COMPANY PROJECT ANALYSIS

While the Walgreens company established a strong presence in the pharmaceutical and retail industry during its early years, they continued to innovate and produce new products that set new standards for organizations. Walgreens always ensured their employees were taken care of, and were one of the first American companies that established a pension plan for all employees with an initial fund of $500,000 (Gale, 1970). Walgreens was also the first major pharmacy to place prescription medications inside child-resistant bottles, which was before the government required this type of safety precaution (Cain, 2019). These are only several examples of how this organization refused to just keep pace with the status quo, and instead implemented new practices that became the standard for other companies to follow.

After Charles Walgreen III took over as president in 1969, Walgreens stores hit the milestone of $1 billion in sales by 1975 (Walgreen, n.d.). When Walgreen III opened the 1,000th store in 1984 in the town of Dearborn, IL, Governor James Thompson stated, “Walgreens has been a pioneer, not just in pharmaceuticals, but in retail service as well, since 1901. It's not just that Walgreens is an old and famous name in Chicago, and Illinois, and across the nation. In this

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life of uncertainty, people from my generation like to reach back and cling to the 'good old days.' Sometimes the good old days never really existed except in our imaginations. Walgreens good old days always existed, and the very comforting thing is that they're still here” (Pajak, 2020).

While Walgreens experienced phenomenal success dating back to 1901, they began a two-step strategic partnership with Alliance Boots in 2012, which was finalized on December 31, 2014 (Polzin, 2021). This new endeavor combined Boots, the European retail pharmacy leader, with Alliance Healthcare, a leading international distributer and wholesaler, and Walgreens who at the time was paving the way as the largest drugstore chain in the United States (Letter, 2015). This merger allowed Walgreens to not only expand their footprint globally, but with two powerhouses who have already established their presence overseas. With the merger complete, Walgreens is now Walgreens Boots Alliance headquartered in Deerfield, IL, and trades common stock on the Nasdaq stock exchange under the symbol WBA (Mergent, 2021).

Since the merger, Walgreens Boots Alliance now employs more than 450,000 employees in 25 countries, with more than 21,000 stores in operation (Walgreens, 2021). Walgreens has also continued with expanding their footprint across the globe with the acquisition of Farmacias Benavides in Mexico, Farmacias Ahumada in Chile, GuoDa retail pharmacy chain in China, and entered into long-term agreements with Valeant Pharmaceuticals and Fareva (Walgreens, 2021). In 2018, Walgreens joined the Dow Jones Industrial Average as one of its 30 components, and hit a milestone of serving over 500,000,000 customers in China (Walgreens, 2021).

When the Covid pandemic hit the United States in 2020, Walgreens took strides to ensure the health and welfare of their employees and customers were at the forefront. While Walgreens took a financial hit due to this unforeseen threat, which will be discussed later in the analysis, they still managed to partner with the federal government to provide testing and vaccines

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throughout locations in America. Walgreens began administrating Covid vaccines on December 21, 2020, and by January 22, 2021 they had administered over 1 million vaccines to individuals in long-term care facilities and other vulnerable populations (Hein, 2021). Walgreens President, John Standley, stated, “This unprecedented effort has not been without challenges, but as federal, state and local jurisdictions continue to advance their prioritization and distribution plans, we have been able to rapidly expand vaccine access to our nation’s most vulnerable populations and help our communities begin to emerge from this pandemic” (Hein, 2021). At the time of this analysis, Walgreens has implemented a plan to administer Covid vaccines to healthcare workers and those 65 and older due to their partnership with the federal government (Weil, 2021).

Market Features

Walgreens is a holding company that operates through its subsidiaries and is organized into three separate divisions, which include Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale (Mergent, Details, 2021). Retail Pharmacy offers prescription pharmaceuticals and retail health and beauty offerings in 50 states, the District of Columbia, the U.S. Virgin Islands, and Puerto Rico, while Retail Pharmacy International has pharmacy-led health and beauty retail businesses abroad (Mergent, Details, 2021). The Pharmaceutical Wholesale division supplies medicine and healthcare products to pharmacies, physicians, healthcare centers, and hospitals (Forbes, 2021).

The Retail Pharmacy accounts for 75 percent of sales in their pharmacy department, while retail make up the remaining 25 percent (Walgreens WBA, 2021, p. 6). Since the majority of medications are prescribed during the flu season and winter months, revenue through their pharmacy can quickly shift throughout the year. Because of this, Walgreens is focusing on creating a neighborhood health destination and modern pharmacy aligned to a wider range of

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healthcare services in 2021 (Walgreens WBA, 2021). This move would allow a wider range of demographics to patronize their services, as well as attract more private healthcare companies that will contribute to their income. Retail Pharmacy International’s breakdown is somewhat different that their division in the United States, where 61 percent of sales is dependent upon retail, and 39 percent on pharmacies (Walgreens WBA, 2021). This is largely due to the healthcare system abroad, where many platforms for customers are online. Walgreens’ subsidiary, Boots, also accounts for much of the division’s sales, as they are one of the leaders in the optical market (Walgreens WBA, 2021).

The Pharmaceutical Wholesale division consists of Alliance Healthcare pharmaceutical wholesaling and distribution, and is not as seasonally dependent as the other two divisions (Walgreens WBA, 2021). This division supplies healthcare products and related services to over 115,000 pharmacies, doctors, and hospitals every year from 306 distribution centers located primarily in Europe (Walgreens WBA, 2021, p. 8). As with all wholesalers and distributers, providing timely and accurate delivery at competitive prices is a key element to success, and Walgreens ranks in the top three in market shares in the majority of countries they conduct operations with.

Walgreens also competes in three separate industries, which are Drug Retailers, Drugstores and Proprietary Stores, and Pharmacies and Drugstores, which include both public and private companies (Mergent, Details, 2021). There is a total of 328 combined public companies in all three industries, and 16,201 combined private companies (Mergent, Industry, 2021). While public companies such as Walgreens have stocks traded on the stock exchange and file reports with the Securities and Exchange Commission, private companies are also considered major competitors within the industries. While pharmaceuticals are closely regulated by the Food

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and Drug Administration in the United States, prices for these medicines are not. In 2020, consumers paid $358.7 billion in prescription drug costs alone within the United States, making for an extremely competitive industry (Mikulic, 2020). This paper will further analyze how Walgreens can gain the competitive edge on its industry rivals while still providing healthcare needs to consumers at a reasonable price.

Walgreens holds the vision of being the first choice for pharmacy, well-being and beauty – caring for people and communities around the world (Walgreens, 2021). Executive leadership takes this vision to heart, and recently released their Corporate Social Responsibility Report which trains and holds management accountable for increasing diversity within all departments and implementing safety, health, and workplace flexibility measures for employees (Johnson, 2021). While much time and effort contributed to detailing all aspects of their social responsibility, this is considered a weakness and one area to consider revisiting. Just Capitol polled stakeholders of publicly traded companies for their 2021 report, which covered issues that matter most in defining just business behavior (Capital, 2021). Walgreens ranked 188, over 100 rankings below their top competitor, CVS Health, in areas such as how a company delivers value to its shareholders and how companies invest in their employees and communities (Capital, 2021). Further analysis will be conducted on this area to determine the preferred course of action moving forward.

The overall growth rate of the retail pharmacy industry has been on a steady incline during the past several years, with a higher increase expected in 2021 (IBIS, 2021). IBIS World Industry Statistics show the pharmacies and drugstore market at $319.3 billion in 2020, which is a 3.3 percent increase from 2016, and this year it is predicted to rise 3.3 percent from 2020 (IBIS, 2021). During the same time period, Walgreens experienced an increase in total revenue

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worldwide of $139.5 billion, a 16 percent increase, but their net income dropped from $4.17 billion in 2016 to $456 million in 2020 as noted in Appendix A (Mergent, Income, 2021). While this is a significant drop in net income during 2020, external factors have contributed to this reduction which will be studied in the SWOT analysis. Many factors could have attributed to this, such as a reduction in foot traffic due to the Covid pandemic, more online sales and home deliveries, and massive cleaning costs associated with Covid. The drop in net income is cause for alarm, but this is a threat that Walgreens can overcome by developing a new strategy moving forward in 2021.

