FREE ESSAY ON WALGREENS - A STRATEGIC ANALYSIS

WALGREENS - A STRATEGIC ANALYSIS

Table of Contents 
TABLE OF CONTENTS 1
TABLE OF FIGURES 2
THE RETAIL DRUGSTORE INDUSTRY 3
BUSINESS ACTIVITIES 7
INDUSTRY OVERVIEW 7
BACKGROUND 8
MODERN DRUGSTORES 8
CURRENT ORGANIZATION AND STRUCTURE 9
CURRENT CONDITIONS 10
FUTURE INDUSTRY PERFORMANCE 13
HISTORY OF WALGREENS 16
COMPETITIVE ANALYSIS 20
RITE AID CORPORATION 20
CVS CORPORATION 25
DRUGSTORE.COM 29
CUSTOMER PROFILE 32
EXTERNAL OPPORTUNITY ANALYSIS 34
EXTERNAL THREAT ANALYSIS 39
SUMMARY OF EXTERNAL OPPORTUNITIES AND THREATS 41
OPPORTUNITIES 41
THREATS 42
INTERNAL STRENGTH ANALYSIS 42
FINANCIAL STRENGTH 43
PRODUCT INNOVATION 44
HISTORY 45
GROWTH RATE OF STORES 46
MANAGEMENT TEAM 48
INTERNAL WEAKNESS ANALYSIS 48
SUPPLY OF PHARMACISTS 48
LACK OF EMPLOYEES 48
LEGAL LIABILITY 49
SUMMARY OF INTERNAL STRENGTHS AND WEAKNESSES 49
STRENGTHS 49
WEAKNESSES 50
FINANCIAL ANALYSIS 50
LIQUIDITY 51
Inventory Turnover 51
Current Ratio 53
LONG-TERM DEBT-PAYING ABILITY 54
Debt / Equity Ratio 55
PROFITABILITY 56
Net Profit Margin 56
Return on Assets 57
ANALYSIS OF THE MISSION STATEMENT 58
ANALYSIS OF WALGREENS' OBJECTIVES 61
STRATEGIC ALTERNATIVES 64
GROWTH 65
Advantages (growth concentration): 65
Disadvantages (growth concentration): 66
Advantages (growth diversification): 67
Disadvantages (growth diversification): 68
RETRENCHMENT 69
STABILITY STRATEGY 70
COMPETITIVE STRATEGIES 70
DIFFERENTIATION 71
FOCUS 71
IMPLEMENTATION 72
CONCLUSIONS 75
BIBLIOGRAPHY 77
APPENDIX 82
Table of Figures 
FIGURE 1 - INVENTORY TURNOVER 52
FIGURE 2 - CURRENT RATIO 53
FIGURE 3 - DEBT / EQUITY RATIO 55
FIGURE 4 - NET PROFIT MARGIN 57
FIGURE 5 - RETURN ON ASSETS 58
The Retail Drugstore Industry 
Introduction
Knowing the importance of a strategic vision, every company undertakes a complete
analysis periodically. In order to create a strategic plan the parties involved must know
every aspect of the industry and the company at hand. The purpose of this paper is to
describe and analyze the retail drugstore industry and then focus on Walgreens, the
industry leader in terms of sales. As part of the in-depth analysis of Walgreens, its
major competitors will also be described and analyzed. The retail drugstore industry
consists of all those stores that contain a pharmacy and sell prescription drugs. It also
includes businesses that sell prescription drugs online and through the mail. Most retail
drugstores also offer other consumer goods and services to augment the low margin earned
on prescription sales. To be considered a member of the retail drugstore industry
requires sales of prescription pharmaceuticals to the end consumer. Many convenience,
food and discount stores sell over-the-counter medicines, but these stores would not be
considered retail drugstores because they do not also sell prescription medicines. 
Relevant Environment
Competition: The relevant environment, which consists or interactions between the task
environment and task environment, has been changing over the past 25 years. As
competition has increased among grocery, discount and mass merchandising chains, blurring
of channels has occurred. This is due to stores selling an increasing variety of goods to
try to broaden their customer base and provide "one-stop" shopping. Many of these stores
have added pharmacies as a source of convenience for their customers, and to increase
store traffic, usually positioning the pharmacy in the back of the store. In response to
this pressure, both independent and chain drugstores have greatly increased the variety
of their retail product offerings. The sale of cosmetics, along with health and beauty
aids, has become an important profit generator for retail drugstores. Many are now also
positioning themselves to compete with convenience stores by offering snack food items,
beverages, and staple items. The move to stand-alone stores located on major roads with
ample, close-in parking has been an important factor contributing to convenience. 
Customers: As indicated by the type of competition seen in the retail drugstore industry,
the target market is very broad. The target market for prescription drugs includes almost
nearly all peoples. Currently, the most frequent users are children under 10 and seniors
over the age of 65. The buyers of health and beauty aids also consist of a wide range of
users. Younger users tend to buy hair care and hygiene products initially, then add
cosmetics and skin care items as they mature. The addition of a wide range of household
items, including kitchenware, toys, pet care items, and lawn care items has enhanced the
appeal of the drugstore as a one-stop shopping destination, where frequently used items
can be picked up while a prescription is being filled. The development of a strategy that
focuses on convenience items will further broaden the target market.
The sale of pharmaceuticals is considered to be a recession-proof industry, as
medications are a necessity. However, drugstores are impacted by factors such as payment
rates offered by third-party providers, prices charged by drug manufacturers, and
legislation impacting the extension of drug patents. Obviously, the sale of non-drug
items is not recession-proof. 
Suppliers: Drugstores obtain their prescription drug products from the drug
manufacturers. Drug manufacturers have been accused of discriminatory pricing due to a
practice of selling products to HMOs and mail-order houses at prices 40% to 60% under the
price charged to community drugstores. The community drugstores have filed a class-action
lawsuit in response to this practice. Many drugstores use large wholesalers as suppliers,
obtaining everything from prescription drugs to health and beauty aids from the same
supplier. Another supply source includes wholesalers who supply convenience and grocery
stores. 
Employees: The central employee in the pharmacy is the pharmacist. In 1996, pharmacists
made up 17 percent of the 605,000 people employed in the drugstore industry. The other 83
percent of the employees worked as store managers, inventory specialists, stock clerks,
and cashiers. The industry also employs buyers, merchandising managers, and inventory
replenishers at store headquarters. 
Political/Societal Forces: There are a number of political and societal forces impacting
the retail drugstore industry. Lobbying by drug manufacturers for favorable legislation
regarding patent extensions has an impact on the profit margins of drugstores by
restricting the availability of the more profitable generic drugs. Currently, the state
of Maine is attempting to pass legislation to impose price controls on drugs at community
pharmacies (Drug Store News, 5/12/2000). Technology is a factor that will be critical to
competition and cost control in the drugstore industry. The continual upgrading of
technology that contributes to efficiency will be necessary to remain competitive.
Systems are being developed that will enable physicians to send prescriptions on-line to
a pharmacy, and software has been developed to manage everything from inventory control
to insurance filing. Pharmacies are also impacted by a number of socio-cultural forces,
as indicated by the attempted legislation in Maine. Another emerging issue is the use of
drugs for practices that have moral implications, such as pregnancy prevention or
termination, and assisted suicide. Wal-Mart has refused to carry the new emergency
contraceptive called Preven, because it fears boycotts by right-to-life groups. Some
pharmacists may refuse to fill certain prescriptions, such as ones for contraceptives,
because of moral beliefs. K-Mart's policy is to fire any pharmacist who refuses to
dispense any FDA-approved drug (P. Miller, Betty Dodson.com).
The industry analysis will describe the background of the industry, the major business
activities, economic forces that impact the drugstore industry and the organization and
structure of the industry. There is also a discussion of current conditions that affect
the drugstore industry as well as a discussion of factors which will influence future
industry performance.
Business Activities
Companies in the retail drugstore industry are engaged in the retail sale of prescription
drugs, proprietary drugs, and nonprescription medications. Most also sell medical
devices, as well as a variety of cosmetics, toiletries, tobacco, novelty items, and snack
foods and beverages (Encyclopedia of American Industry). As competition increases, many
businesses in this industry are adding more goods and services to the basic activity of
filling prescriptions. Some of these services include photo processing, drive-through
prescription windows, and 24-hour service. Drugstores are now offering more snack-food
and impulse-buy items as well.
Industry Overview
The drugstore industry has moved from being a fragmented industry, prior to the
mid-eighties, to one undergoing rapid consolidation driven by several factors. The sales
volume of the drugstore industry more than doubled from approximately $40 billion in 1983
to over $93.6 billion in 1995. This growth led large supermarkets and mass-merchandisers
to enter the drugstore market, putting more competitive pressure on the smaller
independent stores. Profit margins are narrowing, due to attempts to reduce health care
costs. In response to these pressures, there has been a wave of consolidation, with
regional chains buying out one another out. Other responses to the pressure of
competition and decreasing profit margins include: an effort by drugstores to concentrate
on customer service, expansion into niche markets, forming partnerships with suppliers
and health-care providers, and the use of technology to increase cost-efficiency
(Encyclopedia of American Industry). The drugstore industry is considered to be a
recession-resistant growth industry, due to the increasing number of aging baby boomers
(Fool on the Hill, 5/18/99). 
Background
The drugstore industry had its beginning in the mid-1800s. At that time, Americans began
using more "patent medicines", reducing dependence on home remedies. Early pharmacists
worked in village apothecaries, purchasing chemicals in bulk and mixing them on the
premises to fill prescriptions. After the Great Depression, the science of pharmacology
developed and pharmaceutical companies grew rapidly, opening sophisticated research
facilities. Drug patent issues grew from fewer than 100 before 1940, to over 4,000 by the
1950s. Medications began to be distributed under the manufacturer's brand name in a
final-dosage form, instead of in bulk as generic ingredients that were then combined by
the pharmacist. The number of drugstores increased and pharmacists took a more
service-oriented role when dispensing prescriptions (Encyclopedia of American Industry).
Modern Drugstores
The early drugstore tended to be a small store, from 1,000 to 2,000 square feet, located
near grocery stores and other high-traffic areas. The bulk of the stores' sales were from
pharmacy items. Many of these small stores had a variety of "sundries and notions"
available in the front of the store, where shoppers could browse while waiting for their
prescription to be filled. The addition of the soda fountain came about early on when
bottled soda water, and charged water were originally considered to be a health items
(Walgreen's.com ). Up until the advent of "fast food" restaurants in the late 50's and
early 60's, the soda fountains were significant generators of revenue, expanding their
offerings to meals as well as beverages.
Current Organization and Structure
Competitive forces caused the drugstore industry to vary their store formats in order to
differentiate themselves from competitors and strengthen their image as health care
providers. This has resulted in the emergence of five main store formats: independents,
chain drugstores, mass merchandisers, supermarkets, and mail order. A decline in use of
conventional drugstores began as early as the late eighties as other competitors,
especially the supermarket drugstore, were developed. In 1988, 69 percent of prescription
purchases were made in conventional drugstores. This dropped to 57 percent in 1990. In
1992, sales of over-the-counter (OTC) medications were $9.45 billion, or 16.8 percent of
drugstore sales. By 1995, sales of OTCs were only 13.8 percent of sales at drugstores,
due to increased competition from discount retailers and supermarkets. 
