Walgreens still on target for 7,000 stores by 2010

DEERFIELD, Ill. —On the face of it, a glance at Walgreen Co.’s growth plans for fiscal 2008 might make it look like the nation’s top drug retailer is easing off on its torrid national store-development campaign. But the numbers can be deceiving.

In reality, Walgreens’ leaders are continuing ahead at full throttle.

Walgreens revealed Sept. 5 it would open “only” 550 stores in the fiscal year that began Aug. 31, for a net gain of 475 new stores after relocations and closings. Barring any acquisitions over the next 12 months, that growth plan marks a modest pullback from the breakneck expansion pace Walgreens kept in fiscal 2007, when the chain opened 615 stores and pushed its net store count ahead by 531 total units.

However, the 2007 expansion effort included the acquisition of 115 retail outlets. Setting aside that growth by acquisition factor, the 550 stores planned for fiscal 2008 still represent by far the most aggressive internally driven, “ground-up” store construction program in all of chain pharmacy—and an actual rise in the number of newly built stores over the number added this past year.

What’s more, even without any new acquisitions, Walgreens still is on target to exceed its long-stated goal of operating 7,000 drug stores coast-to-coast by 2010. At the close of fiscal 2007, ended Aug. 31, the company operated 5,992 drug stores, including 96 home care division locations, eight specialty pharmacies and three mail-service facilities in 48 states and Puerto Rico, versus 5,461 a year ago.

“Franchisees of Option Care, a wholly owned subsidiary of Walgreens, are not included in Walgreens’ store count,” the company reported.

The aggressive store-opening schedule continued right through the end of the fiscal year. Walgreens opened 101 stores during August, including 13 relocations. It also closed one store and acquired 54 stores, all but one of which were through its previously announced acquisition of Option Care.

Walgreens spokesman Michael Polzin said the new stores will fill in markets across a broad swath of the continental United States.

“We’ll be continuing to dense up existing markets, especially in newer areas like the mid-Atlantic region and the Carolinas,” Polzin said. “Certainly the South, the Southwest and California will be major expansion areas.”

In May, Walgreens opened its first store in Maine, capping its relentless march to become the nation’s first drug chain operating in all 48 states in the continental United States. The newest wave of store openings also will include Walgreens’ first Hawaii store, set to open in November in the Honolulu market, with “a couple more opening in 2008,” Polzin said.

Company leaders long have held firm to the belief that the U.S. market is far from saturated with drug stores. As former chairman David Bernauer put it in Walgreens’ most recent annual report, “An aging population, plus new drugs, plus Medicare Part D prescription coverage equals an exploding demand.”

Indeed, he noted, pharmacies industrywide increased just 2 percent in total numbers over the past five years, while the number of prescriptions filled jumped 18 percent. “Ongoing consolidation in the drug store industry represents solid opportunity for chains like Walgreens.”

Also buoying the company’s confidence in its blistering store-construction campaign is the continuing renewal of the existing store base. Fewer than 8 percent of all the Walgreens drug stores open in 1990 are still operating today in the same location.

This month, Walgreens also marked another milestone when it finalized its purchase of Option Care, a major provider of specialty pharmacy and home infusion services, on Sept. 12. The acquisition “positions Walgreens as the largest home infusion therapy provider in the country and expands its respiratory therapy and durable medical equipment services at some locations,” the company reported. The merger of Option Care with Walgreens’ existing operations under its Walgreens Health Services division also makes the chain the nation’s fourth-largest specialty pharmacy provider, according to the company.

“Our increased resources instantly expand our ability to provide patients and payers with national access to these services,” said Stanley Blaylock, Walgreens Health Services vice president of specialty pharmacy and home care. “Providing service in this expanding space will help members, payer clients and referral sources to better manage patients’ conditions, their care and the associated costs. This also expands our opportunities to gain greater access to limited-distribution biotech medications for our clients and patients.”