Walgreens has many major competitors within their industries, with the largest being CVS Health Corporation, Cardinal Health, Inc., Rite Aid, and Albertsons Companies (Mergent, Competitors, 2021). The one competitor that initially comes to mind when thinking of retail drugstores in CVS. Many Walgreens and CVS stores are sometimes within eyeshot of one another, and both have stores placed in key market locations throughout the United States. While Walgreens is now a global organization, they currently have 8,915 locations nationwide, with CVS closely behind with 8,170 locations (Mergent, Comparison, 2020). Although CVS formed a strategic partnership with Target to house 80 clinics within their stores(Mergent, Comparison, 2020), Walgreens focuses on strategic locations where their stores are within five miles of 78 percent of the Unites States population (Walgreens, 2021). In addition to Walgreens locations within the Unites States, they also operate an additional 4,534 stores overseas (Mergent, Details, 2021).

There have been many external factors that affected the pharmaceutical industry in recent history, such as a change in the political climate in the Unites States, the United Kingdom’s withdrawal from the European Union, and the global pandemic the entire world is still

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experiencing in one form or another. The political climate in the United States can greatly impact the future of the healthcare industry, as there is the possibility of appealing the Affordable Care Act. When government restrictions are modified for patients, third party payers such as Medicare Part D will also be impacted, and the end result can be reduced profits for the pharmacy industry (Walgreens WBA, 2021, p.4). Since there is not a defined end to the Covid pandemic, the length of the recovery is also uncertain. While Walgreens must still make adjustments in their strategic direction, they continue to stay true to their mission and values. Helping people across the world lead healthier and lives is the cornerstone of their purpose, with trust and transparency being at the forefront of their philosophy (Walgreens, About, 2021). With change being the only constant in the business environment now more than ever, Walgreens must entertain an in-depth analysis of their strategy for the immediate future, and also for long-term growth.

Competition

Competition within the pharmaceutical industry has been fierce since its inception, and will continue to grow as innovation and technology change with consumer demand. Walgreens Boots Alliance has several major competitors within their industry, such as Amazon, CVS Health Corporation, Cardinal Health, Albertsons Companies, Rite Aid, and Ingles Markets, which are ranked in order of revenue. Rivalries have remained intense, with Walgreens Boots Alliance purchasing 1.932 Rite Aid stores and three distribution centers, to attempted mergers between Rite Aid and Albertsons (Mergent, Acquisitions, 2020). Although many government regulations and restrictions are embedded throughout the industry, it still remains a highly lucrative global business. Several factors are critical to successfully competing within the industry, which will be explained through Porter’s Five-Forces Model of Competition.

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One of the key players in the industry, CVS Health Corporation, is the top rival of Walgreens within the United States, and provides similar products and services throughout their locations. These includes health and beauty products, prescription drugs through their pharmacy, and even a photo lab similar to Walgreens (CVS Health, 2021). CVS Health topped Walgreens with their net income and assets in 2020, with $7.179 billion and $230.7 billion respectively, compared to Walgreens with $456 million and $87.2 billion (Mergent, Competitors, 2021). With CVS Health consisting of over 300,00 employees compared to 223,000 of Walgreens, CVS Health also has more than double total liabilities with $161.3 billion (Mergent, Competitors, 2021).

Cardinal Health is another major competitor within the industry, which made over a dozen acquisitions in the past decade by using cash on hand to complete the purchases (Mergent, Competitors, 2021). Although Cardinal Health experienced a loss of operating earnings of almost $163 million in 2020, they are focused on major growth during 2021 (Mergent, Cardinal, 2021). According to their 2020 annual report, their strategic direction is to enhance their infrastructure within their pharmaceutical division, expand their self-manufacturing capacity and sourcing capabilities, and position themselves for consistent, sustained future growth through establishing a strong cash flow and working capital efficiency in fiscal year 2021.

While Albertsons is well known for their strong foothold in the grocery retail market nationwide, they also own and operate over 1,700 in-store pharmacies across the United States, serving an average of 5.5 million customers each year (Albertsons, 2021). Albertsons’ rivalry with Walgreens Boots Alliance may not be as intense as other competitors throughout the industry, but they continue to focus on providing a welcoming hometown atmosphere that

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attracts local consumers. Albertsons also has a total of 20 banners across 34 states, to include Safeway, Vons, and United Express (Albertsons, 2021).

Rite Aid continues to be a driving force within the industry, and although they sold 1,932 stores to Walgreens as previously mentioned, their current strategy is to focus on long-term growth of their organization. Their goals are to reduce their corporate expenses on an annual basis, extend 35 percent of their 2023 bond maturities to 2025, reduce debt and improve their leverage ratio, and become the dominant mid-market pharmacy benefit manager within the retail pharmacy market (Rite Aid, 2021). Although Rite Aid is exiting certain markets within the industry, they will continue to remain a rivalry of Walgreens within the pharmaceutical industry.

As with all top competitors of Walgreens Boots Alliance, Ingles Markets is also publicly traded on the stock market, with a 2020 net income of $178.6 million (Mergent, Competitors, 2021). With their footprint in retail, distribution, and the pharmacy industry, Ingles Markets is able to remain one of the top six competitors with Walgreens Boots Alliance (Mergent, Competitors, 2021). Ingles Markets has a diverse line of healthcare products with in-store brands, and pharmacists on site within the majority of their locations throughout the United States (Ingles Markets, 2021). Ingles Markets is also another force in the marketplace Walgreens cannot ignore due to the growth of beauty and pharmaceutical products available.

Other major competitors that have a heavy presence in the market are Kroger, Walmart, and Target, with each specializing in discount pricing, health and beauty products, and online and in-store pharmacies. The strongest up and coming competitor in the pharmaceutical industry would have to be Amazon Pharmacy, who’s slogan is “We bring the pharmacy to you” (Perlet, 2021). This recently launched online pharmacy allows customers to create a secure pharmacy profile, browse name brand or generic prescriptions, and have two-day deliveries with their

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Amazon Prime membership. (Perlet, 2021). Grocery stores and clothing items were also recently launched in 2020, and Amazon experienced record net sales with an increase of 38 percent increase totaling $385.1 billion in 2020 (Perlet, 2021). Porter’s Model of Competition

When analyzing competition within the pharmaceutical industry, Porter’s Model of Competition is used to determine how competitive forces shape the strategy of an organization. The five forces used to determine an effective strategy are rivalry among competing sellers in an industry, substitute products offered by firms in other industries, potential entry of new competitors, bargaining power exercised by suppliers of inputs, and bargaining power exercised by buyers of the product (Thompson, et al., 2010, p. 61). This model will identify how strong specific competitive pressures are, and if the strategy of Walgreens will be strong enough to result in appealing profits.

Rivalry is a key factor within the retail and pharmaceutical industry, especially with the recent boom of online shopping and delivery. While consumer spending for prescription drugs in the United States was $358.7 billion in 2020, this is not a drastic increase in buyer demand (Mikulic, 2020). Since there is a slow and steady increase for the demand of prescription drugs, rivalry is greater and competitors search for new and innovative ways to strengthen their foothold in the market. Brick and mortar stores who used to rely on foot traffic entering their doors are now offering their products online, with Amazon being a prime example. Amazon took the pharmacy out of retail stores and offer them online, with many other competitors offering similar services with their own particular products.

Substitute products continue to be a threat to Walgreens, as consumers have options to meet there needs outside the retail and pharmacy industry. For individuals who strive to maintain

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a healthy lifestyle, gyms are an option instead of health products available at Walgreens. While this threat has remained low due to the pandemic restrictions, online training continued to remain an option. Walgreens continues to promote their photo centers (Walgreens, About, 2021), but people also have the option of using their own printers or digital platforms for viewing options. Generic prescription medications are also widely available within their industry, but there are other options available through a multitude of online sites that offer even cheaper discounts and deals.

