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Walgreen Co.: The US Drugstore Chain's Survival Strategies Against the Drug Wars



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Code :FMB0002

Year :
2005

Industry :Retailing

Region : USA

Teaching Note: Not Available

Structured Assignment : Not Available

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Introduction: Walgreen Co. , the drug store chain of US, founded byCharlesWalgreen in 1901, was ranked 38th among the Fortune 500 American Companies for the year 2005. Since its establishment,Walgreen had expanded by opening newretail drug stores and providing reach to its customers. Itwas the only company other thanWal-Mart to have increased both sales and earnings every year during the past three decades. Its sales had increased by 14.3%in 2004 over the previous year, while its earnings had increased by 15.7%. By 2005,Walgreen operated over 4,800 retail drug stores and constituted 14%of the total prescription drug3 market of the US.

Though Walgreen was the No.1 drugstore chain in the US, it had been facing significant challenges since the mid-1990s. In themid-1990s,Walgreen encountered threat fromthe increasingmail order operations,which were carried out by the Pharmacy BenefitManagers (PBMs), which provided health plans and othermedical services to large employers such as Citigroup,GM, International BusinessMachines and Southwest Airlines and encouraged their clients to purchase theirmedications throughmail orders, inturn helping themto reduce costs. Initially,Walgreen underestimated the threat from the PBMs. Though it had started its own PBMarmcalledWalgreenHealth Initiative Inc. by 1995, it did not concentratemuch on its PBMactivity and continued to expand by opening newstores as it felt that customer conveniencewasmore important and thiswould be achieved only if the customers personally visited the store and received counselling fromtheir pharmacists.


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