US Insights

3 Takeaways From Walgreens Earnings

Kate Senzamici

Senior Analyst

Retail 06.29.2018 / 09:00

800px-Walgreens_store

Walgreens Boots Alliance turned in a strong Q3 performance for fiscal 2018, with sales growing 11.8% to $34.3 billion.

Walgreens Boots Alliance turned in a strong Q3 performance for fiscal 2018, with sales growing 11.8% on a constant currency basis to $34.3 billion. The Retail Pharmacy USA segment saw an increase of 15% vs. the same time a year ago, boosted by the completed acquisition of 1,932 Rite Aid stores. Retail Pharmacy International sales decreased 2.1%, and both retail and pharmacy comps were down. In the U.K., pharmacies continue to feel pressure in lieu of Brexit: There has been a longer-than-usual period of reimbursement pressures, and high healthcare costs are driving down prescription volumes as doctors write fewer prescriptions (particularly when it comes to specialty meds).  

From a Retail Pharmacy USA perspective, three areas are worth highlighting:

Rite Aid integration

The sale and transfer of 1,932 Rite Aid stores has been completed, and was a boon to Walgreens’ Retail Pharmacy USA results. Not only did the segment see a sales increase of 15%, but pharmacy sales and script fills grew 19.3% and 11.8%, respectively. This growth was driven by the addition of the Rite Aid stores and by specialty scripts; without Rite Aid in the equation, growth would have been in the strong single digits and driven by specialty. Rite Aid also boosted retail sales, which were up 5.2% in the quarter – though retail comps, not able to benefit from the added stores, were down 3.8% (total comps decreased 1.2%). Following the store transfers, Walgreens still plans to close 600 stores and has already slashed 100 and transferred prescription files to nearby Walgreens stores. Amid store closures, the focus going forward is on making the Rite Aid stores – and the entire Walgreens base – more efficient.

Retail initiatives and strategic partnerships

Elements of said efficiency – in the form of pricing, assortment, promotions, and overall experience – are currently being tested at 17 pilot stores in the Gainesville, FL area. Chief Operating Officer Alex Gourlay was quick to point out that the pilots are not testing all of the concepts that Walgreens has up its sleeve, and that other initiatives are being tested around the U.S. to determine the correct balance of pricing, SKU count and assortment, and other features are most optimal. One test in Gainesville that has been deemed “promising” and likely to expand is Walgreens’ new store-within-a-store partnership with Sprint. These Sprint Express stores inside Walgreens provide shoppers with access to Sprint associates where they can purchase devices, switch to or sign up for a Sprint mobile plan, pay their bill, and more.

LabCorp and Humana clinical partnerships were called out as well, and propel Walgreens’ strategy of outsourcing clinic operations but partnering to provide access and co-leverage brand equity. Humana in particular is geared toward Medicare patients who can’t access the cash-pay clinics that make up a large portion of Walgreens’ clinical network, but who also make up a valuable portion of Walgreens’ customer base. Additionally, continued digital innovation will remain an important part of Walgreens’ healthcare offering, and the Find Care Now feature on the Walgreens app and website provides telehealth and clinic access capabilities.

Walgreens continues to speak favorably of the FedEx partnership and sees it as a significant driver of volume; the service is now being implanted into the acquired Rite Aid stores.

Staying the course

Speaking of partnerships, Amazon’s acquisition of Pill Pack came up repeatedly, and CEO Stefano Pessina was steadfast in his response: “we are not particularly worried…but we are not complacent.”

While WBA probably is not completely unfazed, emotional reactions or accelerated strategic moves in response to this news are unlikely. Walgreens knows the market is changing, and the consumer is changing – but the retailer also knows its strategy and is staying the course (having almost a quarter share of the U.S. pharmacy market helps too). Pessina has stated this time and again is response to inquiries about Amazon in previous quarters. Kantar Consulting will deliver a more thorough analysis of the Amazon-Pill Pack transaction, but, for WBA, its track record suggests that M&A will continue as usual: carefully and deliberately, but always open.

Source: Kantar Consulting

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