Walgreens, redefined

January 13, 2012

The nation’s largest drug chain is moving on from Express Scripts, which might soon be approved to merge with Medco. Food is a cornerstone to build trips, image and profits.

Don’t underestimate Walgreens and its decision to separate from Express Scripts. Sure, CVS, Rite Aid, supermarket pharmacies and others will divvy up the estimated 80 million annual scripts left on the table by the nation’s largest drugstore chain because it felt reimbursement rates from the pharmacy benefits manager were too low.

While this number sounds daunting, and it could represent well over 100 million trips (one to submit and one to pick up, unless done electronically, by phone or drive-through) that Walgreens needs to replace, it likely comes to about 17 business days worth of trips per calendar year, less than 5%. Walgreens’ 7,818 stores draw nearly 6 million visits each day.

The Lempert Report can’t say how long it might take for Walgreens to restore these trips and grow beyond with reasons for people to visit its stores more frequently. But we suspect the long-term effect may not be too dramatic if many of these patients approach the age of Medicare eligibility, and can return to Walgreens before long. We also see that this chain, which has a legacy of growing organically and with food, is redefining itself as a retail health and daily living destination.

First, to stem the outflow of patients, it enacted a discount in January to members of its prescription savings club, and signed up nearly 125,000 people in its first week. 

Second, more retail clinics help bring health care access to the growing ranks of uninsured Americans.

Third, well-developed photo and beauty care services anchor the chain’s one-stop appeal.

Fourth and foremost, food is refined by learnings from the Duane Reade chain it acquired last year in the traffic-dense New York area.  Walgreens was the first drug chain to sell food for every daypart, in order to become more of a food destination than a promotional opportunist. 

Now it has committed to filling food deserts in urban Chicago areas. And the chain’s new flagship store in Chicago’s Loop stands out with: a sushi and sashimi bar; self-serve yogurt; a juice bar featuring fresh fruits, vegetables and made-to-order smoothies; craft beers; spirits; gourmet chocolates; a cigar humidor; and more than 400 varieties of wine priced as high as a $450 bottle of Penfolds Grange.  Also here is an Upmarket Café with a barista and fresh-baked goods; and hundreds of fresh-food items, including wraps, sandwiches and salads for on-the-go consumption. The store was already featured on WineChannelTV.

This could be full circle for Walgreens – the chain that made the soda fountain a community hub is once more growing with food as a pivotal image and trip maker.