Facing investors with renewed confidence, Walgreens charts progress of renewal efforts

CHICAGO By all appearances, Walgreens is regaining its mojo.

With fanfare and a dash of the verve and confidence that long defined this drug store and healthcare giant, Walgreens’ top leaders gave some 2,000 shareholders and guests plenty to think about — and some reasons to cheer — at the company’s annual meeting Wednesday. Their overriding message: That the nation’s most storied and profitable drug chain is well along on its mission to transform both its core retail business and its overarching mission as a full-service provider of health-and-wellness services for patients and health plan sponsors.

"We have made substantial progress…even in the midst of a very challenging economic climate," Walgreens president and CEO Greg Wasson told a largely supportive crowd of shareholders at Chicago’s Navy Pier ballroom. "We’re a more agile, forward-looking and innovative company than we were a year ago."

In fiscal 2009, he said, "we pursued new and better ways to connect with our customers and the communities we serve, while achieving strong revenue growth, significant cost reduction and record cash flow of more than $4 billion. We accomplished a number of important milestones in 2009, including opening our 7,000th drug store. But we also know we can accomplish much more."

In contrast to last January’s event, which was marred both by a snowstorm that severely restricted attendance and by a worrying economy in freefall, this year’s gathering was far more celebratory. Wasson, along with board chairman Alan McNally and CFO Wade Miquelon, portrayed Walgreens as a formidable and still-evolving work in progress, perched at the intersection of an uncertain health care system in need of new solutions, and the changing purchasing patterns of an increasingly cautious and fickle American consumer.

"We’re operating in a new economy, focused on a consumer who is savings-minded…and definitely wary of debt," noted Wasson. To that end, he said, Walgreens is working "to enhance the customer experience in every way we can" with the ongoing Customer Centric Retailing [CCR] initiative, which has led to a 4,000-item reduction in redundant products at the front end, a sharper focus on local customers and their needs, and a substantial overhaul of the stores’ product presentation and layout to spur higher per-customer sales.

"The company is updating its store interiors, improving product selection and reducing the number of items to make it easier for shoppers to find what they need," Wasson noted. "More than 600 stores now operate with the new format, and as many as 3,000 conversions are planned by late fall of 2010. We’re making adjustments to CCR so that our stores more closely fit the locations where we operate across the country."

CCR has also spawned a full store redesign, now in test in several markets across the country. "Beginning in March with the next wave of CCR conversions, the company will introduce a new store decor package," Wasson told shareholders.

The chain is also rolling out a new branding campaign with the tagline, "Walgreens. There’s a way," and has re-launched its Web site, Walgreens.com, to make it easier to manage prescriptions online, order photo services and access health products and interactive health services.

On the health-and-wellness front, Walgreens is forging ahead aggressively to position itself to employers, pharmacy benefit managers and other health plan payers as a cost-effective health solution, executives said. That effort now encompasses some 70,000 Walgreens health professionals, including pharmacists, nurse practitioners and pharmacy technicians in more than 7,100 Walgreens pharmacies, more than 350 in-store clinics, some 380 health centers at employer worksites and roughly 100 pharmacies within hospitals and other health settings.

Given those resources, said Wasson, a growing number of major companies are turning to Walgreens to operate on-campus health centers and provide other services to cut employee health benefit costs.

"Over the past several years, we have built a powerful suite of pharmacy and health care services, unmatched in the industry," asserted Walgreens’ CEO.

Most recently, that effort has spawned new agreements with Health Care Service Corp. — which operates through Blue Cross and Blue Shield plans in Illinois, New Mexico, Oklahoma and Texas — and with Highmark Blue Cross and Blue Shield, headquartered in Pittsburgh. In February, Walgreens will open a Take Care Health worksite health center at Health Care Service Corp.’s Chicago headquarters, staffed by a part-time physician, nurse practitioner, registered nurse and front-desk registrar. The center will serve some 5,000 employees.

Walgreens also is adding new store-based health initiatives. The newest is Walgreens Optimal Wellness, a self-care education program, launched Wednesday, for patients with chronic conditions. The program will initially focus on people with Type 2 diabetes.

"The core of the approach features Walgreens health care providers, including community pharmacists and Take Care nurse practitioners, leading a program of individual health coaching and diabetes counseling," noted the company.

Since September, Walgreens has also immunized nearly 5.5 million people for seasonal flu and more than 1 million people for H1N1 flu. All 7,100 Walgreens pharmacies and 350 Take Care Clinics continue to offer H1N1 vaccinations.

Beyond those programs, company executives cited progress on a broad set of initiatives. Among them:

• A management overhaul that has seen the installation of what McNally described as a "world class" management team, built of both Walgreens veterans and leaders from other industries. The shift has spawned "a culture of new thinking, innovation and momentum throughout the organization" with a "clear, compelling strategy of drawing more from the core of our business," he asserted.
• The ongoing realignment of Walgreens’ cost structure and capital spending to reduce inventory costs and store construction in favor of higher sales per store. "The new-store slowdown has begun," said Wasson, reducing the expected growth rate in new stores from 9% in recent years to roughly 4.5% this year and 2.5% to 3% in fiscal 2011. "Even with this slowdown, the company will still be opening more stores than all of its competitors combined are opening today," he added. To that end, the company announced Wednesday an agreement to acquire and convert 25 drug stores from Snyder’s Drug Stores in Minnesota. Miquelon said the company would continue to take advantage of promising acquisition opportunities.
• The ongoing rollout of Walgreens’ "Power" initiative, aimed at centralizing many of the administrative tasks that now burden store pharmacists so they can focus on patient counseling, drug therapy management and preventive health services. All Walgreens stores in Florida and Arizona are now offloading administrative and some back-end dispensing tasks to central-fill centers, Wasson noted.
• The continuing effort to shift decision-making down to the local level. Early last year, the company moved its regional VPs out of the Deerfield, Ill., headquarters and into their various regions across the country; more recently, Walgreens designated 1,300 of its leading store managers to oversee, in their local markets, the company’s campaign to become more responsive to local consumers and conditions. "We’re moving closer and closer to our communities," Wasson asserted.

The annual meeting kicked off with a moving tribute and sendoff to the company’s retiring former chairman and CEO, Charles R. Walgreen III, who attended with his wife, Kathy. "Our appreciation can never be adequately expressed for all Cork has done for Walgreens: our record