The entry of new competitors remains high, as new entrants are not necessarily up and coming businesses but have already established themselves as existing competitors. Major contenders such as Kroger, Walmart, Target, and Amazon are not new to the market, but they pose a major threat since they already have the resources to expand their reach where they previously did not have a presence. While pharmaceuticals are heavily regulated by the federal government (FDA, 2021), these major organizations have the capability to make any and all necessary steps to adhere to these policies, as many have recently done.

The bargaining power of suppliers differs between the retail and pharmaceutical markets, as retail products are not as closely regulated as pharmaceuticals. In the retail industry, consumers are always searching for reliable and reasonably priced items, and Walgreens has aligned itself with these values (Walgreens, About, 2021). Instead of incurring costs associated with switching suppliers for their retail stores, Walgreens focuses on their research and development team to provide in-house brands and products. Suppliers for the pharmaceutical industry are readily available and heavily regulated, so the competition turns to generic medications. Since suppliers of generic medications do not have to undergo the stringent and expensive clinical trials as name brand drugs, their costs can be drastically reduced by up to 80

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percent (FDA, 2021). Even when focusing on generic prescription drugs, their costs remain relatively the same across the board.

The bargaining power of buyers is similar between the retail and pharmaceutical industries, since companies have a higher bargaining power associated with both industries. While consumers have little negotiating power when purchasing prescription drugs or household items, stores such as Kroger and Walgreens can negotiate with the sellers to have their product promoted throughout their locations. This allows companies to reduce costs when negotiating contracts since sellers want the highest amount of publicity through promoting their products and having a major retailer associated with them.

Industry Changes

2020 brought about more changes to the retail and pharmaceutic industry than the market has ever seen in recent history, mainly due to the Covid pandemic that swept the globe. Retailers were stretched to meet the basic demands of consumers, the number of customers allowed in stores were restricted by health regulations, contactless shopping became the latest consumer demand, and businesses had to relocate their storefront to a digital platform. The pharmaceutical industry is also undergoing dramatic changes, where a shift in priorities and consumer demand altered the normal level of activity and growth. Many major companies focused on developing a single drug during 2020, which resulted in an unremarkable breakthrough for the entire industry.

While a new drug takes an average of ten years to hit the market from its infancy through production, major companies recently completed this process within ten months to combat the recent Covid pandemic (Center, 2020). This also resulted in major competitors forming alliances for manufacturing and distribution since March of 2020, such as Johnson & Johnson and Merck (Levine, 2021). This type of partnership between rivals is extremely rare, and their partnerships

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may last well into the future due to the rapid development and distribution of products that impact the overall health and well-being of consumers around the globe.

A big challenge that drug stores face is getting foot traffic through the door, whether it be for picking up prescriptions or shopping for groceries and healthcare items. Last year resulted in a major reduction of patrons shopping in stores, partly due to restrictions and also due to the uncertainty of the virus. Once consumers realized that home delivery of prescription medicines were widely available, this became the preferred method of receiving medication. In May of 2020, home delivery of prescription medicines increased by 21 percent from the previous year, to include those ordered from CVS, Express Scripts, and Walgreens (Hopkins, 2020). In an effort to make changes to stay competitive within the pharmaceutical industry, Walgreens Boots Alliance formed a joint venture with Prime Therapeutics to form AllianceRx Walgreens Prime, which is able to compete with other home delivery platforms for prescription medications (Walgreens, About, 2021).

Another change in the pharmaceutical industry is increased government regulations on when prescriptions can be refilled and the quantity allowed. This was established under the CARES Act to reduce stockpiling of medication and to prevent manufacturers from becoming overwhelmed. The provision states that those who qualify under Medicare Part D can receive generic drug equivalents with a 90-day supply delivered through the mail to their home (Schwartz, 2020). This plan currently impacts over 45 million people (Schwartz, 2020), and will continue to be in effect after the Covid pandemic has ended. Because of this, and the life expectancy now at the age of 78.7 (CDC, 2020), businesses in this industry will need to make the necessary adjustments to plan for long-term changes for the manufacturing and distribution of both name brand and generic medications.

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While consumer expectations continue to rise regarding healthcare and medical treatments, organizations are now bringing the doctor online with the option to receive advice from pharmacists to meet the consumers’ needs. The U.S. Department of Veterans Affairs recently launched their VA Telehealth Service, which allows annual doctor visits to be conducted online and the option of bypassing their local pharmacies when they are in need of medication or consultations from a pharmacist (VA, 2021). Although this was implemented due to the restrictions placed on many communities, this will now be common practice for the VA and other healthcare providers. For this type of service, there will be little or no need to travel to a local drug store to pick up prescriptions or ask a pharmacist for advice.

Another change that impacted the retail and pharmaceutical industries was consumer spending, which can normally be a good way to gauge the health of the overall economy. This fluctuated within the past 12 months, with steady decreases early in 2020 and a slight uptick in 2021 (BEA, 2021). Consumer spending increased 2.4 percent in January of 2021, as well as an increase in personal income of 10 percent, according to the Bureau of Economic Analysis (BEA, 2021). This may be a difficult tool to utilize when predicting the immediate future of consumers, since factors included in this data were financial aid provided through stimulus relief, and unemployment benefits that were extended through March of 2021 and most likely into the fall (DOL, 2021). Until the restrictions are lifted throughout the United States and also those placed on traveling abroad, many industries have been in the reactive mode while making short and long-term strategic plans.

Other major retailers have entered the drug store industry, and now offer similar or improved services that are becoming available on a global stage. While Kroger, Walmart, Target and Costco recently introduced in-store pharmacies to expand the resources for consumer

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healthcare, other companies are taking it a step further. Amazon is one example of how they not only make it easier for consumers to receive prescription medicine and any item available in retail stores, many consumers can depend on receiving all necessary supplies to live a normal life. Dinner can be delivered in a matter of minutes, groceries can be ordered and delivered the same day, and other consumables and toiletries are easily accessible through a computer or smart phone (Amazon, 2021). These types of services are causing a major shakeup within the industries, and some companies are starting to struggle to keep up with the innovation and changes in customers’ spending habits.

Strategy

There are several strategies Walgreens Boots Alliance utilize to compete within their industry, to include their strategic partnership and growth strategy, store brand strategy, corporate social responsibility strategy, and their stakeholder engagement strategy. Although a short-term goal, Walgreens has implemented a strategy to help eradicate the Covid pandemic through a strategic partnership with the federal government. Walgreens strives to be the market leader throughout the world while maintaining their mission of helping people across the world lead healthier and happier lives, while ensuring their strategic mission aligns with their vision, mission, and values (Walgreens, About, 2021). Although the recent Covid pandemic has caused many organizations to make drastic changes within their industry, Walgreens was able to make several adjustments while still moving forward with their strategic vision for the future.

After Walgreens’ strategic partnership with Alliance Boots occurred in 2014, their strategic vision was to extend their operations not only within the United States, but with multiple countries overseas (Walgreens WBA, 2021). The goal of this new merger was to gain strategic partnerships with the world’s leading companies with the purpose of extending their

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healthcare solutions and convenience offerings to a global market. This strategy includes targeting existing markets where they can dominate the pharmaceutical industry with lower customer costs and greater selection of products and services, and also increase revenue in new and emerging markets in Europe and the United Kingdom (Walgreens WBA, 2021). One example of this is Walgreens’ agreement with VillageMD in 2020, where $1 billion was invested in equity and convertible debt over the next three years (Walgreens WBA, 2021). The goal of this strategy is to open 500 to 700 “Village Medical at Walgreens” physician-led primary care facilities in 30 Unites States markets within the next five years (Walgreens WBA, 2021). Another agreement associated with Walgreens’ strategic partnership is with McKesson Corporation, where the two companies will combine their pharmaceutical wholesale businesses in Germany resulting in much greater economies of scale within the country (Walgreens WBA, 2021).