In 1994, there were 53,216 drugstores in the five categories. Of these, 24,862 (46%) were
independently owned, 17,270 (32%) were chain drugstores, 4,837 (9%) were mass
merchandisers, and 6,247 (12%) were supermarkets. The mass merchandisers were the fastest
growing segment. In 1995, independents made 34 percent of all prescription and OTC drug
sales, chain stores made 41 percent of prescription and OTC sales, mass marketers made 11
percent of the prescription and OTC sales, and 4percent of these sales were made through
mail order outlets. By 1996 there were 58,333 drugstores in the United States. Of these,
35,000 (60%) were independently owned. The deep discounting outlets, a segment of the
mass merchandisers, had begun to lose market share due to other stores' adaptation of
their low price strategy (Encyclopedia of American Industry). By 1998, sales of
prescription drugs through all channels rose to $103 billion. Drug chains and
independents made 66percent of those sales, down from 75percent in 1995. Mail order
outlet sales rose to 13percent, supermarkets sold 11percent, and mass merchandisers sold
10percent (Standard & Poors Industry Survey).
Current Conditions 
The sales of prescription drugs jumped 7.95 percent in 1998, for an increase of $2.73
billion. The average prescription price rose by 8 percent from $35.72 in 1997 to $38.43
in 1998. The drugstore industry as a whole had a 3.3 percent increase in sales in 1998,
for a total of $134.4 billion. Due to a 15 percent increase in pharmacy volume, chain
drugstores did better than the average. Their sales grew 8.2 percent to $96.7 billion,
which was 72 percent of the industry total. Chain drugstores filled 60percent of all
prescriptions. Sales at independent stores dropped by 7.6 percent, for a total of $37.7
billion. Much of this is due to the chain drugstores receiving a greater share of
business from third-party payment plans. 
The strong growth seen in the drugstore industry is due to several factors. The two
demographic groups using the greatest amount of medication are adults over 65 and
children under 10. These two groups are the fastest growing segment of the American
population. The 65-and-older age group uses an average of 12 prescriptions per person, at
any given time. The increased availability of generic substitutes for expensive, brand
name drugs has increased the overall market for pharmaceutical products. Another
important factor is the trend toward self-medication, which is increasing purchases of
OTC medications (Encyclopedia of American Industry). Other factors that had an impact on
prescription sales are drug price inflation, the introduction of new drugs, and an
increase in the number of individuals participating in third-party insurance programs.
The increased traffic in drugstores has also resulted in increased sales of higher margin
products such as OTC medications and non-pharmacy items (front-end merchandise)(Standard
& Poors Industry Survey).
An increasingly important contributor to the profit margin of chain and independent
drugstores is the sale of "front-end" items. These items are non-pharmacy goods ranging
from snacks to hardware to gift items and greeting cards. The margins on this merchandise
run at least ten percent higher than those carried on third-party prescription sales
(Standard & Poors). As increased drug prices and the emphasis on lowering health care
costs continue to cut into profit margins on prescription sales (currently averaging 2
percent), sales of front-end items will be an increasingly important contributor to
drugstore profits. Accordingly, many drugstores, especially those occupying their own
building with convenient parking, are positioning themselves to compete with convenience
stores. The convenient parking and easy-in, easy-out features, when compared to a typical
grocery store, provide a shopping experience almost as hassle-free as stopping at a
corner convenience store. The larger store size allows the drugstore to carry a wider
variety of convenience products and many plan to add more easy-to-prepare food items to
allow a quick, easy one-stop shopping experience for people on their way home from work
(Drug Store News, 8/2/99). 
A significant event in the drugstore industry has been the move toward consolidation
which took place throughout the 1990s. In order to generate economies of scale in
distribution, buying power, corporate overhead, and the technology needed to compete for
third-party prescription drug business, it has been necessary for chain drugstores to
increase their numbers. This is achieved by rapidly building new stores or by buying
smaller independent stores or regional chains. Their increased size results in greater
bargaining power with suppliers and the ability to negotiate for better prices with
third-party providers (US Business Reporter). In 1998, the top four drugstore chains,
ranked by sales, were Walgreens, CVS, Rite Aid, and Eckerds. All but Walgreens
significantly increased their presence by acquiring other chains during the 1990s.
Walgreens accomplished this through an aggressive program of store building. These four
chains account for over 50 percent of the total market share. In 1998, the ten largest
drugstore chains made about 75 percent of all chain store sales and nearly 50 percent of
all drugstore sales, while independent drugstores made 28 percent of all drugstore sales.

The drugstore industry is facing several other problems that may have a negative impact
on earnings. A shortage of pharmacists, combined with efforts to cut costs, have
increased the number of hours pharmacists must work. This, combined with an increasing
paperwork load has led to dissatisfaction among pharmacists. One result of this has been
increased salary and benefit demands to offset the increased workload. This situation is
also perceived to the cause of increased errors in filling prescriptions. The state of
North Carolina has recently passed legislation to hold drugstores liable if overworked
pharmacists make mistakes (The News & Observer, 8/3/97). Another significant issue under
legislation is a consideration that would extend the life of the patents on some very
popular drugs, whose patents are due to expire in the year 2000. The pharmacy industry
has been anticipating increased profits that will become available when the generic
versions of these patented drugs hit the market. This situation highlights the
vulnerability of the drugstore industry when their interests conflict with those of the
much more powerful drug manufacturers (Drug Store News, 8/30/99). 
Future Industry Performance
The prospects for continued industry growth are strong due to a number of factors. These
include: 
-  An increased interest in health and personal care
-  An aging population and longer life span
-  A high number of popular drugs coming off of patent protection to the generic drug and
over-the-counter market
-  An increasing use of drug therapies versus hospitalization
There are issues that will continue to keep profit margins low. More retail segments are
recognizing the customer draw of pharmacy services, therefore increasing competition.
Price-cutting, lower drug price inflation, and restrictive third-party payment plans will
also reduce profit margins. Furthermore, supermarkets and discount retailers have
increased their offerings of the health and beauty aids that generated front-end revenue
for drugstores (Standard & Poors Monthly Investment Review). 
There are a number of strategies contributing to the success in the competitive drugstore
market. Differentiation and service are strategies critical to the success of independent
drugstores. Many independent stores emphasize personal service and counseling provided by
a familiar pharmacist. They also strive to provide a product range that reflects the
preferences of the demographics in their location. Being small allows the flexibility to
needed to rapidly adapt to the changes in consumer demands. Smaller stores exploit the
niches and business areas that don't meet the criteria of the larger chains (Drug Store
News, 2/17/97).
Use of technology to streamline inventory management, ordering, insurance claims and many
other processes is critical to the survival for all stores, large or small. The use of
point-of-sale systems, merchandise and accounting software, and sophisticated systems,
which predict precise inventory levels needed at any given time, all reduce operating
costs. This technology allows pharmacists to provide more time for personal service with
customers (Drug Store News, 4/24/2000). 
Drugstore design has changed to provide greater convenience and accessibility. The aging
of the population has caused storeowners to design stores with easy access, and no large,
crowded parking lots and long lines at the checkout. This is part of the reason many
stores are relocating to their own individual property with their own parking spaces (Las
Vegas Review-Journal, 9/8/98). Convenience and a good selection of frequently purchased
necessities will allow the drugstore to compete with convenience stores. 
Efficient management of the front-end offerings and auxiliary services will provide a
higher profit margin than that of the pharmacy alone. There are numerous cosmetic and
beauty fads throughout a year that require constant changing of products and displays to
remain up-to-date. The total performance of each stock-keeping unit is critical and
should be assessed using activity-based costing, with low performing items being
eliminated (Retailing 2005). There currently exists an under-served market for ethnic
cosmetics in many parts of the US. Prominent displays providing a variety of products
meeting those of the surrounding demographics have the potential to draw customers to a
store, boosting sales in all categories (Women's Wear Daily, 4/2000)
The large chains stand to benefit from their size by creating virtual vertical
integration partnerships with their suppliers. Joint planning, product development, and
demand forecasting will benefit both suppliers and retailers. Functions can be shared
according to who can perform them at the lowest cost. As partners change their business
processes, organizational structures, and information systems for the benefit of the
partnership, barriers to exit will be created. Barriers to other companies who have not
made such investments will also be created. This will lead to more exclusive supply chain
relationships (Retailing 2005). 
The chain drugstores will depend a great deal on the sale of private label items. The
private label can provide differentiation based on both quality and price. They provide
the retailer with a greater markup as well. Discount programs which encourage purchase of
private label items provide value to both the customer and the retailer. 
Another critical means for gaining market share will be the utilization of the Internet
to supplement sales from existing stores. CVS purchased Soma.com in order to take
advantage of its existing structure and expertise to enter the online market. Walgreens
has created its own site. Rite Aid bought into drugstore.com and will provide the
fulfillment of drugstore.com's retail prescriptions. The online drugstores that are not
affiliated in any way with an existing store are not viewed as major threat (Community
Practice, 5/5/2000)
History Of Walgreens 
Walgreen Company prides itself on being consumer friendly. This large drugstore chain has
made its mark on the map by following a simple strategy-focus on convenience. By
convenience they include: how fast people get into the store or are served in the
drive-through pharmacy, how fast they get out, how easily they find what they came to
buy, and how well they are reminded of what they are forgetting to buy
(http://www.walgreens.com/about/press/facts2.jhtr). This kind of company is not just
formed overnight- it takes many years of hard work. The following section details the
beginning of Walgreen Company and how it became the number one drugstore chain it is
today.
In the small town of Dixon, Illinois a man by the name of Charles R. Walgreen Sr. began a
dream that soon turned into a reality. Charles R. Walgreen Sr. was born near Galesburg,
Illinois and relocated to Dixon when he was a young boy. At the age of sixteen, he was in
an accident and cut off the top joint of his middle finger. This unfortunate incident
caused Walgreen to quit athletics and begin working. He worked in a local pharmacy where
he began his dream to become a pharmacist. If not for the accident, there may never have
been the Walgreens that we know today (http://www.walgreens.com/about/press/facts2.jhtr).
Charles R. Walgreen Sr. knew that this dream would only be realized in a larger city,
therefore he moved to Chicago. In 1893 he began to study the ways of a pharmacist, and
was not satisfied with what he found. The old fashioned way of running a drugstore left
Walgreen with many unanswered questions. Where was the desire to provide superb customer
service? Where were the innovations in merchandising and store displays? Where was the
selection of goods that customers really wanted and could afford? Where was the sense of
trying to understand, please and serve the many needs of drugstore customers? And, most
of all, where was the commitment to providing genuine value to the customer?
(http://www.walgreens.com/about/history/hist2.jhtr) Because of these questions, Walgreen
decided to open his own drugstore and implement all of his new ideas. In 1901, Walgreen
created a neighborhood drugstore measuring just 50 feet by 20 feet. Little did he know
that his strategic plan for this small business would become Walgreens, the number one
drugstore chain.
Walgreen began this great venture by a purchasing local drugstore for $6,000. He soon
added bright lights to create a cheerful, warm ambiance in the store. The aisles were
widened for convenience, and the selection of merchandise was improved and broadened.
