Health Reform, Boomers Buoy Walgreens Growth

Between aging Americans and the prospect of an estimated 30 million newly insured customers on the horizon, Walgreens says it expects U.S. health care spending to climb to 20% of gross domestic product by 2020, from 17% now. And that, the Deerfield, Ill.-based company says, will be very good business for its drug stores.

“We are in two dynamic industries -- retail and healthcare -- that are converging as consumers become more involved in shopping for their healthcare solutions,” says CEO Gregory D. Wasson, outlining growth plans at its annual shareholders meeting. “At the same time, health care is beginning to see a shift in payment models from fee-for-service to pay-for-performance. That’s good for Walgreens and community pharmacy, as the company is well positioned to play a greater role in these emerging models and expand its role beyond the pharmacy market to the much larger $2.6 trillion healthcare market.”



And in order to best position itself, it says it will focus on three strategic growth drivers: creating a Well Experience, an updated and expanded retail concept currently in place at 600 stores; advancing community pharmacy and establishing an efficient global platform on behalf of its customers and shareholders.

He says the company, which since 2009 has acquired Duane Reade and, and formed a partnership with Alliance, will continue to strengthen its offerings with new private-label products (it introduced 2,000 last year), as well as expanding sales of beauty products and fresh foods. 

The “Well Experience” stores offer more beauty products, and provide a more cohesive link between pharmacy and over-the-counter sales. And overall, the new focus has led to steady improvement in same-store sales, outperforming other large drugstores. Earlier this week, the chain reported its December sales jumped 7.2%, even as customer traffic fell 1.3%. The number of prescriptions filled grew by 2.4%.

But it also sees considerable growth in providing more health care itself, not just prescriptions. The retailer says it is also convinced that pharmacists and nurse practitioners can expand its usefulness to customers, and lower overall health care costs. Last year, it began offering diagnosis and treatment of asthma, high blood pressure, high cholesterol and diabetes, and it says it will continue to focus on those customer groups. By its estimates, 70% of Americans either lack or don’t use a primary care doctor. And chronic illnesses account for some 75% of all healthcare dollars.

Meanwhile, retailers continue to look for ways to gain a competitive edge as millions size up their options as part of the Affordable Care Act rolls out. Walgreens was one of the first to offer 30 days of prescription drug coverage at no upfront cost, to those who have not yet gotten an ID number from their insurers. CVS and others, including many supermarket pharmacies, quickly followed suit.

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