In close association with Walgreens Boots Alliance’s strategic partnerships, their growth strategy focuses on acquisitions, joint ventures, as well as strategic partnerships and alliances. Regarding alliances, Walgreens is able to reduce costs through establishing relationships with third parties, who in turn will outsource certain business and administrative functions on behalf of Walgreens (Walgreens WBA, 2021). Walgreens’ investment with AmerisourceBergen was a key factor in their growth strategy, where they were able to expand their reach nationwide and also into provinces of China. Walgreens, through AmerisourceBergen, is now able to offer services through Guangzhou Pharmaceuticals, Nanjing Pharmaceutical Company, and Sinopharm Holding GuoDa Drugstores, which employs more than 30,000 people alone (Cohen, 2020). Walgreens also extended their strategic growth into specialty markets, where PharMerica serves senior living facilities, long-term care facilities, and specialty pharmacy markets to

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include 96 institutional pharmacies, 20 home infusion pharmacies, and five oncology pharmacies throughout 45 states (Cohen, 2020).

Walgreens has a unique product branding strategy, where they focus on specific markets for their products. While competitors developed a single internal name brand that produces products from aspirin to green beans to toilet paper, Walgreens uses a strategy that builds confidence among their consumers. The strategic brand development team recently reduced the categories Walgreens offered customers, from 120 categories to approximately 25 which are mostly associated with healthcare products and snacks (Troy, 2020). Walgreens now has 20 store brands which constitute for 20 percent of non-pharmacy sales, and are estimated to be approximately $5 billion in sales throughout the United States (Troy, 2020). Some of these Walgreens-specific brands includes Nice!, No7, Soap & Glory, Liz Earle, Botanics, Sleek MakeUP, and YourGoodSkin to name a few. Additionally, Walgreens offers incentives to employees to purchase and market these products through an everyday discount of 25 percent and up to 40 percent each fiscal quarter (Troy, 2020).

In 2020, Walgreens Boots Alliance moved their corporate social responsibility strategy to the forefront, where their Executive Chairman, James Skinner, stated, “By consistently responding to social and environmental needs in an accountable way over a number of years, and through strong CSR governance, we believe we are creating long-term value for our investors, customers, patients, employees and for society at large” (Johnson, 2021). Some strategic goals of Walgreens are to hire 5,000 U.S. veterans through their Helping Veterans with Educational and Retail Opportunities (HERO), increase women in leadership positions by 3 percentage points, and increase people of color by an additional 2 percentage points in fiscal year 2021 (Johnson, 2021). The timeline set to reach these milestones in by year-end 2023. Walgreens’ corporate

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social responsibility strategy is embedded in four categories, which include healthy communities, healthy planet, sustainable marketplace, and a healthy and inclusive workplace (Johnson, 20210). These strategic initiatives are not only goals for their 13,000 retail pharmacies throughout the United States, but also facilities in Mexico, Thailand, the United Kingdom, the Netherlands, Lithuania, and Chile (Johnson, 2021).

Instead of conducting strategic planning from an ivory tower, Walgreens takes great pride in gathering input through their stakeholder engagement strategy. Walgreens actively promotes engagement from both internal and external stakeholders to address company issues that impact the effective delivery of products and services throughout the world (Johnson, 2021). Stakeholders range from customers and patients to government entities and investors, and Walgreens holds their input with great significance since there is much activity within the present economies of the world. In order for Walgreens to have a competitive edge on their rivals, they established a Walgreens External Advisory Council in 2019, with the goal of identifying global megatrends and to capitalize on the opportunities to take action and set the standard (Johnson, 2021).

Most recently, Walgreens formed a strategic alliance with the Federal Retail Pharmacy Program on February 12, 2021 to support the significant undertaking of providing the Covid vaccine to the population of the United States (Mergent, Walgreens, 2021). Beginning February 25, 2021, Walgreens will receive an allocation of more than 480,000 Covid vaccine doses to be administered through their pharmacies and retail stores, and also at off-site locations throughout 17 states (Mergent, Walgreens, 2021). Their strategy is to work in collaboration with civil leaders, urban leagues, and the Center for Disease Control to ensure vaccinations will target individuals in Medical Underserved Areas and in areas with a high vulnerability score (Mergent,

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Walgreens, 2021). While this may appear to initially be a short-term goal, the efforts of Walgreens will booster consumer confidence and reinforce their mission of helping people live healthier and happier lives, which in turn will lead to a greater market presence and consumer trust in their organization.

Walgreens’ strategies to become the pharmaceutical leader have been well-defined over the past 120 years, and were recently strengthened through their latest endeavor with Alliance Boots in 2014 (Walgreens, About, 2021). As stated in their 2020 Annual Report, the anticipated strategic and financial benefits with their relationship with AmerisourceBergen may not be realized (Walgreens WBA, 2021). After purchasing 28 percent of the outstanding AmerisourceBergen common stock in August of 2020, Walgreens Boots Alliance cannot presently state if this activity will be successful. (Walgreens WBA, 2021). Recent laws and regulations could adversely impact current and future earnings, so this is one area that needs further analyzing. Walgreens additional strategies of stakeholder involvement and partnering with the federal government have shown fruitful results, and with a few adjustments Walgreens should continue to be a top leader in the pharmaceutical industry based off their current strategic direction.

SWOT Analysis

SWOT analysis is tool used by organizations to determine strengths, weaknesses, opportunities, and threats which can assist with their strategic direction. SWOT analysis can provide a snapshot of a company’s overall health, and is a useful tool for modifying a strategy to capitalize on opportunities and defend against known or possible threats (Thompson, et. Al., 2012, p. 106). While strengths and weaknesses are internal, opportunities are both internal and external, and threats are external to an organization as noted in Appendix B. Additionally, an

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ultimate threat will be determined to assess which external threat could shut down all operations within Walgreens Boots Alliance immediately.

1. Brand recognition is a prominent feature of Walgreens which is recognizable throughout the United States and Europe. Walgreens was ranked nine out of 100 in 2019 by Brand Finance, which is a ranking system that examines the effectiveness of the brand on the company’s bottom line in financial value (Brand, 2021). 2. Walgreens Boots Alliance has the ability to provide customers with convenient, omni- channel access through their vast portfolio of retail and business brands (Walgreens WBA, 2021). These include Walgreens, Duane Reade, Boots and Alliance Healthcare (Walgreens WBA, 2021). 3. Walgreens Boots Alliance is a global leader in retail and wholesale pharmacy, with over 21,000 stores in 11 countries, with over 425 distribution centers that deliver to more than 250,000 pharmacies, doctors, and hospitals in over 20 countries (Walgreens WBA, 2021). 4. Walgreens Boots Alliance is the largest retail pharmacy, health and daily living destination across the United States, with a presence in more than 25 countries with over 450,000 people employed (Walgreens WBA, 2021). 5. Walgreens Boots Alliance is one of the world’s largest purchasers of prescription drugs and other health items, which results in addressing the rising costs of prescription drugs in the United states and nationwide (Walgreens WBA, 2021).

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6. Walgreens Boots Alliance uses in-house product research and development capabilities, which results in products such as Well Beginnings, Sleek MakeUP, and YourGoodSkin (Walgreens WBA, 2021). 7. Walgreens Boots Alliance has an extremely strong strategic partnership with some of the world’s leading companies, which enables them to extend healthcare solutions and services to the communities they serve (Walgreens WBA, 2021).

8. Location is a key element when targeting intended markets, and Walgreens Boots Alliance has strategic locations where their stores are within five miles of 78 percent of the Unites States population (Walgreens, 2021). 9. Economies of scale is a strong quality of Walgreens Boots Alliance, especially in Europe where they rank in the top three pharmaceutical wholesalers and distributors throughout the continent (Walgreens WBA, 2021).

10. Walgreens Boots Alliance has the ability to access generic pharmaceutical products through its ten-year agreement with AmerisourceBergen, which results in lower costs for consumers, third-party payers, and the organization (Walgreens WBA, 2021). 11. Walgreens has an established social marketing campaign, which targets local communities who are in need of desperately needed services. Red Nose Day was implemented to end child poverty, with 100 percent of donations going towards this fund (Walgreens, Red, 2021).

