PBM Prime Therapeutics ( AllianceRx Walgreens Prime) and have various initiatives underway in collaboration with Kroger ( NYSE: KR ).

Food For Thought; Is Walgreens Preparing For A Large Strategic Acquisition?

CVS / Aetna ( and Target pharmacies ) is a sizable combination as is Cigna / Express Scripts. The threat of Amazon ( NASDAQ:AMZN ) goes up and down the retail pharmacy, mail order pharmacy and big box mass merchandiser sectors; Amazon is assertively expanding it healthcare business enterprise which includes its online pharmacy business unit PillPack  and recent acquisition of Health Navigator). 

UnitedHealth Group ( NYSE: UNH ) continues to bulk up with PBM and MCO pharmacy and healthcare benefit plan capabilities and is expanding further into patient care services through acquiring various medical practice groups and a large scale medical billing service company. 

Perhaps Walgreens Boots Alliance is slimming down and optimizing in preparation for it to make a large scale acquisition or perhaps has Kroger or Walmart expressed an interest in acquiring them?

LinkedIn: John G. Baresky

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