Many people have been wondering how Walgreens would respond to decreases in their sales in 2012. Now we know one potential answer- expand into Europe.
According to an article in The Los Angeles Times, Walgreens has agreed to purchase a 45 percent stake in the European retail pharmacy chain Alliance Boots for $6.7 billion. Walgreens becomes an international retailer with over 11000 stores.
They will have an option to purchase the rest of the company before 2016. But is this a smart move for the retail pharmacy giant?
The move was no doubt prompted by a decline in U.S. sales by Walgreens resulting from their split with pharmacy benefit manager Express Scripts Inc. at the beginning of this year. The pharmacy retailer lost billions in revenue with their decision to decline a new contract with Express Scripts.
But now Walgreens takes on the added risk of exposure to potential problems resulting from the European debt crisis. They also have just bought nearly a 50 percent stake in a retail pharmacy chain that is trying to manage their own declining same store sales numbers.
So is bigger really better for Walgreens? And do they gain strength by becoming an international pharmacy retailer?
My gut tells me this is a bigger gamble for Walgreens than they care to admit. I’m guessing that the cost savings Walgreens will be hoping for with this deal won’t materialize. And there are legal and logistical problems with operating retail pharmacies in some dozen or so countries.
I also wonder if Walgreens will be more motivated now to go back to the bargaining table with Express Scripts? They’ve held firm so far refusing to accept ESI’s latest third party contracts but can they continue to shun away from ESI after the Medco deal?
This is a lot of business talk for a pharmacy blog but big business is what drives retail pharmacy these days. Walgreens no doubt is hoping that a move to make themselves an international name is a smart one.
Personally, I think Walgreens has lost sight of what their core focus should be- serving patients. That company needs to look beyond all the numbers crunching and remember that patients should be the primary focus of their business.
If I were an executive at Walgreens, I’d worry more about improving customer service and expanding health services for patients and spend less time trying to expand. I don’t believe all of Wagreens decline in sales can be attributed to the ESI fight. They are losing customers that just don’t want to shop there anymore.
In my experiences in retail pharmacy, independents are more committed to the customer than the chains. Every customer service survey you can find related to retail pharmacy shoppers will confirm that independents are better at the service part of customer service.
I think several of the large retail pharmacy chains with thousands of stores have lost their perspective on why they exist and how they grew to be retail giants in the first place. Customer service doesn’t have to be a lost art.
So good luck to Walgreens with their latest acquisition. First there was the Duane Reade purchase and now this. I wonder what they will do next?
Walgreens is looking for answers to their declining sales problems in Europe. Personally, I think the answers they want are a little closer to home.
The Redheaded Pharmacist