May 9, 2004

Is Walgreens a Threat to WM?

I didn't know that Walgreens was the largest and fastest growing pharmacy chain, and that they perceive Wal-Mart and Target to be one of their main competitors. But if Walgreens competes with Wal-Mart, then Wal-Mart must compete with Walgreens:

�Walgreen[s] shouldn�t be worried" about its rival�s increased presence in Texas, Florida and several southern states, said Hastings, of the New York-based credit advisory firm Bernard Sands. ��Their biggest threat is Wal-Mart and Target stores, not CVS.��

Unlike those two retail giants, however, Walgreen[s] remains focused on the pharmacy business that brought it into being and not on selling every product imaginable. It�s been that way for the last quarter-century since then-CEO Charles Walgreen III decided to sell off side ventures, including its Globe discount stores, travel agency, optical centers, Sanborns department stores in Mexico and Wag�s fast-food restaurants.

The company has flourished for most of its 103-year history despite periodic challenges to its standing atop the drugstore industry. The newest: Mail order drug suppliers. Mail orders accounted for 17.2 percent of drugs sold in the United States in 2003, a figure that is steadily rising.

But David Bernauer, CEO since 2002, downplays the threats and recalls all the previous ones that were supposed to doom retail pharmacies since he joined the company in 1966: Kmart and other discount stores, then food-and-drug combination stores, then deep-discount drugstores such as now-defunct Phar-Mor, and now the mail.

��It seems like in our industry you always have to have some nemesis out there, something ahead that�s just going to decimate you,�� Bernauer, 60, said in an interview at company headquarters in Deerfield, Ill. ��Mail�s going to continue to grow, for sure. But it will top out at some point and not be able to grow any faster than the industry.��

Walgreen is moving to claim its share of the new business, introducing 90-day prescriptions in its stores last fall and announcing it won�t sign new contracts with drugbenefit-plan providers that require members to get maintenance drugs through the mail.

Walgreen also has a wary eye on Wal-Mart, now No. 4 in the pharmacy business and rising, particularly since Walgreen�s own sales of cosmetics and other general merchandise are less stellar than prescriptions.

��We�re always thinking about how do we compete against the Wal-Marts and the Krogers as much as we�re thinking about how do we compete against the CVSes,�� Bernauer said.

The company has a history as an aggressive competitor, pioneering store format changes such as larger and more profitable freestanding sites, drive-thru pharmacies and 24-hour stores. Walgreen has more 24-hour pharmacies than all its competitors combined, adding 266 over the past year.

They sound like a rough competitor.

Posted by Kevin on May, 9 2004 at 07:34 PM