12. Walgreens has a strong network of healthcare professionals, which accounts for more than 85,000 healthcare service providers, pharmacists, pharmacy technicians, and nurse practitioners throughout the United States (Walgreens WBA, 2021).

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13. Walgreens established a mobile telehealth program called Find Care, which connects patients and customers with providers from the ease of their mobile device (Walgreens WBA, 2021). 14. Walgreens recognizes its most valuable customers through its Balance Rewards program, which includes 86 million people throughout the United States who received points that can be instantly redeemed in store or online (Walgreens WBA, 2021).

15. Boots in the United Kingdom is one of the market leaders in the optical market, with 550 practices and 165 operated on a franchise basis (Walgreens WBA, 2021). 16. Walgreens has an extremely user-friendly pharmacy, with easy access to pharmacists and clinicians with extensive knowledge and training. Walgreens also made pharmacy pick-up much easier with their drive-thru locations throughout the United States (Walgreens, About, 2021).

17. Boots UK, part of the retail pharmacy international division of Walgreens Boots Alliance, have strong ties to their community and hit a milestone in February 2021 by opening up one million jobs for individuals with criminal backgrounds (Boots UK, 2021). 150 other companies also joined Boots UK in their decade-long goal of providing second chance opportunities as part of their corporate responsibility strategy.

18. Walgreens Boots Alliance has a reputation for setting benchmarks within the pharmaceutical and healthcare industry, and recently invested in iA to provide automation for the retail and international pharmacy divisions (Smulevitz, 2021). This will completely automate their pharmacy department and allow for more in-person collaborations with pharmacists.

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19. Walgreens Boots Alliance leases versus owning the majority of properties, which can be beneficial since they receive tax breaks, the length of the contract can be negotiated, and the upkeep and major maintenance is factored into the monthly agreement. 20. Walgreens Boots Alliance recently appointed an extremely well-rounded individual to serve as their CEO beginning in 2021. Rosalind Brewer has extensive experience as the COO of Starbucks, the CEO of Sam’s Club, with proven experience with strategic planning and store development (Smulevitz, Appoints, 2021).

21. Walgreens Boots Alliance earnings per share is projected to grow to 5.33 within the next year and a half, which is a strong indicator of the company’s future profitability based on revenue (Mergent, Earnings, 2021). 22. Walgreens Boots Alliance has experienced a steady increase in sales over the past year, to include their strategic alliances in the United States and abroad. During the last report they had a sales increase of 5.7 percent over the previous year, totaling $36.3 billion in overall sales (Gradwell, 2021).

1. Walgreens Boots Alliance is unable to determine if their recent acquisitions, joint ventures, or strategic partnerships will result in an increase or reduction in revenue, which has fluctuated over the past several years (Walgreens WBA, 2021). 2. Walgreens places too much emphasis on its expected revenue during the winter months and flu seasons, and needs more focus on attracting customers for the remaining months throughout the year (Walgreens WBA, 2021).

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3. Walgreens does not have a strong commitment toward attracting and recruiting a talented workforce looking for full-time employment. As of 2020, 33 percent of all employed by Walgreens were only part-time employees (Walgreens WBA, 2021). 4. Walgreens is not able to anticipate the current Covid pandemic as well as other industries, and lagged when shifting their strategy to online and home delivery for their retail products and pharmaceuticals.

5. Walgreens does not have strong relationships and alliances with pharmacy benefit management (PBM) companies. This results in uncertainty due to overlapping contracts with multiple PBM companies, and no guarantee on pricing (Walgreens WBA, 2021). 6. Walgreens lacks control over much of their administrative functions within the United States, mainly due to outsourcing (Walgreens WBA, 2021). This results in disruptions among third-party resources which causes unforeseen operational difficulties and increased costs.

7. Walgreens Boots Alliance has difficulty in successfully managing organizational change and their impacts on the organization (Walgreens WBA, 2021). This results in reacting to their in-house decisions which delays or reduces their cost savings and operating efficiency.

8. Walgreens does not aggressively pursue opportunities presented throughout the market. After their VillageMD pilot stores were deemed successful in 2019, they recently announced plans to open additional VillageMD stores in more than 30 markets by 2025 (Walgreen WBA, 2021). After a five-year lag, the market share may be extremely low resulting in a lost opportunity instead of immediately capitalizing on the stores’ success.

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9. Walgreens Boots Alliance is unable to effectively manage risks associated with their numerous operations, as well as regulations their organization must follow. The company is currently under investigation by multiple counties in California for non-compliance with state hazardous waste regulations (Walgreens WBA, 2021). 10. Walgreens lacks focus on succession planning, which leads to high turnover and attrition among employees. Over the past three years, Walgreens spent $189 million in severance and employee exit costs, alone (Walgreens WBA, 2021). 11. Walgreens Boots Alliance has the lowest current ratio of its top ten competitors in the industry, at 0.67 (Mergent, Current, 2021). This indicates an improper use of assets and the inability to cover short-term debts. 12. Walgreens does not align their mission, vision, or core values with alliances when entering strategic partnerships within the industry. Walgreens Boots Alliance formed an alliance with AmerisourceBergen at the height of the opioid crisis, which left the company paying out over $6.6 billion in settlements during 2020 alone (Raymond, 2020). 13. Walgreens Boots Alliance does not have a clearly defined organizational structure when forming partnerships within their industry. While Walgreens owned 28 percent of AmerisourceBergen in August of 2020, AmerisourceBergen in turn acquired the majority of Walgreens Boots Alliance Healthcare business in January of 2021 (Radelet, 2021), which forms a separation between the two organizations who will now focus on different markets. 14. While Walgreens uses in-house marketing and development for their store-brand products, they focus on snack foods on limited beauty products, which causes them to lag behind more innovative products and competitors (Walgreens WBA, 2021).

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15. Most Walgreens stores have a layout that resembles an obstacle course, causing confusion among customers who are first or second time shoppers, or those who simply need assistant at the pharmacy located at the back of their stores. 16. Walgreens was based on customer service and serving their communities (Walgreens, About, 2021), and lack in this area when forming alliances with larger organizations. Although they are making large investments with other companies within their industry, cultures and visions are at times not aligned with those that Walgreens were based on. 17. Walgreens has little to no growth or recent following on their social media platforms. While there has been a steady increase in users over the past several years, Walgreens Boots Alliance has failed to capitalize, with their last posting on their WBA Facebook page being August of 2020 (Facebook, 2021).

18. Walgreens Boots Alliance is behind the power curve when competing against companies that recently entered the pharmaceutical market. While their main focus was on mergers and acquisitions, they did not anticipate or plan for the need to provide increased pharmacy services comparable to companies such as Amazon and Express Scripts. 19. While Walgreens’ retail stores are spread throughout many communities in the United States, many stores are less than two miles of one another (Walgreens, About, 2021). This causes competition among their own stores, which could ultimately result in loss of sales due to another location within walking distance. 20. Walgreens Boots Alliance has been unable to instill confidence in its shareholders over the course of the past year, with many investors unsure of their direction or future

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(Forbes, 2021). This has resulted in undervalued stocks, with investors hesitant to fully invest in their organization. 21. Walgreens’ retail stores are outdated compared to their competitors, with specific emphasis on lack of self-checkout lanes which can be found at CVS, Kroger, and multiple other competitors.

22. Walgreens Boots Alliance has caused confusion with the direction they are pursuing in terms of strategic goals. With multiple mergers across three separate industries, they have not been able to focus their attention on one particular market (Mergent, Company, 2021).

