Walgreen Outlines Strategic Growth Initiatives

Chicago Walgreen Co. hopes to cut $1 billion in annual costs by 2011 and will cut its capital expenses next fiscal year, the company told analysts Thursday at its Analyst Day conference in Chicago. The drug store chain anticipates approximately $1.8 billion in capital investments for fiscal 2009, vs. $2.2 billion in fiscal 2008.

Walgreens used the meeting to announce a series of strategic initiatives to drive growth. The company said it plans to slow store expansion to free up capital to invest in its core business and to develop its management ranks. At the same time, Walgreens is expanding its Health and Wellness division, which now encompasses more than 600 in-store clinics and worksite health centers. Walgreens expects to have more than 800 of these facilities by the end of fiscal 2009.

Additionally, the chain will focus on improving the customer experience by streamlining merchandise selection and shifting promotional focus toward essential consumer needs. To provide value to customers and drive higher profit margins to stores, private-label brand products are being expanded.

The company announced an ambitious effort, called “Rewiring for Growth,” which is designed to fundamentally reduce costs and improve productivity. Walgreens said the new program will align its costs, culture and capabilities to its strategy and the realities of the current economic environment. It targets approximately $1 billion in annual cost savings by fiscal 2011 through strategic sourcing of indirect spend, plans to reduce corporate overhead and work throughout the stores, and savings from its ongoing efforts to reduce the time spent filling prescriptions and increase the time pharmacists spend with customers.

In conjunction with the overall “rewiring,” Walgreens anticipates incurring total one-time costs of approximately $300 million to $400 million over fiscal 2009 and 2010.

“Walgreens 6,500 retail drug stores remain the centerpiece of our strategy for growth and value creation,” said president and COO Greg Wasson. “Our intent is to transform Walgreens into a more efficient and customer-focused company serving the needs of shoppers for consumer goods and services and for patients and payors seeking quality pharmacy, health and wellness services that are accessible and affordable.”