Walgreen always kept prices fair and reasonable, and offered a service that was like no
other drugstore around. (http://www.walgreens.com/about/history/hist2.jhtr) One of the
many additions to the new and improved drugstore was the addition of the "Two Minute
Drill." This strategy worked by keeping the call-in customer on the phone with casual
conversation, while the prescription was filled. The merchandise was then delivered to
the home of the customer while they were still on the phone with Walgreen. The customer
was amazed at the fast and friendly service. This became the "Two Minute Drill." This
drill created customer loyalty and a positive image.
(http://www.walgreens.com/about/history/hist3.jhtr)
By the year 1910, Walgreens had expanded to two stores. Walgreen continued to take
advantage of new opportunities and enhance a growing customer base. With this in mind,
Walgreen decided to add hot food to the wide variety of items available in the stores.
This was the addition of the soda fountain.
(http://www.walgreens.com/about/history/hist3.jhtr) 
In 1913, Walgreens had four stores in the Chicago area. By 1919, there were 20
stores-Walgreens was growing fast. The customer friendly chain store was continually
looking for new and innovative ways to please the consumer. Noting this, in 1920 a man by
the name of Coulson added ice cream to a popular milk mixture. This was the beginning of
the milk shake. (http://www.walgreens.com/about/history/hist4.jhtr) Walgreen was so
impressed with this new sweet drink that he added it to the menu of all of his stores.
The wonderful creation was written about in newspapers and talked about in every city
that housed a Walgreens store. Customers were suddenly standing in line for this cool new
drink. Walgreens was becoming popular. By 1930, the fast growing chain had well over 500
stores. With this newfound fame, Charles Walgreen incorporated philanthropy in the
corporate mission. After leading a full life and accomplishing so much, Charles R.
Walgreen Sr. died in the year 1939. The Walgreen Company was left to his son Charles
Walgreen Jr. With a disciplined management team, Walgreen Jr. would lead the company that
has continued to exponential growth. (http://www.walgreens.com/about/history/hist5.jhtr).

Walgreens continued to prosper through the years, even during the depression. By 1975,
Walgreens had 633 stores and employed over 1500 pharmacists. Moving through the century
the growing chain store now had a third Charles Walgreen continuing the family tradition.
With the help of Charles Walgreen III, Walgreen Company hit a milestone when they opened
the 1,000th store in 1984. (http://www.walgreens.com/about/history/hist6.jhtr) 
As Walgreen Company proceeds into the future, great things are expected to happen. In the
year 2000, Walgreens opened its 3,000th store. Walgreens is currently in 43 states and
Puerto Rico. The strong, solid drugstore chain plans to open 450 stores in 2000, one new
store every 19 hours. Their goal is to have 6000 stores by the year 2010. With all the
growth and advancement in technology, Walgreen Company plans to hold the market as the
number one drugstore chain indefinitely.
(http://www.walgreens.com/about/history/hist7.jhtr) 
Competitive Analysis 
When evaluating any business, it is important to look not only at the company, but at
other companies in the market to determine their market position, their strengths, and
their weaknesses. The more information you have on your competitors, the more likely you
are able to succeed in creating a successful strategy against them. Knowing this, the
following paragraphs will analyze Walgreens competitors, Rite Aid, CVS, and
drugstore.com.
Rite Aid Corporation
Rite Aid, America's Neighborhood Drugstore, is the number one pharmacy leader and for the
first time was named one of the 1998 "Business Week's 50"- the magazine's annual ranking
of the nation's best performing companies. Rite-Aid was ranked 48th, and the only
drugstore chain to make a list topped by Microsoft and dominated by financial and
high-tech firms. Rite Aid's success according the Mr. Grass, chairman and CEO, was due to
a combination of factors including an ongoing expansion/acquisition strategy, development
of state-of-the art technology, marketing and brand differentiating initiatives and the
creation of a top-notch senior management team.
Between 1996 and 1998, Rite Aid acquired three of the country's leading regional drug
chains: Thrifty Payless, the largest drugstore chain on the West Coast with 1,007 stores
and $4.4 billion in sales, and Harco and K&B in the South. Capitalizing on these
acquisitions, Rite Aid continued to develop hundreds of new freestanding prototype stores
in the targeted markets already served by these chains. Currently, Rite Aid operates
approximately 4,000 stores in 31 states and the District of Columbia, pushing this
corporation up the ladder to becoming one of the nation's largest drugstore chains.
The brisk pace with which Rite Aid has and continues to proceed in its expansion and
acquisitions is not taking place without some setbacks and inherently large
complications. In 1999, Rite Aid experienced a tough year with lawsuits, investigations
and falling stock prices. Rite Aid was faced with the worst performing stocks on the S&P
500, because an auditing firm that has been with Rite Aid since 1968 resigned their
account with them in 1999 due to a lack in trust in Rite Aid's management. Since January
2000, Rite Aid's shares have lost more than 45percent of their market value. Adding to
this, in October of 1999, Rite Aid announced the completion of its extension and
restructuring of its $2.7 billion outstanding banking debt, and its consummated sale of
$300 million of its 8 percent convertible pay-in-kind preferred stock to an affiliate of
Leonard Green and Partners. As a result of the reorganization of debt, two things have
occurred: 1.) The $1.3 billion bank debt which was scheduled to mature and the $300
million which was due on demand at the time of maturity on October 29,1999, has been
extended to November 1, 2000 2.) Rite Aid will be free of almost all loan payments until
mid-2002. Investigations have plagued Rite Aid in the areas concerning past operating
practices and the reorganization and reconstructing of debt has not helped to lessen
suspicion. As a result of investigations due to suspicions, Rite Aid's safety rank was
lowered to a four, which is below average.
In addition to the financial restructuring and the needed aid of banking facility
extensions, Rite Aid will pay $2.8 million in a lawsuit settlement to 12 counties in the
city of San Diego. These counties alleged that Rite Aid used misleading advertising and
engaged in unfair competition. All things taken into consideration and tallied, Rite Aid
is approximately $3 billion in debt. A $1 billion boost from lenders has helped ease the
concern and financial straps at Rite Aid, and will be used to repay debt and fix up
stores. 
To strengthen the company's rank, and with a new management team intact in many key
departments, Rite Aid intends to debut 300 locations in the year 2000. It will take time
for the new operating procedures to filter through the system, but significant parts of
Rite Aid's infrastructure, including its retail stores and distribution network are up to
date and should be well-positioned to produce improved operating result in time (Standard
& Poors). 
The year 1999 opened with GNC, General Nutrition Companies, and Rite Aid announcing the
construction of a significant strategic alliance in vitamins and nutritional supplements.
Outside the pharmacy, nutritional supplements are Rite Aid's fastest growing category,
and retail is the fastest growing channel for selling nutritional supplements. Rite Aid
will open 1500 full-line GNC stores within Rite Aid locations across the country over a
three-year period. GNC will manufacture the nutritional supplements and together they
will market a new line of vitamins and nutritional supplements to be called PharmAssure.
In addition, GNC will become the exclusive manufacturer of Rite Aid's private label
vitamins and nutritional supplements and together they will construct a co-branded
Internet e-commerce and nutritional information site.
This strategic alliance is another step to Rite Aid becoming a broader health services
company. The ability to link nutrition with the credibility of Rite Aid's pharmacists in
the growing area of e-commerce excites Rite Aid and creates an unique competitive edge
that is expected to be favorably received by consumers, according to Mr. Grass, CEO. In
support of this alliance, Beth Kaplan, executive vice-president of marketing at Rite Aid,
says, "Americans are increasingly concerned about their long-term well-being. Our
exclusive PharmAssure products and GNC 'stores within stores' will help Rite Aid
differentiate itself from the competition while meeting the health needs of our customer
base-the key to our success."
The strategic alliance with GNC and expected future success sparked Rite Aid's expansion
and reconstruction of its pharmacy division. At the beginning of the year 2000, Rite Aid
announced its expansion and reconstruction of its corporate pharmacy to provide a more
integrated approach to pharmacy purchasing. Mary Sammons, president and chief operating
officer, said, "The new structure will make a very strong part of our business even
stronger." She also explains that bringing all the areas of pharmacy together under one
direction will able them to develop a more focused pharmacy strategy that should improve
all aspects of their pharmacy operations.
To ensure success in the newly restructured pharmacy operations, Rite Aid has constructed
a team of key top-notch experienced executives. These top executives, Sorkin, Wolfe, and
Podguski, have a combined 79 years of experience in the field of pharmaceuticals that
ranges from purchasing to managed care, marketing, human resources, and clinical
services. These executives are highly educated and respected in their field of
specialization and combine to form a strong and powerful team for Rite Aid's pharmacy
operations. 
GNC was not the only supplement to Rite Aid's drugstore business. In January 1999, Rite
Aid acquired PCS Health Systems, Inc. for $1.5 billion with the belief that this
acquisition will enhance their ability to offer a better array of pharmaceutical
services. PCS is the leader in pharmacy benefits and other managed health care systems.
PCS's pharmacy benefit management services focus on the systematic management of
prescription drug usage designed to foster high quality, cost-effective pharmaceutical
care through the application of managed care principles and information technologies. PCS
also provides pharmacy benefit management services that involve the application of
clinical expertise and management information systems to provide formulary management,
chronic disease management and mail order services (Standard and Poors).
Another contribution to the pharmacy division is a twenty-two percent acquired interest
in drugstore.com, the leading online retailer of health, beauty, and wellness products
with an online pharmacy. Rite Aid customers are able to order their prescriptions online
at drugstore.com with the same pharmacy benefits provided to them by their insurance
management companies, as if they were doing business with Rite Aid. These prescriptions
may be picked up at the nearest Rite Aid store or delivered directly to the customer's
home. Both companies are planning to undertake co-promotion and co-branding activities.
Despite a tough year in 1999 of financial investigations, falling stock prices and
lawsuits, Rite Aid has weathered the storm and its position is on an upward course. A
newly formed corporate structure combined with smart and capable leaders has guided Rite
Aid up from beneath its financial, corporate and legal difficulties. First quarter sales
beginning February 27, 2000 and ending May 27, 2000 revealed a 6.2 percent increase for
same-store sales, consisting of 9.6 percent pharmacy same-store sales increase and a 1.4
percent increase in front-end same-store sales.
CVS Corporation
Ranked ninety-three in the Fortune 500 and the nation's No. 1 leader in the pharmacy
market with 11.9 percent market share, CVS Corporation fills more prescriptions than any
other drugstore chain and has 4,100 locations east of the Mississippi. Sixty percent of
their sales come from filling prescriptions, while the rest comes from front-store
sections offering additional medications, cosmetics, food, film processing and other
general merchandise. 
CVS was founded under the name Melville in 1892, selling only shoes. It was not until
1964 that the name CVS was first used and not until the early seventies that CVS bought
the Clinton Drug and Discount to enter the pharmacy and drugstore industry. By 1981, CVS
had acquired more than 400 drugstores and by 1985 their sales had hit $1 billion. CVS was
outperforming its Melville counterparts and thus a decision was made to concentrate on
the drugstore chain. 
By this time, Melville's holdings had grown to include the department chain store
Marshalls and the furniture chain This End Up (sold in 1995), the footwear chain,
Footaction (spun off in 1996), along with Linens-n-Things, Kay-Bee Toys and Bob's Stores
(apparel and footwear), which were all sold or spun off by 1997. After this, Melville was
renamed CVS and a major consolidation took place in the drugstore industry, merging these
two entities and forming what is now the CVS Corporation.