1. With the unemployment rate being at a higher percentage than in recent years, Walgreens can focus on their recruitment strategy and target a more talented pool within the labor force (BLS, 2021). 2. With the recent increase in online sales, Walgreens can capitalize through marketing products online, with added emphasis on prescription drug deliveries through Uber or in- house delivery systems (Davis, 2021). 3. Walgreens Boots Alliance should capitalize on their joint venture with Humana, and expand their reach to consumers outside of the initial senior community proposal (Walgreens WBA, 2021). 4. Walgreens Boots Alliance must analyze their partnership with AmerisourceBergen to determine its full potential. If Walgreens continues on its current path, the result could be decreased revenue and the diversion of management time and attention if their goals are not met within the allotted timeframe (Walgreens WBA, 2021).

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5. Walgreens should focus on more independent product brands, which would reduce the costs of shipping and allow for a more diverse selection for consumers. 6. While Walgreens merged with Alliance Boots in 2014 (Walgreens, About, 2021), there is more potential to expand their market coverage through other alliances. This could include tapping into the Middle Eastern market through new strategic partnerships.

7. With the recent influx of data breaches and cyber threats, Walgreens Boots Alliance should place more emphasis on cybersecurity and protection of their information systems (Walgreens WBA, 2021). This would prevent damage to their reputation, protect sensitive customer information, and reduce or eliminate costs associated with repairs and fraud. 8. Walgreens Boots Alliance can implement a professional growth program for employees, since the cost of employees exiting was $189 million over the past three years (Walgreens WBA, 2021). Succession planning would greatly reduce these costs and keep talented employees within their ranks. 9. With the economy improving due to the recent Covid pandemic, Walgreens can use this opportunity to attract new demographics instead of focusing solely on the middle class market. 10. After forming multiple strategic partnerships over the last several years, Walgreens Boots Alliance can now focus on realigning their organizational structure to ensure their leadership fully supports their mission, vision, and goals. 11. New consumer trends are emerging in 2021, which is a prime opportunity for Walgreens to expand their market to capitalize on consumer spending. These include a desire for old-fashioned products, contactless service, and enhanced use of digital tools (Bosler, 2021).

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12. Now is the greatest opportunity for Walgreens Boots Alliance to further strengthen their partnership with the federal government to disperse the Covid vaccines, as well as utilize their current alliances with distributors to capitalize on this opportunity. This would allow for a greater market presence and fortify their dedication to the health and well-being of all people.

13. With a projected social media base of 4.4 billion users by 2025 (Tankovska, 2021), Walgreens can use this opportunity to strengthen their customer base while extending their footprint in the global market. With a zero percent growth on social media platforms in 2021, now is the ideal time to develop and launch a new and innovative digital marketing campaign (Unmetric, 2021).

14. Walgreens Boots Alliance should examine their previous year’s inventory and focus on paying on their liabilities to improve their current and liquidity ratio (Mergent, Current, 2021). This would also be the time to consider how much inventory is needed based on current consumer intake.

15. Since staying healthy was a top priority of most of the population during 2020, investing in in-store health clinics could prove highly beneficial for Walgreens. Many stores currently have small seating areas reserved for flu shots and consulting, and expanding this could present an atmosphere more people could find comfort and security in.

16. Walgreens should focus on what initially set them apart from other competitors dating back to 1901 (Walgreens, About, 2021). While the company can still take advantage of online opportunities, their original retail stores and pharmacies had a warm ambiance with the focus on customer service, which is an opportunity to regain the trust of

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customers through training their staff to focus on extreme customer service so they feel as Walgreens in their hometown drugstore. 17. With the looming pressure for the federal government to increase the minimum wage, now is a prime opportunity to conduct a competitive wage and salary analysis for all employees and positions. With Walgreens’ starting wages below the possible $15 an hour increase (Salary, 2021), Walgreens would not only need to address their starting wage structure, but also the majority of positions within their organization, from team leaders to lower and middle management to maintain competitive wages for all employees.

18. Walgreens Boots Alliance has the opportunity to enter into long-term contracts with pharmacy benefit management (PBM) companies, many of whom have recently consolidated. Since multiple PBM companies have overlapping contracts with Walgreens, securing a longer single contract with a major company may help offset reductions in reimbursement levels (Walgreens WBA, 2021).

19. With prescription medicine sales shifting to online platforms, Walgreens should also use this opportunity to strengthen its pharmacy team. Many individuals still desire the one-on-one communication with healthcare providers and pharmacists, which should be emphasized throughout the United States.

20. With the majority of competitors utilizing automated checkout lanes, Walgreens can capitalize on this method by installing self-checkout registers to ease the process for customers. 21. With technology advancing at an extremely rapid pace, Walgreens Boots Alliance has the opportunity to capitalize on drone delivery, specifically to customers who are in rural

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environments. This would be a minimal cost for delivery of retail and healthcare goods, while providing an attractive alternative to shareholders. 22. Since the CDC recently released guidance that loosen restrictions due to Covid, Walgreens Boots Alliance should use this opportunity to market a grand reopening of their retail stores and pharmacies (CDC, 2021). In anticipation of all restrictions being lifted, Walgreens can launch a nationwide campaign showing happy, healthy, and maskless customers engaging in activities throughout their stores.

1. Covid 19 adversely affected Walgreens Boots Alliance’s cash flows and financial position, as well as the operations and results of operations (Walgreens WBA, 2021). The pandemic impacted all aspects of operations in 2020, and uncertainty still exists in both the United States and overseas. 2. Reductions in third-party reimbursement levels could adversely impact Walgreens Boots Alliance’s results of operations (Walgreens WBA, 2021). These are obtained from private and government agencies, and new prices or benchmarks in the pharmaceutical industry could affect reimbursement. 3. A shift in pharmacy mix could adversely affect the operations of Walgreens Boots Alliance. A shift from 30-day to 90-day prescriptions would offer a much lower reimbursement rate, ultimately impacting the income and operations of the company (Walgreens WBA, 2021). 4. Changes in prescription prices could adversely impact all operations of Walgreens Boots Alliance where they would have to rely on retail sales to make up for lost revenue.

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5. Consolidation and strategic alliances within the healthcare industry could negatively impact Walgreens Boots Alliance (Walgreens WBA, 2021). This would allow for competitors to have greater bargaining power and leave Walgreens with a competitive disadvantage.

6. Unknown risks associated with litigation and legal proceedings could adversely impact liquidity and financial results of Walgreens Boots Alliance (Walgreens WBA, 2021). These could include investigations, arbitration, audits, inquiries, and litigation, with no clear anticipation of their results.

7. Extensive government regulations could adversely impact all aspects of operations within Walgreens Boots Alliance. These regulations could be imposed by the United States, as well as other countries where the organization operates. 8. New entrants to the market could negatively impact Walgreens Boots Alliance’s competitive edge. Since the level of competition within the pharmaceutical industry is extremely high, timely and effective changes to strategy must rapidly occur (Walgreens WBA, 2021).

9. Market dynamics, such as technology, human behavior, and market conditions would cause Walgreens Boots Alliance to aggressively modify their strategic plan to adjust to the changes in market dynamics (Walgreens WBA, 2021). 10. Whistleblowers are a threat that can give the entire organization a black eye. Even when claims are false, sometimes consumers do not gather all relevant information, resulting in a loss of their customer base.

11. Reduced consumer spending is a threat that impacted nearly all industries during 2020. Walgreens Boots Alliance experienced a decrease in revenue last year which

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dropped less than one percent (Macrotrends, 2021). While there has been a slight increase within the past several months, there is still cause for concern due to the current economic conditions. 12. Since Walgreens Boots Alliance’s performance is measured in U.S. dollars, the exchange rate can be considered a threat to their overall profitability, with the exchange rate of the British pound sterling being a key attribute to their overseas ventures (Walgreens WBA, 2021).

13. The threat of political uncertainty within the United States and the United Kingdom can be considered a threat, especially with the situation surrounding Brexit (Walgreens WBA, 2021). 14. With the unemployment rate dropping 8.5 percent over the past nine months, the threat of a smaller pool of a talented workforce could threaten recruitment efforts and also impact the retention of current employees (BLS, 2021). While the economy continues to rebound, the workforce has more options to select from in a highly competitive industry.

