Walgreens to seize opportunities across health care and front end, CFO says

PHOENIX — Health care, wellness and beauty represent significant opportunity for Walgreens going forward as the company completes its merger with Alliance Boots, Tim McLevish, Walgreens EVP and CFO, told attendees at the Credit Suisse 2014 Healthcare Conference on Wednesday. 

 

"We continue to see rapidly growing demand for healthcare services in this country," McLevish noted. "As a result, overall spending is expected to grow from the current 17% of GDP to 20% of GDP by 2020, driven by the demands of an aging population and healthcare reform. As a result of that demand, we're also seeing an increased shortage in healthcare providers. We're also beginning to see a shift in payment models from the traditional fee-for-service one, to one that's more focused on pay-for-performance based on a measured improvement in quality and outcomes. That's good for Walgreens. We are well positioned to play a greater role in these new emerging care models."

 

As those emerging care models develop, Walgreens expects to expand its role beyond the $325 billion pharmacy market into the much larger and growing $2.6 trillion healthcare market, McLevish said. 

 

And there is significant opportunity across the front end as well, McLevish said. "We are very excited about the opportunities of our fully combined enterprise, which includes ... growth in our health-and-wellness business, expansion of our own brands and going bigger in beauty," he said. 

 

"You take the base Walgreens business ... 8,200 stores, we have a store within at least five miles of 75% of the U.S. population; and we have a store within three miles of 66% of the population. That is an incredible platform with a ubiquitous presence that I think can leverage lots of things. Our base model is pharmacy, there's a great opportunity to better leverage the traffic through our stores as they come in to get their prescriptions filled and make an attractive front-end, impulse purchases. We have undertapped that in the past. With the new leadership in that business there is a recognition that there is an incredible opportunity to expand," he said.

 

One of the goals is to match the 38% beauty marketshare Walgreens' U.K. counterpart Boots enjoys in Europe. Walgreens launched its Boots No7 brand and prestige beauty format in Phoenix, New York and across its flagship store base, and the results so far are very promising, McLevish said. "As we continue to get traction over the next four to five years I would expect it will be a meaningful part of the business," he said. "You know, it'll have a relatively smaller impact on revenues and a relatively larger impact on the bottom line just because of the terrific margins on those products, particularly on the owned brands."