CVS was not finished with building its empire and in 1997 acquired Revco D.S., which had
nearly 2600 stores in 17 states, mainly the Midwest and Southeast. The next year, bought
Arbor Drugs with 200 stores in Michigan. CVS paid a combined total of $5.2 billion to
acquire these stores and add them to their already 1,425 stores in operation. 
In acquiring Arbor Stores, CVS got nearly fifty percent of the market share in the
lucrative metro Detroit market and a strategic network of store locations. This move
bumped Chicago-based Walgreen Co. from the No.1 ranking in the drugstore industry and
upstaged Walgreen's recent debut in the metro Detroit. The metro Detroit area spends
about $2 billion a year in drugstores - the fourth highest spending level nationwide. CVS
is still not in the 48 out of the 100 drugstore markets and new markets such as Chicago,
Tampa, Orlando, Fort Lauderdale and Grand Rapids help to get them there (Merrill Lynch).
The key to the company's continued growth has been a subsidiary called PharmaCare
Management Services, which provides prescription benefit management services. In
addition, CVS has recently begun the operation of CVS ProCare pharmacies that cater to
customers that require complex drug therapies such as treatments for HIV and infertility.
This taps into the $11 billion "specialty prescription market." ProCare will establish
apothecaries separate from CVS stores and staff them with qualified personnel who can
dispense the prescriptions and devote time to answering questions (Trantum).
CVS continues to move its core CVS stores from strip malls to the more profitable
freestanding locations. Only thirty-five percent of CVS's stores are freestanding units,
in comparison to Walgreens with over eighty percent. CVS is striving to catch Walgreens
and has accelerated relocations as a percent of new store openings programs because the
return on capital employed is more attractive as a result (Merrill Lynch). These
locations are typically bought, not leased, with the store resembling the corner location
proto-type of approximately 10,300 square feet. CVS has also increased their private
label offerings to 1500 items, which account for 11 percent of its front store sales. 
Expansion plans have included the acquisition of Soma.com in 1999, which was then renamed
CVS.com. This enabled CVS to provide an on-line pharmacy where customers can order
prescriptions online for delivery or pick-up. CVS uses this website to bring their store
into customers' homes and businesses with information available to educate customers
about medicines and diseases. In addition, current expansion plans include 440 new or
relocated stores nationwide and entry into two new markets by 2000. CVS has not specified
which new markets, but has confirmed relationships with two developers in the Chicago
area who are scouting a minimum of fifty sites. In Chicago, there are no independent
drugstore chains for CVS to overtake, thus they will be building from the ground up.
Overall, CVS had been producing consistent earnings for gains for its shareholders and
the three to five year outlook appears just as favorable (CVS Corp. NYSE). Successful
acquisitions and continued operation of CVS.com, ProCare and PharmaCare Management
Services have placed this corporation in a leading position with potential to overtake
the market leader, Walgreens. In addition, CVS has confirmed that company sales growth
should continue at ten percent or more for 2000.
Drugstore.com 
The leading on-line retailer of health, beauty, and wellness products, drugstore.com was
the first on-line drugstore to earn the distinction of their one-millionth customer just
thirteen months after the launch of their site. Peter Neupert, president and CEO of
drugstore.com, comments, " We have a rock solid financial base and we are growing by the
minute." Supporting this notion and that of a strong customer base, drugstore.com
announced at the end of its fourth quarter 1999 that 44 percent of its orders are for
repeat purchases. This growth and the strong financial base have stemmed from
drugstore.com's efforts to broaden its customer base and product offerings, along with
the formation of partnerships with Amazon.com, Rite Aid, and GNC, as well as its recent
acquisition of Beauty.com.
In the winter of 1999, Gomez Advisors, a provider of e-commerce research and analysis for
consumers, ranked drugstore.com No.1 overall ranking and first in four of the eight
categories including "Customer Confidence, "Relationship Services," "First-time Buyers,"
and "Time Saving." These high performance rankings can be attributed to the fact that,
"Since our inception, drugstore.com has focused on creating a friendly, informative, and
secure Internet shopping experience for today's customers," (Neupert, Peter). In
addition, Forrester PowerRankings, an unbiased expert analysis that provides objective
rankings of the leading e-commerce sites, ranked drugstore.com at the top in the health
category and it received top scores in "Customer Service, " Site Usability," and
"Features" categories.
Drugstore.com offers "thousands of brand name personal healthcare products at competitive
prices, a full-service, licensed pharmacy, along with a wealth of health-related
information, buying guides and other tools designed to make purchasing decisions,"
(drugstore.com achieves one million online shoppers). Customers have the option to
personalize their shopping experiences with a shopping list, e-mail reminders to
replenish regularly used products, and private e-mail access to pharmacist and beauty
experts for questions.
The pharmacy division at drugstore.com has been awarded the Verified Internet Pharmacy
Practice Sites (VIPPS) certification by the National Association of Boards of Pharmacy as
a fully licensed facility exercising the best safe pharmacy practices in compliance with
federal and state laws. The RxML program, which enables participating Physician
Connectivity Companies (PCCs) to transmit electronic prescriptions securely on-line to
pharmacies via their electric prescribing applications, was completed by drugstore.com in
May 2000. Incorporating the RxML standard provides physicians and other health care
providers the capability to transmit accurate electronic prescriptions securely, thereby
reducing the potential for prescribing errors, increasing overall efficiencies, and
helping physicians better help their patients. Lee Ann C. Stember, NCPDP president,
states, "The adoption standard will unify a rapidly-changing industry and deliver more
efficient and effective communication between physicians and pharmacies-and ultimately
their mutual patients."
The acquisition of Beauty.com, a leading on-line retailer of prestige beauty products
including specialty lines exclusive to the site, has expanded drugstore.com's product
base and provides the benefits of an ongoing relationship with a team of industry
experts. In addition, a strategic alliance with Rite Aid in 1999 allows customers to
order prescription drugs on-line for same day pick-up at a conveniently located Rite Aid
drugstore. Potential benefits perceived from this alliance include increased traffic at
the website with Rite Aid customers using their services, pharmacy benefits coverage
provided by the insurance companies and management companies with which Rite Aid has
relationships, and the co-promotion and co-branding activities that both companies plan
to undertake. The relationship with GNC includes the exclusive right to sell and be the
online provider of GNC-branded products and the reciprocal co-promotion of drugstore.com
and GNC products in traditional and online marketing efforts.
Drugstore.com's objective is to "become one of the world's leading retailers of health,
beauty, wellness, personal care and pharmacy products," and they are well on their way,
with the launch of a new Health and Beauty Store on the website of the leading retailer
Amazon.com. This store provides a direct gateway to drugstore.com. When customers go to
the Amazon.com home page they can click on the Health and Beauty tab and enter into the
drugstore.com online storefront. Jeff Bezos, founder and CEO of Amazon.com, states, " We
are always looking for ways top improve the Amazon.com shopping experience. We want our
customers to come to us and find anything and everything they might want to buy online."
This alliance provides tremendous opportunity for drugstore.com to expand its customer
base and continue its exceptional growth. Peter Neupert remarks that this "launch of the
Health and Beauty Store on Amazon.com is a big win for our customers. By opening our
store on the Amazon.com site, we're making it easier and more convenient for customers to
shop for health and beauty products while they're shopping at Amazon.com."
Being new to the online drugstore industry and showing a loss for 1998 and 1999 does not
equate a weak or disappearing drugstore.com. Drugstore.com has negotiated mutually
beneficial strategic alliances and capitalized on windows of opportunities. First quarter
sales for 2000 are $22,738,000, following the trend of quarterly increases since its
inception in 1999.
Customer Profile 
Walgreens, unlike other retail drugstore chains, does not tailor its offerings to any
specific consumer or market segment. Walgreens provides a diverse array of product lines
so that each consumer and market segment may fulfill their shopping needs whether it is
beauty, prescription, over the counter medications, toys, photography development,
greeting cards, gifts or convenient store items at any local Walgreens. Therefore, the
market segment as defined for Walgreens consists of any consumer who seeks the everyday
necessities that may be found at a super store such as Wal-Mart or K-Mart, but without
the hassle and inconvenience of large crowds and the challenge of a difficult search to
locate desired products.
Walgreen's research of customers in Chicago and San Antonio reveals two specific types of
customer; browsers and lasers. Browsers are customers that come to Walgreens for the
shopping experience. Lasers are customers who come to Walgreens for one or two specific
items with an emphasis on time and convenience. According to the American Demographics
Magazine, customer on a constrained time budget will likely favor small shops over large
ones, spend less time comparing prices, use technology to reduce transportation time, and
patronize businesses that make life easier. Walgreens' strategy is directed toward the
time-starved laser shopper. The average Walgreens' transaction time from car door open to
car door close, is 13.5 minutes with the average being 3.3 items (Walgreens 1999 Annual
Report).
The "Baby Boom" generation born between 1946-1964, a time in which 3.8 million to 4.3
million babies were born annually, is an unusually large generation that started turning
fifty in January 1996 (The Market for Boomers Turning 50, 1999). This generation is a
large and important market segment in the area of vitamins and health, including
prescription and over the counter medications. The population of America is aging and
Walgreens' main focus on prescriptions, vitamins and over-the-counter medication
recognizes this aging market segment as one to be served efficiently and adequately. This
market segment will continue to grow and become more important as age related health
problems and concerns for overall health begin to rise.
The "kids and teen" market segments are two other important and influential market
segments that require special attention. Children ages five to fourteen currently number
thirty-nine million, while the "teen" population ages twelve to fourteen will be one of
the largest and wealthiest in American History (The Teens Market, 1999). The child
population has not grown substantially, but their income has grown at a steady 20 percent
for at least the last half decade, with their purchasing power growing at an even more
astonishing rate (The Kids Market, 1999). Capturing the loyalty of these two market
segments will present difficulties due to their need for instant gratification and the
rapid pace with which they change attitudes, but the perceived future benefits far
outweigh the cost.
External Opportunity Analysis 
Identifying a company's external opportunities is part of a greater plan to begin to mold
a company's strategy. There is, however, a distinct difference between industry
opportunity and a company's opportunity. Every company is not equipped with the resources
to take advantage of an industry opportunity. Obviously, companies in the same industry
are of different sizes and have different strengths. Knowing its own strengths and what
market opportunities to pursue can better able a company to grow and prosper. 
When analyzing Walgreen Company in aggregate, certain strengths came out leading to
promising industry opportunities. According to the National Association of Chain Drug
Stores, prescription drugs account for $85 billion of the $150 billion spent on health
care products each year (Katz-Stone 2). All over the United States drugstores are growing
exponentially. This increase has encouraged Walgreens to take on a growth strategy.
Walgreens' strengths lie in the fact that they are able to expand and serve additional
customer markets. In the year 2000, Walgreens plans to spend over $1 billion on new and
renovated stores, technology, distribution enhancements, and other improvements
(Frederick 3). This expansion will increase Walgreens' store count by 450 stores.
Forty-three states will be covered with the addition of three new states in the year
2000. Also, with the addition of 16 new markets the total comes to 56 markets since the
year 1991. These markets have the potential to serve 80 percent of the United States
customers (Frederick 3). This growth is a good indication that Walgreens plans to profit
from the increase in prescription drug sales by expanding into new markets and increasing
its accessibility. 
