Walgreens: Roaring out of the gate

WHAT IT MEANS AND WHY IT'S IMPORTANT The “hedgehog” has evolved. It’s now more like a lion on the prowl.

(THE NEWS: Walgreens to acquire pharmacy business, other assets from Memphis USA Drug stores. For the full story, click here)

Walgreens’ leaders used to proudly describe the company’s operating strategy as the kind of approach used by a hedgehog: Stick close to the basics of pharmacy retailing and drug store merchandising, avoid most retail acquisitions like the plague, and grow the business from the ground up by building lots of stores in carefully selected locations.

Clearly, that strategy no longer is enough.

For well over a decade, beginning in the late 1980s or early 1990s, Walgreens pursued an organic growth strategy that rejected the whole idea of growth through the acquisition of other drug chains. It didn’t fit with the hedgehog strategy, company leaders asserted time and again, because most of the regional drug store operators out there simply weren’t considered a good fit for Walgreens’ retail philosophy or mission. Far better, they insisted, to move into new markets and dense up in established ones by locking up the best “Main and Main” locations and building stand-alone stores from the ground up, with plenty of parking and exhaustive analyses of everything from traffic flow to local customer demographics.

For years, the organic growth approach worked like a charm, yielding year after year of record sales and profits. But Walgreens’ leaders and strategists have clearly shifted with the times. Flush with cash and impatient with the long development time and high costs of growing their way to market leadership one new store at a time, management has concluded that seizing ripe opportunities by snapping up the assets of its best-run or strategically important competitors will pay bigger, faster dividends.

The deal to buy 17 Memphis-area Ike’s and Super D drug stores from Arkansas-based USA Drug is the latest nail in the hedgehog’s coffin. It follows by just a month Walgreens’ agreement to buy New York drug store powerhouse Duane Reade — its biggest acquisition in its 109-year history — and puts another exclamation point on a spate of regional-drug takeovers in the past few years.

Nothing signals Walgreens’ change in strategy like the jubilant statement made by president and CEO Greg Wasson last month, after the Duane Reade deal was announced. “We have a proven record,” Wasson noted with pride, “of successfully completing and integrating retail acquisitions, including Happy Harry’s, Drug Fair and El Amal Pharmacies in Puerto Rico.”