Walgreens recently bought Boots Alliance and now have replaced most of their top executives with Boots execs.  The article below talks about their attempt to catch up with CVS and Rite-Aid, who have both recently made bold acquisitions to get ahead in the fading drug store market.  All three chains have recognized the need to branch out because the RX business is becoming less and less profitable and faces competition from mail order, while the front end sales are dropping due to competition from better retailers who can offer better prices. 

Will all three chains survive?  Hard to say, personally I think CVS has taken a bold step by buying the Target pharmacies, and if the Target Express format that they are launching is successful, I can see them selling off the front store business in many of their larger stores (the ones they acquired from Sav-On and Longs, for example) and converting them into Target Express.   Target runs the front end, and CVS runs the back end, which is what they both do best.   I foresee a day when there will no longer be a need for a “drug store” per se, just pharmacies located in other retailers (Wal-Mart, Costco, etc.)   Walgreens and Rite-Aid may already be thinking about approaching one of those companies and trying to do with them what CVS just did with Target.  

Looks a little like Robert Redford, no? 

THE PLAN TO SAVE WALGREENS

When you walk into a Walgreens a year from now, the store won’t look much different. You’ll still work your way through health and beauty products, candy and convenience foods, household miscellany—and cigarettes—to get to the pharmacist in the back. But the company itself will be transformed significantly under its new European management team led by President Alex Gourlay.

The question is whether Gourlay’s overhaul will be fast enough to re-energize a stagnant retailer in one of the nation’s most tumultuous industries.

Since Deerfield-based Walgreens completed its two-part, $15.3 billion purchase of Switzerland’s Boots Alliance, nearly all of Walgreens’ senior management has been replacedwith Boots execs. Gourlay, who joined Walgreens in 2013 after 35 years at Boots, took over the top U.S. job in January when Boots Executive Chairman Stefano Pessina elbowed asideGreg Wasson to become acting CEO of the combined company.

A Scottish native and trained pharmacist, Gourlay, 55, is affable but direct about his main goal: to take away market share from rivals and make Walgreens No. 1 again. “Walgreens was in that phase where it knew the old model had run out of steam and it was trying to find a new strategy,” he says. “And it was doing a lot of good stuff, but it had lost a bit of its spark.”

Walgreens’ aimlessness was reflected in its stores, where shopper traffic dropped from 2012 to 2014, and in its stock price, which gained no ground during the market’s roaring recovery from 2010 to 2012.

Gourlay is scrutinizing the whole shebang. He’s streamlining employee ranks, making cuts that affect senior staff in Deerfield down to district and store managers. He’s updating supply chain technology and using data culled from Walgreens’ Balance Rewards program to purchase inventory more efficiently, rather than leaving buying decisions to the whims of individual store management. He’s considering partnerships to take over its in-store clinics and strengthen its pharmacy sales.

And for the first time, he is looking critically at Walgreens’ more than 8,300 stores and closing underperforming locations. In April, the company announced plans to shutter 200 stores.

Erik UngerWalgreens’ recently revamped State Street flagship showcases cosmetics, wine, fresh food and salon services.

Company watchers say a reboot is necessary if Walgreens is to thrive in a health care market that’s being shaken to its core by demographics, economics and changes in federal law. “Walgreens needs to be a leaner and more nimble company,” says Adam Fein, president of Pembroke Consulting in Philadelphia. “Being efficient is going to be a key success factor for pharmacy in the future.”

Among the most wrenching changes: Health insurers have reduced the amount of money they pay to pharmacies while narrowing their networks and pushing more costs to patients. That means people who previously chose a pharmacy based purely on convenience—Walgreens’ historic strength—now are visiting ones that are in-network and have lower co-pays.

Walgreens’ archrival, CVS of Woonsocket, R.I., has managed to lower costs to the consumer because it owns the nation’s second-largest pharmacy benefits manager, Caremark. (Pharmacy benefits managers are third-party administrators that negotiate prices with pharmacies and drugmakers on behalf of corporations and pay their workers’ prescription drug claims.) Walgreens had its own PBM but sold it in 2011.

That, however, might change. In an interview, Gourlay says he is open to either acquiring or forming a partnership with a PBM. More generally, he’s working to improve Walgreens’ relationships with PBMs, which hit a low point during a protracted and costly contract dispute with Express Scripts in 2012.

“Historically, Walgreens has taken more of an adversarial role against a lot of the PBMs and insurers in order to pursue as much profitability as possible,” notes Vishnu Lekraj, an analyst at Morningstar in Chicago. “Now it seems as if the new management is pursuing a strategy where they want to work closely with the payers.”

Gourlay also is trying to boost nonprescription revenue and profit by improving Walgreens’ health and beauty offerings. “Margin expansion on front-end is essential,” he says, referring to the front of the stores, where cosmetics and snacks are sold.

Erik UngerFood and drink offerings on the first floor of Walgreens’ State Street flagship

Under Wasson, the chain opened a dozen high-endflagships in Chicago and other major cities that offer a Sephora-level range of beauty products. But Walgreens still derives about two-thirds of its $76.39 billion in annual revenue from pharmaceuticals. Boots, meanwhile, gets half of its roughly $36.4 billion in annual sales from prescriptions and half from other products, including its massively popular No. 7 cosmetics line.

“Walgreens was built on pharmacy services,” Lekraj says. “If you move away from that, you have the problem of trying to change your company, change your brand and change your identity wholesale, which could prove to be a treacherous path.”

Gourlay wants to pick his battles carefully. Noting that Walgreens never can compete with big-box discounters such as Wal-Mart and Target, he plans to drop slow-moving products. “We need to pick the 10 grocery items that customers want and the most common lightbulb,” he says. The products that make the cut will be restocked almost twice as often to prevent bare shelves. He plans to curtail sale pricing, too. Currently, 40 percent of nonprescription goods are sold at a discount.

So far, Wall Street and investors have been pleased with his plans. Walgreens’ stock is up nearly 17 percent over the past 12 months and more than 12 percent year-to-date. But CVS, with its heavyweight PBM, has watched its stock skyrocket 74 percent in the past two years.

Gourlay wants Walgreens to have a happier and healthier future. Then again, so did Wasson.

Alex Gourlay was appointed president of Walgreens by then-CEO Greg Wasson in September, effective January.