Expansion of a product line helps keep a company one step ahead of the competition. The
innovation of the new on-line pharmacy proves that Walgreens is planning to not only keep
up with the new technology, but also use it to keep its standing in the market. For the
new Internet pharmacy, Walgreens chose Mayo Clinic as its primary health information
provider (Lehbar-Friedman 1). Mayo Clinic provides 100 major health topics to the many
customers of Walgreen Company. The new Internet pharmacy is called Walgreens.com.
Walgreens.com provides customers with a comprehensive list of key features at one online
pharmacy site, including: full prescription service, access to your personal Walgreen
prescription history, the ability to print prescription expense records, details on
potential drug interactions, health and wellness information from Mayo Clinic Health
Information, e-mail reminders, prescription order status checks, drug price information,
and an Ask Your Pharmacist e-mail section (Lehbar-Friedman 1). Some patients do not like
to go to the pharmacy because of privacy issues. Walgreens.com would provide this
privacy, as well as quick and easy service. In the spring of 2000, Walgreen Company
anticipates offering other non-pharmacy drugstore items for sale though its Web site
(http://www.investor.walgreens.com/news/19991027-12222.htr). The future of the Internet
may even include the utilization of on-line doctors. This is where technology is
predicted to go. The patient would fill out a questionnaire on-line and a physician would
review it and decide if a prescription is needed. There is, however, some serious concern
for this next wave of growth. If a patient and the physician never have any direct
contact, the patient may receive the wrong medication, or fraud may occur and the patient
may not be sick at all (Ukens 2). Having said all of this, the Internet poses an
opportunity for growth and increased market share.
Focusing on beauty products is yet another opportunity that Walgreen Company plans to
pursue. Expansion of product lines and the addition of complementary and related products
have proven to be beneficial. The plan is to take advantage of this opportunity by
opening stores that feature a larger and more open beauty department. The beauty
department currently accounts for eight percent of its drugstore sales (Brookman 1).
Walgreen Company accumulated sales of $17.8 billion in 1999, therefore time spent
improving on this expansion can prove to be profitable. Given this plan to increase the
size of the beauty department, new Walgreens stores are now 1,500 square feet larger than
the older stores. In the early 1990s the stores size averaged 13,000 square feet, but
with the tremendous drugstore growth, the stores average 14,500 square feet (Bookman 1).
With this added space, Walgreen Company has increased the size of the aisles to make a
more comfortable environment. Renovating the beauty section of the store has also
included repainting the walls with brighter colors and making the area more pleasant. The
older store incorporated brown colors and had canopies overshadowing the department
(Brookman 2). With all of the improvements, Walgreens is already beginning to notice an
increase in sales. In fact, for the month of March (2000), its same-store sales increased
eight percent, while total sales for the month rose 15.8 percent (Brookman 2). Walgreen
Company calls the strategy implemented for these improvements "basic department
management" (Brookman 2).
On the Internet, opportunities lie at every turn. On April 4, 2000, Walgreen Company is
joining The WorldWide Retail Exchange. Along with eleven other large famous retail
chains, The WorldWide Retail Exchange operates more than 30,000 stores, with combined
sales of more than $300 billion. This new merger will be a web-based marketplace,
enabling transactions between retailers operating in the food, general merchandise and
drugstore sectors. It will be an open exchange and will provide an information highway
for publicly available information about items with private price and promotion
information between multiple buyers and sellers. The exchange also will provide the means
for auctioning products. Walgreens is joining, as a founder, along with Albertson's (US),
Auchan (France), Casino (France), CVS (US), Kingfisher (UK), K-Mart (US), Marks & Spencer
(UK), Royal Ahold (The Netherlands), Safeway, Inc. (US), Target (US) and Tesco (UK). This
venture could bring a huge change to online purchasing.
(http://www.walgreens.com/about/press/othernews/040400.jhtr) 
With all of the many opportunities out in the industry today, Walgreen Company has
remained constant with one solid strategy. This simplistic approach has helped them
achieve the success they have today:
-  Enter new markets
-  "Dense up" existing markets
-  Relocate
-  Remodel
-  Invest heavily in high-tech store and distribution systems which drive service up and
costs down
-  Provide the products that consumers want and need and get them in and out of the store
quickly
-  Explore international opportunities
-  Offer an online drugstore web site totally integrated with our retail stores
In contrast to the industry and the competition, Walgreens focuses on growth by opening
new, freestanding locations with drive-through pharmacies. By the year 2010, Walgreen
Company plans to have 6,000 stores open. With this and the addition of the new online
market, Walgreen Company continues to successfully take advantage of industry
opportunities.
External Threat Analysis 
A company can get wrapped up in the many opportunities that it may pursue and overlook
the external threats bearing down upon them. This slight oversight may compromise a
company's profitability and market standing. Every company has its vulnerable components,
but as long as these are known and guarded, a company's future position is not
compromised. Once these threats are analyzed, it is the management's responsibility to
build a strategic plan to remedy the situation.
Although there are many examples of external threats that may occur to a company,
Walgreen Company stands on pretty secure ground. The management, though, must always be
on the lookout for the entry of new competitors, rising sales of substitute products,
slower market growth, adverse government policies, growing competitive pressure,
vulnerability to recession and business cycles, the growing bargaining power of customers
or suppliers, changing buyer needs and taste, and finally, adverse demographic changes.
Walgreen Company has experienced some, but not many of these threats mentioned above.
On May 11, 2000, Walgreen announced that a lawsuit was going to be filed against the
Arkansas Department of Human Services due to the fact that they failed to follow federal
laws and regulations and acted arbitrarily in developing their new policy towards
drugstores (http://www.walgreens.com/about/press/othernews/051100b.jhtr). Arkansas pays
chain pharmacies less than independent pharmacies for providing the same services. The
state appears to be trying to balance the state's Medicaid budget through discriminatory
pricing. With this discrimination in play, Walgreen receives less than three cents per
dollar of sales in the pharmacy department. This large chain store incurs tremendous
costs to provide the latest technology and convenient service with the drive through
window. Three cents is not enough to cover all of the amenities offered by the chain
store. If the court system does not remedy the situation, Walgreens' pharmacies in
Arkansas may be forced to drop out of the state's Medicaid program. This example of
adverse government policies can cause large problems for the Walgreen stores in Arkansas
(http://www.walgreens.com/about/press/othernews/051100b.jhtr). 
As mentioned earlier, growing competitive pressure can cause a significant external
threat that must be watched carefully. An analyst at Cleveland's Midwest Research, Eric
Bosshard, claims, "Rite Aid is getting a little more aggressive about cleaning up and
upgrading the acquired stores. Up to that point, the company has under performed." In
1999, Rite Aid has built 578 new or relocated stores nationwide. The growth plan for this
competitor is to construct 250 new stores each year (Roush 1). As Rite Aid fights for
market share, Walgreens will become more aggressive to sustain its top position.
Although competitive, Rite Aid is not as much of a threat as Consumer Value Store (CVS).
Nationally, CVS is close to overtaking Walgreen. CVS's 4,100 stores nation- wide
outnumber Walgreens' 3,000 (Cohen 1). Even so, Walgreens' sales are still larger than
those of CVS, but not by much. Being that CVS is ranked the number two drugstore chain,
it is hot on the heels of Walgreens. This source of competition is not to be taken
lightly. CVS is positioned as a threat that could potentially steal the number one spot
from Walgreen Company if they are not careful. Walgreen Company plans to overcome this
threat by implementing their growth strategy. The number one drugstore chain is
continually searching for new markets and opening new stores.
As far as the other possible threats out there, Walgreens is not worried at the moment.
The economy is booming and there are no signs of a recession in the near future.
Consumers will always need pharmacies to fill their prescriptions, so as long as the
company keeps up with the technology of the Internet and remains customer oriented, they
should be fine. The management seems to have done a good job thus far finding and
overcoming the threats of the drugstore industry. 
Summary of External Opportunities and Threats 
The preceding paragraphs explained the opportunities and threats that Walgreen Company
has encountered in the recent past and future. If not taken seriously the opportunities
could be passed by and the threats could result in the loss of market position or market
share. To reiterate:
Opportunities
-  The industry has a growing number of drugstores. Walgreen Company plans to use a
growth strategy to increase the number of stores.
-  The new on-line pharmacy. Walgreens is keeping up with the technology and plans to
provide services on-line for convenience.
-  The promotion of beauty products. This diversity in products has become very important
to the sales revenue of Walgreen Company. Walgreen is taking advantage of that by
remodeling the beauty department in all of the stores.
-  The merging of the eleven companies to form the WorldWide Retail Exchange. This merger
will not only create more public awareness, but will also help increase the sales revenue
of the company.
Threats
-  Adverse government policies in Arkansas. Walgreen Company is filing a lawsuit against
the state to remedy the discriminatory pricing.
-  The competitive pressures from two strong competitors, Rite Aid and CVS. Focusing on
growth and customer convenience, Walgreens plans to remain one step ahead of them.
Walgreen Company is in a good market position. This company keeps a watchful eye on the
opportunities and the threats that the external environment can offer. For this reason
and more, Walgreen Company remains ranked the number one in the largest drugstore chain,
based on the previous 12-month sales. 
Internal Strength Analysis 
Determining a firm's internal strengths and weaknesses is key to determining where to
focus the company's efforts and in determining strategy for the company. The key is to
maximize the effects of the strengths of the company and work to fix the deficiencies or
weaknesses in the company. A strength is something a company is very good at doing or a
characteristic that gives it enhanced competitiveness. (Thompson 1998)
After analyzing Walgreens, following is a list of the key strengths the company has to
offer (Charles Schwab, 2000).
Financial Strength
Walgreens' key asset is its financial strength. This is seen by looking at the key ratios
that indicate a company's profitability. The managers at Walgreens are successfully
converting shareholders' equity, assets, and invested capital into net earnings. This is
evident when comparing Walgreens' financial performance to the industry average.
Following is a table outlining Walgreens' financial performance over the last year
compared to the industry.
Walgreens Industry Average
Return on Equity 17.9% (19.7) 12% (18.2)
Return on Assets 10.7% (11.5) 4.7% (9.1)
Return on Invested Capital 17.9% (17.2) 7.2% (14.5)
The key points to note from this graph are that Walgreens:
-  One year Return on Equity is 49 % higher than the industry average, which may indicate
that Walgreens has turned shareholders' equity into profits much better than its
competitors have. 
-  One year Return on Assets is 128 % higher than the industry average, which may
indicate that Walgreens has used its assets much better than its competitors have. 
-  One year Return on Invested Capital is 148.61% higher than the industry average, which
may indicate that Walgreens has made very good use of its debt and equity capital.
All of these points indicate that Walgreens is a strongly managed company with better
than average return on invested funds (Market Guide 2000).
Product Innovation
Walgreens has been able to take the drugstore concept well beyond only selling drugs.
They learned that Americans are willing to pay for products or services that make their
lives easier. This philosophy is evident in every aspect of their business: site
location, building design, product inventory and point-of-sale technology that is focused
on helping time-starved customers find what they want and need and get out.
In 1991 Walgreens pioneered the drive-thru pharmacy. Now more than fifty percent of the
stores offer this convenience. They also led the way out of strip centers into
freestanding stores and now operate 620 of these stores 24-hours per day (Walgreens 1999
Annual Report).
