Walgreens’ Slowed Growth Can Be Sped – Even In This Economy

Narrowing Margins – Lower Profits
Walgreens is a drug store chain which has traditionally opened at hundreds of stores per year. However, due to this troubled economy, it has retracted that plan, and has opted to opening a lot fewer new stores. Walgreens executive said they would reduce store openings to a 5% growth rate by 2011, below its original plan of 8%. This change is fueled by the economic downturn – and as a result Walgreens will focus on updating older locations. According to the Wall Street Journal’s December 22nd, 2008 addition, net income declined $408 million in the most recent quarter versus $459 million for the same quarter last year. Margins shrank for Walgreen as sales increased 6.6% to $14.95 billion from $14.03 billion for the same period last year. They responded to the shift in consumer spending by stocking more staple products and pushing their private label brands. On Monday, December 21, 2008, Walgreen Co. executives said they plan to focus on remodeling stores because some of their units have become cluttered and outdated. Along these same lines, they also plan to increase scrutinization of their merchandise purchases.

Strategic Growth To Weather Down Economy
Walgreens must focus on strategic growth – by only opening new stores in high potential areas and remodeling stores where they get the highest jump in incremental revenue. They must first profile and target likely buyer groups according their demographics and lifestyle – and, critically, link them to geographical locations. In this down economic climate, it vital for Walgreen to lock-in above average growth for its capital expenditures on stores. They must allocate their resources on above average growth relative to their current network of stores. In order to do this, Walgreens must focus on the following factors:
1. Area Demographics of Key Buyer Groups
2. Geo-Area Micro-Trends
3. Competitor Presence Within A Geo-Location
4. Maxed -or Unmaxed-Out Store Sales Revenue
5. Overall Buyer Geo-Subpopulation Growth

Buyer Trends
The other side of the retailing coin for Walgreens which needs to be developed is its merchandising. Walgreens has commented on how well its private label items are selling. They believe that this success relative to brand name items is due to the lower price points. In fact, according to the Wall Street Journal, other drugstore chains have reported a similar trend. As a result of consumer buying trends around staple goods, Walgreens is focusing on stocking groceries and paper goods.

Ultra-Value Private Label Line – With Branding!
Walgreens can further exploit this trend by developing an ultra-value line of private label products. This line can strip out all non-value-added features, and focus on obtaining a “rock bottom” price point. They should center this line around the staples which are selling well for them during this recession: groceries and paper goods. They can take it a step further by wrapping this line around a store-within-a store concept. They can call it something like “The Save Green Value” section. In essence, Walgreens could achieve a major coup by branding low price items – which is counter-intuitive, and that’s why this is an extremely potent idea and opportunity.

What General Mills Can Do Now

Offer Disproportionately Higher Value To Customers
The most effective way for a company like General Mills to offset high commodity costs is to strengthen the brands within their portfolio and highlight a much stronger offering relative to competitors. In the current economic downturn, the most important thing to consumers is VALUE! From a Blue Ocean perspective, a business can move up or down the price-performance balance for its customers. They can slightly increase or maintain price, while offering enhanced benefits which resonate with customers. Or, they can lower price, move down this balance, and reduce performance of a product. If they do not reduce performance, it is a sale, and will be effective in increasing revenue on only a very short term basis. General Mills is a position to do both, however, given the “higher than the norm” quality of most of its brands – they should maintain price or move it up slightly. They can raise product performance and benefit – and critically offer a disproportionate amount of positive benefit relative to the amount of the price increase.

Using Their Scale
In the food manufacturing industry, General Mills’ scale allows them to operate at a lower cost, and to leverage marketing practices across many brands. This will allow them to offer product benefit at a higher relative level than competitors for the same price point. For General Mills’ customers, paying a premium for a General Mills product is worth it because they get so much more benefit than a competitor’s product even at a slightly lower price!

Favorable Macro Trends For General Mills
General Mills’ brands are sitting at the intersection of many macro trends which are favorable to them. These translate into value for consumers; especially relative to their other food consumption options. The first major trend that bodes well for General Mills is that people are eating out less because typical American consumers have less money to spend due to the economic slowdown. The second major trend in the U.S. is that Americans are moving to eating healthier. This trend is impactful, and has moved people from seeking fast food to cooking healthier items at home. General Mills has many brands which can leverage this shift.

How They Can Dominate Their Categories
General Mills’ portfolio of brands is strong, and would grow to unprecedented category dominance using some the Blue Ocean Strategies mentioned in the last two articles. These are ways to win in any economic environment. With commodity prices up, consumer spending down, and value being the spending criteria of customers, General Mills and all food manufacturers must change strategy to maintain margins and combat revenue shrinkage. The good thing about General Mills is their marketers don’t remain in a silo – and their marketing efforts are holistic. They must use this pervasiveness of marketing to seek out and stay on top of consumer benefit preferences. These benefits must be linked to features – and translated into relevant messages for given targeted groups in effective media. Equally as important, General Mills should use its muscle and reach to leverage and provide disproportionate benefit for its customers – and that alone is enough buffer them from this recession and any economic downturn.

General Mills: Squeeze On Strong Brands Can Be Eased Using Blue Ocean Strategy

Lower Profitability
General Mills and its portfolio of strong brands are feeling the squeeze on their profitability as a result of high raw material commodity prices and recent peaks in energy costs. They are still reporting sales gains as they pass these costs to consumers by raising prices to offset these higher costs. According to MiamiHerald.com (December 17, 2008 post), earnings in the quarter ending Nov. 23 fell to $378.2 million from $390.5 million last year. However, revenue rose 8% to $4.01 billion from $3.7 billion last year during the same period. This is a clear indication of the effect that high commodity prices (such as those for grain) are having; these costs are narrowing their margins and causing them to raise prices to consumers. This is all happening in the midst of a troubled economy where consumers are spending less. Even given this scenario, the Wall Street Journal writes in the December 18th, 2008 edition that “most analysts view General Mills as a company well-positioned to weather the slowing economy because of its strong brands and a focus on cost-cutting.”

General Mills’ Marketing Strength And The Direction They Should Head
A major driver of General Mills’ strong brands and its success is their strength in marketing. Now, the pressure is on their marketing personnel to generate sales in an economy which is characterized by consumers spending dramatically less and scrutinizing purchases more tightly. General Mills marketers think in terms of reaching customers at various “touch points” and providing them with relevant messages. It is critical that they link their product’s features to key benefits for their targeted consumer audience. They must demonstrate lucidly and powerfully the link between the features of their products, such as natural ingredients, and increased healthiness. In addition, they must continually seek to understand which benefits are most important and relevant to consumers, and tie them to product features. In Blue Ocean Strategy terms, General Mills must seek to raise and create features which are directly relevant to profiled and targeted customer groups.

Why Online Presence Should Be Key
This messaging must be backed up with the selection of relevant media for a given group. General Mills should examine its online presence to reach a younger and more educated demographic. It is becoming cliché among astute marketers to leverage social networking media online – it is in its growth stage and actually can yield very substantial and positive results when executed effectively. The reason social networking media are important is because they allow a two-way conversation between consumers and a company. A marketer can gain invaluable information about what benefits customers value most – and the features which best provide these benefits. Social networking media also provide marketers with real and mostly unbiased feedback on how a product is performing, and what consumers really think about it. If a company gets all these things right, they will create customer “evangelists” who will create buzz for their products online. And, where do most consumers go first to get “real” information about a product or service nowadays? – online! This is the new “word-of-mouth” channel, and it’s exponentially explosive.