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

Mike Bolden — Fri, 09 Jan 2009 09:05:34 +0000

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Co. executives said they plan to focus on remodeling stores because some of their units have become cluttered and outdated.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.

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Mike Bolden » Strategic Growth

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