History
Walgreens has a long history of financial success. The company has gained prescription
market share in all but one of its leading 50 markets within the last 5 years. 
In August of 1999, the Chicago-based Walgreen, the largest U.S. retail drugstore chain in
terms of revenues and profitability, posted its 26th consecutive year of record sales and
earnings. Sales increased 17 percent in fiscal 1999, to $17.8 billion. Earnings before
special items advanced 22 percent, to $624 million. 
In 1909, the company's founder, Charles Rudolph Walgreen Sr., purchased one of the
busiest drugstores on Chicago's South Side, and transformed it by constructing an ice
cream fountain that featured his own brand of ice cream. The ice cream fountain was the
forerunner of the famous Walgreen's soda fountain, which became the main attraction for
customers from the 1920s through the 1950s. People lined up to buy a product that
Walgreen invented in the early 1920s: the milkshake. The company has long resisted the
merger fever that has spread through the drugstore industry. Instead, Walgreen has
stressed internal growth strategies: large-scale infiltration of new markets, relocation
of units to freestanding stores, and convenience, including 24-hour operations and
drive-through pharmacy service (Walgreens 1999 Annual Report). 
Growth Rate of Stores
Walgreens continues to grow faster than the industry or their competitors while
maintaining profitability. Following is a chart of one year growth rates for Walgreens
and the Drug Store Industry.
Walgreens Industry
Revenue 19.03% 14.17% (18)
Net Income 17.73% (5.7) 2.35% (5.6)
Cash Flow 16.12% 7.09% 
Even with their current size, Walgreens continues to outgrow the industry in every major
category.
The drugstore market is one of the fastest growing and most consolidated markets in all
of retailing. Walgreens has a significant advantage in economy of scale, in the quality
and growth of their real estate, use of technology, and trusted brands. They have made
use of the Internet and mail order distribution chains and the addition of huge new
stores should enable them to steal share and continue to grow faster than the industry.
As of August 31, 1999, Walgreens operated 2,821 drugstores in 39 states and Puerto Rico,
with large concentrations of stores in Florida, Illinois and Texas. Internally, the
company is growing faster than any other drugstore chain. It opened 386 new or relocated
drugstores during fiscal 1999, while closing 114 units. All new stores are freestanding
buildings located at major intersections, as opposed to shopping centers and strip malls.
Within the past five years, approximately 60 percent of Walgreens' stores have been
opened or remodeled, and more than 50 percent offer drive-through prescription service.
Walgreens plans to open 450 units in fiscal 2000, with a goal of 6,000 stores by fiscal
2010. Pharmacy sales account for about 52 percent of total sales. The company, which was
already a leading dispenser of prescriptions in the U.S., boosted pharmacy sales 23
percent in fiscal 1999 (with a gain of 19 percent for comparable drugs). Recent
technological advances include satellite linkage to all stores and facilities,
point-of-sale scanning and implementation of the Strategic Inventory Management System
(SIMS), which unites all elements of the purchasing, distribution and sales cycle. This
will reduce inventory, improve in-stock positions and provide quicker reaction to sales
trends. The Intercom on-line pharmacy system links all stores with headquarters and one
another. Healthcare Plus, Walgreens' pharmacy mail-order subsidiary, offers sales,
marketing and operational support for third-party retail and mail-order prescriptions
through two facilities. The company has also formed a pharmacy benefits manager, WHP
Health Initiatives, targeting small to medium-size employers and HMOs. 
There is concern about saturation in the drug retailing industry, prompted by what
appears to have been a ramp-up in store openings by the major players. With the exception
of Walgreens, the large drug chains have been focusing more on relocation as they aim to
get a majority of their store base to freestanding locations. Excluding acquisitions,
they have barely increased the number of stores under operation in the last three years.
In addition, Eckerds has started a large-scale store-closing program that will free up
additional share for the taking (Walgreens 1999 Annual Report).
Management Team
Walgreens has assembled an impressive array of top management officers. David Bernauer is
now the President and Chief Operating Officer in the company. He started with Walgreens
in 1967 as a pharmacist after graduation from North Dakota State University and has
worked his way to the top of the corporation. His depth of experience in store
operations, purchasing, finance and technology is unmatched in the chain drugstore
industry and his leadership is imperative to maintaining the competitive edge as
Walgreens grows to 6,000 stores by the year 2010.
Internal Weakness Analysis 
An internal weakness is something the company lacks or does poorly. This will put them at
a disadvantage in the marketplace. (Thompson 1998) After analyzing Walgreens, there were
a few key weaknesses we found in the company and they are summarized below.
Supply of Pharmacists
Walgreens has a very aggressive growth strategy in the next decade with a goal of growing
from 3000 stores in 2000 to 6000 stores in 2010. To attain this growth they will need to
heavily recruit new pharmacists and develop programs to retain these people. This is
especially true with the current tight labor market.
Lack of Employees
To meet their new store opening schedule, Walgreens will need 80 new district managers,
3000 store managers, 6500 executive assistant managers, 20,000 management trainees over
the next five years, nationwide. At present, Walgreens does not have the management staff
in place to fill this need. 
Legal Liability
In the United States, legal liability is a major threat to any business, especially one
that is involved in dispensing drugs that may cause potentially negative reactions.
Walgreens needs to keep abreast of the latest developments in liability laws and needs to
adopt internal policies to minimize exposure to lawsuits.
Summary of Internal Strengths and Weaknesses 
The preceding paragraphs explained the strengths and weakness of Walgreens. The key is to
develop a strategy that will maximize the strengths of the company while minimizing the
risks and losses caused by the weaknesses or to craft a strategy that will eliminate the
weaknesses in the company. Following is a listing of the company's key attributes. 
Strengths
-  Walgreens is financially sound and has an excellent return on assets which will be
used to fund future growth.
-  The company is a leader in innovation in the retail drugstore industry. This history
of leadership will be the basis for future growth and market penetration.
-  Walgreens has a solid history in this industry with continued growth and financial
success far above the industry average.
-  Most importantly, Walgreens has assembled a solid team of upper management to guide
and direct the company in the future.
Weaknesses
-  To continue growth, Walgreens will need to heavily recruit new pharmacists to fill new
openings at the 3000 stores scheduled to open in the next 10 years.
-  At present, Walgreens does not have the management staff in place to fill personnel
requirements for the new stores opening in the next 5 years. 
-  The company will need to proactively purse policies and procedures that will limit the
legal liability of the company.
Walgreens is in an excellent position with their current strengths and limited number of
weaknesses. The weaknesses they experience are no different than those of their
competitors, which should leave them in an excellent market position. The internal
attributes should allow them to continue growth and profitability far above their
competitors.
Financial Analysis 
Without the financial analysis, the strategic breakdown of Walgreens would not be
possible. It is important to analyze Walgreens, as well as the competition to properly
gage their true standing. The following paragraphs will portray Walgreens, and where they
stand in the drugstore market today.
Liquidity
The liquidity of a company portrays how quickly a company can convert its assets to cash.
A firm's liquidity is important to all users of financial statements because it indicates
whether a firm can meet its short-term obligations. For the Walgreen's case, we analyzed
the ratios of Inventory Turnover and Current Ratio.
Inventory Turnover
Inventory turnover is another instrument used to measure the liquidity of the company's
inventory. It is calculated by dividing the cost of goods sold by the average inventory.

Inventory Turnover = Cost of Goods Sold 
Average Inventory
Inventory turnover is stated as the number of times per year a company turns over its
inventory. Charles Gibson states that the figures can be misleading when using the
beginning and ending inventory for the computation of the average inventory especially if
the firm follows a natural business year or faces seasonal fluctuations. The problem,
however, can be corrected if monthly balances of inventory are used. (Gibson 1998) For
the calculation of this ratio, beginning and ending inventory figures were used. 
The following graph shows the inventory turnover for the four companies we analyzed.
Figure 1 - Inventory Turnover
As noted in the bar graph, Walgreens is leading in this category throughout the four
years when compared to the other retail drugstores; CVS and Rite Aid. The inventory
turnover for drugstore.com was much higher due to their central fulfillment facility.
This gives drugstore.com the ability to carry lower inventory levels and demand
just-in-time delivery from their suppliers to meet their demands for prescriptions.
Current Ratio
The current ratio is another instrument that measures the ability of a firm to pay its
short-term debt. It is calculated by dividing the current assets by the current
liabilities. 
Current Ratio = Current Assets 
Current Liabilities
The current ratio, unlike the working capital ratio, allows for comparisons among
companies regardless of their size. As a general guideline, a current ratio of a 2.0 or
better is a good indicator when measuring the success of a company. In some industries, a
current ratio below the 2.0 guideline is appropriate whereas other industries may require
a larger ratio. (Gibson 1998) The following figure illustrates the current ratio for the
Walgreens, CVS, Rite Aid, and drugstore.com.
Figure 2 - Current Ratio
When comparing the retail drugstores, Rite Aid has been able to keep their ratio closer
to 2 than any other company. This would indicate that Rite Aid has the best ability to
pay short-term liabilities. While the current ratio for Walgreens is less than 2, they
have demonstrated a better ability to manage financial assets and would easily meet their
short-term debts. This low current ratio validates the point Charles Gibson made. "In
general, the shorter the operating cycle, the lower the current ratio. The longer the
operating cycle, the higher the current ratio." (Gibson 1998) From the financial analysis
(Appendix A), it is shown that Walgreens had the lowest operating cycle, whereas Rite Aid
had the highest. CVS continually has the lowest ratio, ranging from 1.6 to 1.3. The value
for drugstore.com is the highest, at 8.5 to 3.5, which reflects the high capitalization
of their stock.
Long-Term Debt-Paying Ability
There are two essential ways to determine a company's long-term debt-paying ability. One
is to examine the income statement, and the other is to examine the balance sheet. These
two statements hold the key to whether the company has the ability to carry long-term
debt. The profitability of the firm as well as the amount of debt in relation to the size
of the company is important to consider. A large proportion of debt increases the risk of
not being able to meet financial obligations. The following ratios will illustrate the
long-term debt-paying ability of the companies being analyzed.
Debt / Equity Ratio
The debt/equity ratio is another ratio that determines the company's long-term
debt-paying ability. This ratio also assists creditors in protecting themselves from
insolvency. In terms of numbers, the lower the ratio, the better the company's debt
position. The debt/equity ratio can also be compared with other companies and with
industry standards, and can be calculated by dividing the total liabilities by the
shareholders' equity. 
Debt/Equity Ratio = Total Liabilities 
Shareholders' Equity
The following figure represents the debt/equity ratio for the four companies analyzed.
Four consecutive years have been calculated in order to detect a trend within the ratio.

Figure 3 - Debt / Equity Ratio
For this particular ratio, Walgreens had the best standing, with an average of 0.75. As
stated above, the lower the ratio the better the debt position. CVS has been able to
improve their position over the last four years while Rite Aid's debt position was the
worst performer and showed a dramatic increase in 1999.
Profitability
Profitability is the company's ability to generate earnings. Stockholders are very
concerned with profitability because they gain their revenues in the form of dividends.
Measuring the amount of profit a company makes can also be of use to creditors because it
allows them to better judge the ability of the company to repay its debt. Profitability
ratios are calculated from values taken from the income statement and the balance sheet.
