A determined Walgreens touts bold plans for '03

Drug Store News,  Jan 20, 2003  by James Frederick

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CHICAGO -- Undaunted by three years of lackluster returns in its stock price, Walgreen Co. is holding firm to a strikingly aggressive store expansion program that it says will make it a 7,000-store retail powerhouse by 2010.

"This year we'll open about 450 new stores--a store a day in 2003," Walgreen chief executive and newly elected chairman David Bernauer told more than 2,000 shareholders at the company's annual meeting Jan. 8. "We re confident we will reach our new, accelerated goal of 7,000 by 2010. In terms of growth, we're blowing our competitors away."

Over the past two years, he said, Walgreens has added a net total of 694 new stores. "And the top five players in the industry? They--including Walgreens--have gained just 136 stores. Pull us out of the equation and that number drops to a loss of 558 stores for our top four competitors," said the new chairman.

Factoring in replacement stores, the chain's 450-store building plan this year will result in the net addition of some 360 more Walgreens stores coast-to-coast, Bernauer said at the packed gathering at Chicago's Navy Pier auditorium. That will include the high-profile opening of store No. 4,000, slated for March 11 in Van Nuys, Calif., as well as scores of fill-in stores in growing markets like Seattle, Fort Worth and Atlanta

"Five years ago, we had no measurable presence in Fort Worth," said Bernauer, who replaced the retiring Dan Jorndt as chairman just prior to the meeting. "Today, we're No. 1 in Fort Worth. And in neighboring Dallas, we're closing in on No. 1, with 22 percent of the [drug store] share."

That aggressive fill-in extends even to mature Walgreens markets like Miami, where the infusion of new free-standing stores has pushed market share from 28 percent in 1996 to a market-leading 40 percent today, said Bernauer.

Indeed, he told Drug Store News at a press conference after the meeting, "The potential for adding more Walgreens stores is really growing faster than we can build them." That growth potential, he added, goes well beyond an eventual total of 10,000 stores throughout the United States, and it precludes--for the next two years, at least--any plans to go outside the country for additional growth, said Bernauer. "The opportunities are just too good right here," he said.

"There's still plenty of room for expansion, not only in Chicago, but in other states," p resident and chief operating officer Jeffrey Rein added.

In all, said Bernauer, Walgreens will invest about $1 billion this year, with more than half that total plowed into new-store development and "big chunks for technology and distribution."

New directions in marketing and technology

Behind Walgreens' confidence-- despite years of sluggish economic growth and low consumer confidence in the United States--lies a conviction that underlying trends in health care and in the nation's demographics represent a massive opportunity, said Walgreens officials. "Two-thirds of all senior citizens who've ever lived are alive today," said Bernauer. "Prescription numbers have doubled in the last decade and will nearly double again in the next one. And just as the pie is getting bigger, so is Walgreens' share of have 12 percent of the prescription market now, and we think that will grow to over 20 percent in the next decade."

Also fueling the chain's determination to saturate the nation with its stores is what its leaders see as huge potential for other product categories. Despite recent sluggish demand at the front end, Walgreens said it is gaining market share in most of its top-selling categories. It also is squeezing more profitability from its sales through more efficient and more automated supply chain management and distribution--efficiencies that have cut its inventory levels in its distribution centers from 54 to 45 days of product on hand.

"When the economy's rough and consumer confidence is flagging, some companies are pulling back from expansion or marketing," said Rein. "Not Walgreens. We're building stores and advertising ... even faster than in the high-flying '90s."

Thus, Walgreens will continue its massive weekly production of 50 million circulars. But the chain will also take some "calculated risks," said Rein, to spark anemic sales at the front end, where sales actually declined 0.2 percent in December. "We all know things have been rough lately. But we're doing our best in advertising and marketing to turn this sales trend around," he told shareholders. "That's why we're expanding our advertising efforts."

Among new directions in advertising this year, Rein noted, will be a series of radio spots featuring broadcasters Paul Harvey and CBS commentator Charles Osgood, as well as new TV ads that promote Walgreens' convenient locations, 20,000-item selection and 24-hour stores. In addition, he said, the chain has begun marketing its pharmacy services under a new umbrella term, called the Rx Safety Net. The marketing concept will emphasize convenience, safety and the availability of Walgreens pharmacists.