15. Healthcare plans and health insurance companies can pose a threat when raising premiums and deductibles, which could also coincide with the inflation of prescription drug prices. 16. Tariffs placed on other countries, to include the United States could negatively impact Walgreens Boots Alliance, especially since many of their pharmaceutical products are sourced from China (Walgreens WBA, 2021).

17. A disruption in Walgreens Boots Alliance’s information technology and computer systems could greatly impact their overall costs. Consumers would be hesitant to

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patronize the company due to the data breach of computer systems, and the cost of repair could be quite significant (Walgreens WBA, 2021). 18. Adverse weather conditions could negatively impact sales of Walgreens retail stores, which occurred throughout the United States in early 2021. Severe weather conditions cause people to hunker down at home, and unanticipated markdowns on products adversely impact profits (Walgreens WBA, 2021).

19. A federally-mandated minimum wage increase can be considered a recent threat to all Walgreens operations within the United States. While they can still find part-time employees for employment purposes, the wage increase would result in raising prices across the board for their products and services, with reduced revenue from customer spending.

20. Civil unrest throughout much of the United States has been and continues to be a threat to Walgreens as a whole. During 2020, looting and vandalism resulted in a loss of $68 million in losses and damages to their stores located in major cities across the nation (Walgreens WBA, 2021). 21. Recent mergers and acquisitions have been on the rise in recent years, and the threat of a hostile takeover by a major company would result in a monopoly of Walgreens’ retail stores throughout the United States. 22. Since home delivery and online shopping dominated the market in 2020 due to the Covid pandemic, consumers may opt to use this method permanently which would greatly reduce and possibly eliminate the need for brick and mortar drug stores throughout the United States.

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Ultimate Threat

While recent civil unrest and major natural disasters have immediately shut down many Walgreens locations worldwide, these were stand-alone stores that did not have a major impact on the entire organization. The one threat that would immediately shut down all Walgreens Boots Alliance operations worldwide is an orchestrated act of terrorism focused on destroying their infrastructure at their base of operations. This would not only cause all operations to cease, but supply and distribution chains would lack any and all lines of communication, and all networks that provide lifelines to customers,

pharmacies, and all locations throughout the world would be totally inoperable resulting in a total shutdown of all operations.

Financial Analysis

Key Profit Ratios

Walgreens Boots Alliance, along with several of their major competitors, experienced decline and growth over the past few years, and in 2020 Walgreens ended its year with a higher than expected profit margin of 33 percent (Mergent, Financials, 2021). Despite the turmoil surrounding the pandemic and fluctuation of the economy, Walgreens was still able to generate $0.33 for each dollar of sales generated. Walgreens’ net Return on Assets (ROA) for 2020 was 0.59 percent, which indicates how profitable they are relative to their total assets (Mergent, Financials, 2021). In comparison, this is a drastic decline from the previous years, where Walgreens had an ROA of 5.87 percent in 2019 and 7.49 percent in 2018. This is an indicator that Walgreens was not as effective during 2020 in earning money on investments.

Walgreens’ net Return on Equity (ROE) for 2020 was 2.06 percent, which measures their profitability relative to shareholders’ equity (Mergent, Financials, 2021). This was also a drastic

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decrease from their past five years, where their ROE was at 18.79 percent only two years ago (Mergent, Financials, 2021). Walgreens’ Return on Investment (ROI) for 2020 was 2.53 percent (Mergent, Financials, 2021), which is used to calculate their return on investment relative to operating costs. Walgreens’ ROI was also much less than in previous years, with their highest being 15.4 percent in 2018 (Mergent, Financials, 2021).

EBITDA was also taken into account when determining the profitability of Walgreens and their competitors, which stands for earnings before interest, taxes, depreciation, and amortization. In 2020, Walgreens had an EBITDA margin of 1.82 percent, which again is a mass decline from previous years. The EBITDA will be further used to compare Walgreens’ profitability with similar companies in their industries. Figure 1 displays a breakdown of the above mentioned key profit ratios. Figure 1 Walgreens Key Profit Ratios (Mergent, Financials, 2021)

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Liquidity Ratios

Walgreens Boots Alliance’s ability to pay their current debt will be analyzed through their current ratio, quick ratio, and their percentage of net current assets. Walgreens’ current ratio measures their ability to pay short-term obligations by year end, and will also be compared to similar companies within their industry. For the year 2020, Walgreens had a current ratio of 0.67, which is the lowest in the past five years (Mergent, Financials, 2021). While this may appear that Walgreens Boots Alliance is unable to immediately pay of any and all debts, other factors such as long-term agreements with suppliers and PBMs may skew this data since they have contracts for payments outside of the calendar year (Walgreens, WBA, 2021).

The quick ratio for Walgreens Boots Alliance in 2020 was 0.28, which measures their ability to pay off current liabilities without additional financial support (Mergent, Financials, 2021). A higher quick ratio would be preferred as in previous years, since Walgreens currently has $0.28 of available liquid assets to cover $1 of their current liabilities. While their current assets have remained steady at an average of $19 billion over the past five years, their current liabilities have increased to $27 billion, which is an increase of $10 billion during the same timeframe (Mergent, Financials, 2021). This is further demonstrated with their net current assets, which was at -10.32 for the year 2020 (Mergent, Financials, 2021). Although this is a slight improvement from 2019, they were in the positive for previous years as shown in Figure 2.

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Figure 2

Walgreens Liquidity Ratios (Mergent, Financials, 2021)

Leverage Ratios

Walgreens has a long-term debt to equity ratio of 0.59 in 2020, which has steadily increased over the past four years (Mergent, Financials, 2021). With this still being a relatively low ratio, it demonstrates that Walgreens still has the capacity to borrow additional funds if required. In comparison, their debt to equity ratio is at 0.76 (Mergent, Financials, 2021), which has steadily increase over the years signaling their balance sheet strength is weaker that it was in previous years. Walgreens’ interest coverage has declined over the past five years from 10.01 to 1.52, which could be an indicator they pose a risk to investors and less likely to have the capability to pay off debts. Figure 3 shows Walgreens’ debt management activity over the past five years.

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Figure 3

Walgreens Debt Management (Mergent, Financials, 2021)

In addition to Walgreens’ debt management, turnover ratios are also included in the analysis of their leverage in the industry. Walgreens inventory turnover has averaged between 9.92 and 11.87 turns per year, and their total asset turnover has been steady at around 1.9 over the past five years (Mergent, Financials, 2021). This indicates Walgreens is generating more revenue per dollar of assets. Their receivables turnover has remained steady over the five-year period, as well as accounts payable and property, plant, and equipment, with all turnovers being accomplished on a monthly basis. The most significant asset management component is Walgreens’ cash and equivalents turnover, which was at 18.28 in 2016 and rose to 180.84 in 2020 (Mergent, Financials, 2021). This could be an indication of how their pharmaceutical business also increased revenue to $141 billion through multiple acquisitions and mergers over the past couple of years (Mergent, Financials, 2021). Figure 4 shows the leverage ratios of Walgreens Boots Alliance over a five year period.

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Figure 4

Walgreens Leverage Ratios (Mergent, Financials, 2021)

Shareholder Ratios

Although many companies had their ups and downs during the pandemic that struck in 2020, certain activities can still indicate how well a company adjusted their strategy. Walgreens had a slight decrease in their cash flow per share during 2019, but remained somewhat steady with a ratio of 6.22 in 2020 (Mergent, Financials, 2021). This indicates their financial strength remained comparable to their previous ratios over the past five years. Walgreens Boots Alliance’s stock price in August of 2020 averaged $39 per share, with their book value at $23.84 which indicated the stock price was being slightly overvalued (Mergent, Financials, 2021). This was also an indication that stockholders had faith that Walgreens Boots Alliance would recover from the pandemic that swept the globe in 2020, although they would only receive $23.84 per share if the company liquidated all assets. Looking at the recent acquisitions and mergers the company undertook, the previous option was highly unlikely. Figure 5 shows the fluctuation of Walgreens Boots Alliance’s stock over the past three years.