These values should consider all acts of normal operation, excluding discontinued
operations, extraordinary items, and cumulative effects of changes in accounting
principles. The following ratios will help evaluate the profitability of Walgreens, CVS,
Rite Aid, and drugstore.com.
Net Profit Margin
Net profit margin is a basic measure of return on sales. In other words, this ratio
evaluates the measure of income dollars generated by every dollar of sales. When judging
the four companies, a high net profit margin ratio is favorable. Outside forces may
attribute to a lower ratio, but ultimately the higher the ratio the better. To calculate
the net profit margin one must divide the net income before minority share of earnings
and nonrecurring items by the net sales.
Net Income Before Minority Share of 
Net Profit Margin = Earnings and Nonrecurring Items 
Net Sales
The following figure compares the net profit margin of the companies analyzed.
Figure 4 - Net Profit Margin
In the last four years, Walgreens has led its competitors in net profit margin. In 1999,
the net profit for drugstore.com was -332 percent which is typical for a dot com
startup.
Return on Assets
The return on assets is also another means to measure profitability. With this ratio a
creditor or an investor can measure how well a company utilizes its assets to create
revenue. Since this ratio is based on an average of total assets, the value of the total
assets for two consecutive years is needed to calculate this ratio. To calculate the
return on assets ratio, the following formula must be used:
Net Income Before Minority Share of 
Return on Assets = Earnings and Nonrecurring Items 
Average Total Assets
A higher percentage indicates the company's ability to create a profit by utilizing its
assets. 
The following figure illustrates the return on assets for the companies analyzed. 
Figure 5 - Return on Assets
As seen in the above figure, Walgreens has the highest ratio between 1996 and 1999, with
an average of 11.2 percent. In 1999, the return on assets for drugstore.com was -55
percent which is typical for a dot com startup.
Analysis of the Mission Statement 
A mission statement is the single most important statement that a company can produce.
Also called a strategic vision, this statement encompasses not only what a company is
made of, but also forms a viable concept of the company's future business. This statement
should be highly personalized and unique. A company is guided by the strategic vision,
therefore it is important not to use generic terminology. There are three simple
components to the task of creating a mission statement:
-  Defining what business the company is presently in.
-  Deciding on a long-term strategic course for the company to pursue.
-  Communicating the vision in ways that are clear, exciting, and inspiring.
Only, and only if the mission statement includes these concepts above can the company
have grasped the true meaning of a strategic vision. (Thompson, Strickland 28)
Walgreens has done an excellent job of creating their company's mission statement. As
seen below, the mission statement can be several words in length. It usually requires
this so that all three concepts are covered. This lengthy statement defines what business
the company currently is in; it illustrates what direction in the long run that the
company plans to go, and it also uses clear descriptive words to describe the objective
of the company. 
"To optimize shareholder return on investment by being a growing, innovative,
healthcare-oriented, convenient merchandiser; to provide consumer with basic goods and
services at fair prices; and to offer employees challenging and rewarding opportunities
in work environments where we treat each other with respect and dignity."
Walgreens mission statement can be broken down into several important parts. As stated
earlier, this strategic vision packs a lot of meaning into a few words. The analysis of
this statement will help better understand the true vision of the company.
The goal of almost every company is to maximize shareholder return and to maximize
profit. The shareholders are very important to the company because they are the ones
investing in the ideas and people of the company. Shareholders want to make money. If
they are not happy, they will pull their money out and the company will see a decline in
their investment.
The next important concept that is seen in this mission statement is the need to be a
growing, innovative, healthcare-oriented, convenient merchandiser. As seen throughout
this paper, Walgreens is accomplishing each and every one of these tasks. Walgreens' goal
is to become the neighborhood pharmacy of choice. Their stores service customers one to
two mile radius and focus on the laser shoppers. In 2000, Walgreen Company opened up its
3000th store, and is expected to hit 6000 stores by 2010. Always thinking ahead,
Walgreens is keeping up with technology and the times, and staying one step ahead of the
competition. Pharmacy and health care sales represent the majority of the revenue coming
out of this giant drugstore chain. Lastly, throughout the years, Walgreens has made an
effort to revolve its business around convenience to the consumer. Widening the aisles,
carrying a wide variety of products, and basically becoming a one-stop shop for customers
have accomplished this. Everything is easy to find and time is not wasted in lines. This
portion of the vision definitely describes the company Walgreens. 
Walgreens targets consumers of all backgrounds. For this reason and more, this company
prides itself on keeping services at fair prices. Of course Walgreens must pay for all of
the extra amenities that they provide, but keeping that in mind, the company keeps prices
fair. Again, Walgreens became successful by thinking of the needs of the consumer.
Employees are one of the most important pieces to the so-called puzzle called a company.
If the employees are not happy the service will fall apart. For this reason, Walgreens
provides loyalty to their employees, and offers challenging and rewarding opportunities.
Respect and dignity will come if the work environment is a happy one.
Judging by the mission statement provided by Walgreens, the management is following these
important words right down to the letter. It is so important to keep this strategic
vision alive. Walgreens has accomplished, and continues to improve upon each and every
one of the points listed in the mission statement. This statement suits the company of
Walgreens quite well. 
Analysis of Walgreens' Objectives 
As seen earlier, the strategic vision of a company is a very important statement to
follow. In order to follow the mission statement, a company must set up objectives. These
objectives give a distinct direction for the company to pursue. The experience of
countless companies and managers teach that "companies whose managers set objectives for
each key result area and then press forward with actions aimed directly at achieving
these performance outcomes typically outperform companies whose managers exhibit good
intentions, try hard, and hope for the best." (Thompson and Strickland 36)
The key to setting good objectives involves much in-depth thought. First of all, the
objectives must be obtainable. All those goals and objective that are out of a company's
reach are a waste of time. Second, the objectives must include both financial objectives
and strategic performance objectives. Third, the objectives of a company can range from
long-term to short-term, and from the top level of the company to the bottom level. These
simple statements give guidance and help a company continue to push forward in the
market.
Walgreen Company lists a set of objectives that it strives to achieve. These guide the
mission statement and push the company into the future as the number one drugstore chain.
Walgreen does a good job of following these, as you can see below. In these statements,
one can find both financial objectives and strategic objectives. 
-  Enter new markets
-  "Dense up" existing markets
-  Relocate
-  Remodel
-  Invest heavily in high-tech store and distribution systems which drive service up and
cost down
-  Explore international opportunities
-  Offer an online drugstore web site totally integrated with our retail stores
Walgreens is continually opening new stores in new and existing markets. As stated
before, this company is fueled by the growth that it exhibits. Walgreens is growing
almost exponentially. This number one drugstore chain plans to open its 6000th "brick and
mortar" store by the year 2010. 
Walgreens is already relocating to corner stores with their own small parking lots. This
adds to the convenience that Walgreens provides to the customer. Before, Walgreens were
located in selected spaces in strip malls. The move has enabled Walgreens to increase its
store size from 13,000 sq.ft. to 14,500 sq.ft. All in all, the objective to relocate is a
good one.
Remodeling has become evident in the expansion of the width of the aisles. Also,
Walgreens has changed the color scheme and the lighting in the stores. The once dreary
store is now one that creates a new, comfortable/exciting ambiance. The aisles are now
easier to maneuver in, and items are easier to locate in a short amount of time. 
The next objective is one that is of vital importance. First of all, it is important to
invest money in something that will produce results. Walgreens must keep up with
technology. As stated in the objective, this will not only better service, but will also
drive down cost. It is smart for a flourishing company to invest in itself for
self-improvement.
Once conquering the existing national market, Walgreens plans to attack international
opportunities. For every company that grows at this pace, international growth always
comes into play. First, Walgreens must research to see if there is even a market for a
drugstore chain internationally. This objective will require the use of major financial
backing. A type of decision like this is not one to be taken lightly. 
Lastly, Walgreens has jumped feet first into the Internet market. Currently, only the
service of the pharmacy is offered on the web site Walgreens.com. Eventually, Walgreens
would like to be able to offer other retail items found in their store on this web site.
Due to the fact that the Internet is the wave of the future, Walgreens could not pass up
an opportunity to ride on that wave. This objective is a smart one that warrants extra
attention. 
Analyzing the entire strategic vision and the objectives that support that vision, it is
obvious that Walgreens has everything under control. Their massive growth proves that the
management team is paying close attention to detail of the objectives. If this type of
behavior continues, Walgreen has a good chance at remaining the number one drugstore
chain indefinitely.
Strategic Alternatives 
As Walgreens moves into the future, it is important to look at the current strategic
direction as well as any alternative strategies. When the massive growth takes place,
current strategies may not provide necessary structure for the vision of the future.
However, this is not the case for Walgreens. As the number one drugstore chain, Walgreens
must continue to expand to remain competitive. The following paragraphs will examine the
current strategy, and also take a look at a few alternatives. 
Growth
Currently, Walgreens is following a definite Growth Strategy. They have successfully
implemented this strategy, and have been reaping the rewards based upon the company's
growth in volume of product, revenue, and profit. Walgreens expands into the growth
strategy through concentration, rather than diversification. This company has already set
the industry standard for a convenient one-stop shop for consumers, and plans to
concentrate on the key factors that have landed them on top. As Walgreens continues to
build new stores, the strategic vision as well as the concentrated growth strategy will
be applied. As the future approaches, it is important to focus on core compenticies, and
by concentrating on the current retail strategy Walgreens will benefit. Walgreens does
however plan to improve upon the services and selection in the current convenient
shopping area, but keep their main focus as a retail drugstore chain. Following are the
key advantages in continuing this concentration growth strategy and potential
disadvantages.
Advantages (growth concentration):
The main reason to continue with this strategy is momentum. Walgreens has assembled an
experienced and educated upper management team to guide the company through a high growth
mode. The company currently operates 3000 stores and has set a goal of 6000 stores in
operation by 2010. The company's past records of growth and profitability demonstrate
that this strategy is effective and deviation from that would be destructive. Additional
reasons to continue this strategy include:
-  Growth will lead to increased market share, which leads to stability, and will make
Walgreens a more powerful player in the retail drugstore industry.
-  As the volume of products expands, so does the economy of scale, which will contribute
to higher profit margins.
-  Growth strategy capitalizes on the shift in the demographics in this country. As the
baby boomers near retirement, the requirements for medical and pharmaceutical care
increase dramatically.
Disadvantages (growth concentration):
While the future provides a positive outlook for Walgreens, the growth strategy also
provides some disadvantages, these include:
-  Increasing debt to fund store openings. Currently, the company is funding expansion
from current revenue and not incurring any additional debt. To reach the store count goal
by 2010, however, might involve taking on some debt.
-  A shortage of employees, especially the pharmacists, is a vital weakness in the growth
strategy. Walgreens will have to focus on recruiting and retaining key employees to
continue their growth. This is especially important now, when there is a general labor
shortage in every market. 
-  An organization straying from set strategies that are based upon the strategic vision
and objectives. As a company experiences rapid growth, there is a tendency to lose site
of the mission and objectives due to new employees entering the business. The key is to
maintain consistent control and train these new employees.
-  Loss of growth percentage as the company grows in size. The larger a company becomes,
the harder it is to maintain a high growth percentage. Currently the company is growing
in net income at a rate of 22%, 17%, and 17% for 1999, 1998, and 1997 respectively while
growing the percentage of stores by 14%, 12%, and 10% for 1999, 1998, and 1997
respectively. As the company expands, it will be more difficult to maintain these higher
percentages and expect growth. 
Due to Walgreens past success, the growth concentration strategy discussed above has
landed them the number one position in the retail drugstore industry. However, an
alternative growth strategy, diversification, is an option, that needs to be analyzed
carefully and thoroughly. In the past, Walgreens has prided its company by providing a
convenient shopping experience for the consumer. Diversification would shift the focus
from the key factors of their success toward that of the new expansion. The disadvantages
of diversification outweigh the advantages. Realize that these advantages and
disadvantages are specific to Walgreens, and are why Walgreens has chosen to avoid this
strategy. 
Advantages (growth diversification):
The advantages are as follows:
-  Due to a shift in the economy and customer demand-a form of protection. One of the
main reasons for diversification is to operate in more than one industry. This is crucial
if there is a slight chance of an industry failure or decline in the market. This
provides protection for a company if concentration is in one market, and the market
bottoms out. If a company operates in several different markets, and one should fail, the
company has another source of generating revenue.
-  As a source of growth. If a company currently dominates their present market,
sometimes the next step is to diversify and begin to conquer a new market. This can help
a company gain recognition, power and create a larger brand name and image. 
Disadvantages (growth diversification):
As stated before, there are many disadvantages in diversification. In the case of
Walgreens, these disadvantages are the sole reason that they choose not to diversify. The
following bullets will illustrate these points:
-  The large amount of capital required. When diversifying, an enormous amount of capital
is required to begin operations in the new market. First research must be done to test
the market and determine the feasibility of entrance. Research and development is very
expensive, and can put a financial strain on the company. Second, the new product line
must be created, manufactured and marketed along with the hiring of new employees.
Launching a new product line can cause extensive financial difficulties, and Walgreens is
currently operating under low debt. Diversification would require more long-term debt.
-  Loosing focus on current success. Launching into a new market takes extensive time and
effort. Some companies become so engaged in expansion, they lose the focus of their core
competencies. Remaining the number one drugstore chain requires consistent hard work.
Walgreens' position in the market is not to be taken as though it can and will not
change. Diversification can cause a company to lose the market position for which they
worked so hard to establish. With the competition hot on their heels, Walgreens can not
afford to take this chance. 
There are many areas of diversification from which Walgreens could choose. For example,
they could purchase a drug manufacturing company, and begin production of drugs sold at
Walgreens. The new growth plan to increase store count could be aided by the purchase of
a construction company to begin building new stores. Another area of interest is the
creation of a complete superstore, like Wal-Mart. Walgreens could begin selling a
complete line of food items, as well as apparel and household items. There are numerous
areas that present possibilities for the diversification strategy, but as stated before,
Walgreens chooses to remain concentrated. For the many disadvantages listed above, this
decision is wise. 
Retrenchment
A retrenchment strategy indicates that a company is in trouble, and needs a turnaround
strategy, divestment strategy or a company liquidation. Poor performance is a possible
result of tremendous losses that that have pulled the corporation's overall financial
performance down. Retrenchment strategies involve reducing the company to a smaller
number of stores. At this time, Walgreens is flourishing and does not need a retrenchment
or turnaround strategy. Since Walgreens is in the growth mode and has no financial
strains, this strategy is not applicable.
Stability Strategy
A stability strategy indicates that a company's position may be one or several of the
following:
-  The company is not able to keep pace with current business operations
-  There is a need to improve profitability 
-  The business is experiencing serious internal and external problems of various sorts
Walgreens is stable and profitable, thus there is no need to implement this strategy.
As previously explained, neither the retrenchment nor the stability strategy would
provide the most benefit for Walgreens. After analyzing all of the alternatives, the most
constructive strategy is the concentrated growth strategy. Walgreens plans to capitalize
on the opportunity in the market, and implement the growth strategy. Recommendations to
be discussed later in this analysis will help implement this growth strategy.
Competitive Strategies 
The core purpose of a competitive strategy is to obtain strategic advantage over the
competition. This can be accomplished in several ways. The key to the competitive edge is
to win customer loyalty, outshine the competitors and secure a steady position in the
market. Walgreens uses a combination of several competitive strategies, because this
approach allows them to cover all aspects of their business. The following paragraphs
will discuss three competitive strategies used by Walgreens.
Differentiation
Differentiation involves setting a company apart from the competition, by providing an
unique product or service combination. This type of strategy is efficient when:
-  There are many ways to differentiate
-  Buyer needs/uses are diverse 
-  There are not many using the differentiation strategy (Dr. Ross 2000).
Walgreens differentiation strategy is accomplished through a combination of convenience,
quality products and customer service. For example, Walgreens has created a drive-thru
pharmacy. This supports the company's desire to set itself apart from the competition,
and serve customers wants and needs. In addition, Walgreens creates an easy one-stop shop
so that the consumer may pick up everyday items while waiting for their prescription to
be filled. In setting themselves apart, a company can differentiate product oriented
research and development, raw materials, the manufacturing process, the distribution
systems, and the marketing procedures (Dr. Ross 2000). The differentiation approach to a
competitive strategy can cost a substancial amount of money, and the company runs the
risk that the consumers will not notice the improvements. 
Focus
The focus strategy consists of focusing in on one specific part of the entire market.
This strategy enables a company to concentrate on a chosen segment of their business.
This type of strategy works best when:
-  There are a distinct group of buyers 
-  Others are not specializing in the market 
-  There is a lack of resources 
-  Some markets are more attractive than others (Dr. Ross 2000). 
Walgreens focus is the pharmacy department. This segment of the store accounts for over
fifty percent of the stores revenue. Because of this, Walgreens concentrates immensely
upon the pharmacy. Factors a company should consider when determining a segment upon
which to focus are the size of the department, the growth potential, the size of the
competitors, and the markets that must be served (Dr. Ross 2000). Walgreens has taken
steps to make sure all the components mentioned above are considered and satisfied.
The reasons mentioned above explain and support Walgreens decision to combine their
competitive strategy with differentiation and focus. This combination creates a dangerous
strategy for their competitors. After analyzing both strategies, a combination of the two
is most beneficial. 
Implementation 
The recommended implementations are in congruence with Walgreens continued procession of
its current strategic objectives, and the growth concentration strategy. These
recommendations are intended to assist Walgreens in meeting its already set objectives in
a more efficient and timely manner. They can be easily intertwined into current expansion
plans by adding to, not altering or suspending growth and anticipated positive changes.
-  Offer free makeovers once a month by a professional beauty consultant, and tailor
their cosmetic product lines to meet the needs of the surrounding ethnic demographics.
People from ethnic backgrounds such as those of African-Americans and Hispanics are an
important part of the market segment with needs differing from that of the Caucasian
population. Walgreens will use and advertise a specific beauty line each month in
congruence with mutually beneficial alliances made with each individual cosmetic company.
The cosmetic line used the most frequently will depend on the incentive provided to
Walgreens by the cosmetic company. The cost to Walgreen's to hire a beauty consultant
will range from $8.50 to $9.00 per hour. Walgreen's may also hire a beauty consultants
based upon a flat contract rate of $200.00 to $250.00 per day. According to polled beauty
consultants, each customer makeover will take on average 20 to 30 minutes depending upon
the degree of makeover and the amount of client consultation provided to the customer.
During a typical eight hour day, one beauty consultant will be able to advise 14 to 16
clients. Additionally, each of these customers opting to receive a free makeover from a
Walgreens' beauty consultant is expected to generate any where from $15.00 to $150.00 in
cosmetics purchases according to according to polled beauty consultants who have
extensive customer service and cosmetic sales experience. The increased revenues
generated from the sales of cosmetics to customers receiving makeovers will adequately
cover the costs of hiring a beauty consultant for customer makeovers. Advertising
combined with discount coupons is necessary to bring the female consumer into Walgreens
for the makeover sessions. Word of mouth is the fastest and most effective channel of
advertisement and the "bring a friend" female attitude will increase store traffic.
Although the participants may not buy the advertised products, again this event pulls
customers into the store, and often those that would not have entered under normal
circumstances which can increase Walgreen's revenues through increased impulse
purchases.
-  Consistently advertise and maintain the superior quality and service provided by the
photography development center. Walgreens' photography development center produces a high
quality product, including a one-hour service that has not been advertised to the general
public effectively and frequently enough to be recognized. Walgreen's photographic
development centers develop approximately 80 to 100 roles of film per day. This is an
average of one to two roles of film per customer per day according to information
obtained from a neighborhood Walgreen's photographic development center manager.
Approximately 40 to 100 customers are entering Walgreen's each day in order to have film
developed. The amount of film developed at a given Walgreen's photographic development
center corresponds to approximately 40 to 100 customers per day. This increased customer
traffic flow through Walgreen's stores via the photography development center creates an
increase in impulse purchases, as customers have to walk across the front of the store to
reach the department. Also, in addition to the increased revenues obtained from impulse
purchases, Walgreen's also recognizes increased revenues when customers elect to have
their film developed in Walgreen's one hour photo processing center as opposed to having
Walgreen's send the film to an off-site film processing center. On average, Walgreens
recognizes 62% more revenue per role of film developed when customers elect to utilize
Walgreen's one hour photo processing development center.
-  Capitalize on the stand-alone store to offer convenient shopping. Along with providing
information to help build traffic and boost sales, Walgreens needs to capitalize on its
stand-alone store concept. This can be achieved by building its image as a convenient
place to stop on the way home from work, whether it is to grab a quick frozen dinner-type
meal or a few necessities that are not available at the average convenience store. The
customer may not desire to face large crowds and long checkout lines at a grocery store
during the after-work rush; yet does not want to feed the family another fast-food type
meal. Frozen dinner entrees can be available as part of the front-end merchandise, and
extra clerks need to be available to open additional registers during the after-work
high-traffic hours. Other impulse purchase items need to be stocked at the front of the
store to further boost Walgreens' image as a convenient place to stop for a quick snack
or beverage. Walgreens can occupy a niche between the grocery store and the convenience
store in terms of product offerings and quick check-out. 
-  ADD JERRY'S BULLET
Conclusions 
In concluding our analysis of Walgreen Company, some key factors warrant a final look.
This company has created its 3,000 store empire in 99 years, focusing on customer
satisfaction. A history of strong management has been the key component in this
consistent expansion. Continuing this pattern of growth has led to the strategic vision
of opening 6,000 stores by the year 2010. Current industry conditions make this vision an
attainable one. The need for drugstores in this day and age is increasing due to the
growing number of adults over 65 years of age. In a time of rapid industry consolidation,
Walgreens has chosen to build from the ground up instead of buying out competitors. The
idea is to grow faster and capture more market share by staying ahead of the competition.

Walgreens has a solid mission statement and suitable objectives, which are being reached
through constant growth and financial and strategic adjustments. With this in mind,
additional recommendations to aid continued growth and assist attainment of stated
objectives has been provided. Walgreens sets the industry standard by satisfying the
objectives listed in the above analysis. The recommendations provided will assist and not
hinder the future success of this company. In conclusion, Walgreen Company appears to
possess the traits necessary to remain the drugstore industry leader.
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