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Figure 5

Walgreens Share Price (Mergent, Financials, 2021)

Competitor Analysis

Walgreens Boots Alliance was compared to seven of its competitors within the industry, to include CVS Health, Rite Aid, Albertsons, Kroger, Cardinal Health, Amazon, and Ingles Markets. Multiple data was compared to properly analyze the similarities and fluctuations in the market, by looking at profitability, liquidity, debt and asset management, and stockholder activity. The data collected was for the year 2020, with the emphasis being placed on ratios and percentages to better measure the leverage companies have within the industry.

With Amazon being the largest of the seven companies listed, they produced the highest revenues with $386 billion compared to Walgreens Boots Alliance with $139 billion in 2020 (Mergent, Financials, 2021). In comparison, CVS and Cardinal health had higher revenues than Walgreens Boots Alliance, with Kroger, Albertsons, Rite Aid and Ingles having the lowest

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revenues for 2020 (Mergent, Financials, 2021). Gross profit margins ranged from Amazon at 39.57, Walgreens Boots Alliance at 20.8, and Cardinal Health with the lowest ratio of 4.49. Total assets and liabilities for each of the companies were fairly balanced across the board, as noted in Figure 6. Figure 6 Assets vs Liabilities (Mergent, Financials, 2021)

Key Profit Ratios

Based on net income divided by total assets, the ROA was quite different among the companies compared. While Walgreens Boots Alliance had an ROA of 0.59, Rite Aid and Cardinal Health were both in the negative at -5.23 and -9.02, respectively (Mergent, Financials, 2021). Ingles Markets was able to utilize their assets with the most efficiency, with an ROA of 9.51 (Mergent, Financials, 2021). Cardinal Health had the least efficiency in managing investments with an ROI of -35.66, with Amazon having the highest percentage of 21.68 (Mergent, Financials, 2021). Figure 7 further breaks down each of the key profit ratios in comparison to Walgreens Boots Alliance.

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Figure 7

Key Profit Ratios (Mergent, Financials, 2021)

Liquidity Ratios

When determining a company’s ability to pay off liabilities in the shortest amount of time, Walgreens Boots Alliance had a quick ratio of 0.28, with four companies having a better ratio as noted in Figure 8 (Mergent, Financials, 2021). Amazon posted the highest ratio of 0.86, with Rite Aid and Cardinal Health having ratios of 0.54 and 0.47 (Mergent, Financials, 2021). With the current ratio average of 1.03 among all eight companies, Walgreens Boots Alliance was below the industry average at 0.67, with Ingles Markets at the highest with 1.45 (Mergent, Financials, 2021). Half of the companies posted a negative percentage of net current assets, with the lowest being Walgreens Boots Alliance at -10.32 (Mergent, Financials, 2021).

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Figure 8

Liquidity Ratios (Mergent, Financials, 2021)

Leverage Ratios

Long-term debt to equity ratios were measured among the eight companies, with Walgreens Boots Alliance having the second lowest ratio of 0.59, meaning they have significantly more leverage than most of their competitors (Mergent, Financials, 2021). Cardinal Health experienced the highest debt to equity ratio over its competitors, with a ratio of 3.79 (Mergent, Financials, 2021). This could pose a risk to shareholders as Cardinal Health does not possess the financial leverage as many of their competitors, as shown in Figure 9.

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Figure 9

Debt Management (Mergent, Financials, 2021)

Asset management was also analyzed, focusing on total asset turnover, inventory turnover, and property turnover, as displayed in Figure 10. Total asset turnover was calculated to measure revenues relative to the value of a company’s assets, with Walgreens Boots Alliance having the second lowest ratio of 1.8, with Cardinal Health having the highest ratio of 3.73 (Mergent, Financials, 2021). When measuring inventory turnover, Kroger had the highest frequency of 13.68 during 2020 (Mergent, Financials, 2021), which could stem from the lack of inventory during the Covid pandemic. Amazon also had a high number of inventory turnovers during the reporting period with 10.53 (Mergent, Financials, 2021), with their high number of sales due to stay-at-home restrictions contributing to this (Amazon, 2021).

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Figure 10

Asset Management (Mergent, Financials, 2021)

Shareholder Ratios

The ratios that will be compared among the seven competitors of Walgreens Boots Alliance will be the price-to-earnings (P/E) ratio, the price-to-earnings-to-growth (PEG) ratio, the number of shareholders, and brokers’ recommendation to sell, hold, or buy. All companies will then be compared to Walgreens Boots Alliance in regards to their market share growth or decline over the past three years. CVS currently has a P/E ratio of 12.94, a PEG of 1.47, with a total of 26,078 shareholders (Mergent, Earnings, 2021). With an average target price of $79.38 per share, broker analysts recommend holding all shares, as the stock price is expected to steadily increase through 2022 (Mergent, Earnings, 2021). Rite Aid posted no P/E or PEG through March of 2021 due to no earnings during the past quarter (Mergent, Earnings, 2021). With an average target price of $8.19 per share, broker analysts recommend now is the time to buy, as their stocks are expected to hit their market cap of $1 billion by 2023 (Mergent, Earnings, 2021).

Ingles Markets currently has a P/E ratio of 5.51 with a lower PEG of 0.92, which means their stocks are undervalued based on expected growth (Mergent, Earnings, 2021). Their stock prices are expected to rise by the 4th quarter, and all broker analysts recommend now is the time

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to buy (Mergent, Earnings, 2021). Albertsons currently has a forward P/E ratio of 8.57, with a PEG of 0.59, and has no historical data to measure since they recently entered the stock market as a publicly-traded company (Mergent, Earnings, 2021). Since Albertsons has the highest amount of debt among the competitors (Mergent, Financials, 2021), their future growth might be questionable considering the high level of competition within the industry.

Kroger’s P/E ratio is currently calculated at 9.184, with a PEG of 1.36 (Mergent, Earnings, 2021). Their stocks have continued to rise this quarter with an anticipated target price of $36.22 (Mergent, Earnings, 2021). With Kroger’s recent expansion in their pharmaceutical division and positive earnings over the past year, broker analysts recommend shareholders buy due to their long-term impact within the industry (Mergent, Earnings, 2021). Cardinal Health’s P/E ratio is currently at 11.4, with their PEG at 2.06 (Mergent, Earnings, 2021). With a higher PEG, investors may consider their stocks to be overvalued, therefore broker analysts recommend holding current stocks until the current pandemic subsides (Mergent, Competitors, 2021). Amazon has the highest P/E ratio of 71.73, and a PEG of 2.38 (Mergent, Earnings, 2021). With their recent increase in revenues and strong strategy for a long-term presence in the industry, Market analysts recommend now is the time to buy and invest in the company (Mergent, Earnings, 2021).

In comparison, Walgreens Boots Alliance has a forward P/E of 10.0, with a negative PEG of -1.93 (Mergent, Earnings, 2021). With a PEG below zero, this could be an indicator that their stocks are greatly undervalued, based on a negative net income of $697 million during 2020 (Mergent, Financials, 2021). During the past quarter they saw a steady increase toward their target stock price of $40 per share, and investors are starting to buy more shares as they anticipate a positive long-term growth (Mergent, Earnings, 2021). Figures 11 and 11.1 show the

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changes in stock prices over the past three years of Walgreens Boots Alliance and their seven competitors. Figure 11 Stock Prices (Mergent, Financials, 2021)

Figure 11.1

Stock Prices (Mergent, Financials, 2021)

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54

Recommendations

Recommendations are based off the analysis of the strengths, weaknesses, opportunities, and threats of Walgreens Boots Alliance, as well as financial data and competitor analysis. Some recommendations should be implemented in the short-term strategy, while others are focused on long-term goals of the company. Appendix C correlates the recommendations with the SWOT analysis, and also addresses the ultimate threat.

1. Walgreens Boots Alliance can take advantage of the higher unemployment rate, since this correlates to a broader pool of workers with limited career opportunities (BLS, 2021). Walgreens can be more selective and target those individuals who share similar values and beliefs as the organization.

2. Walgreens Boots Alliance should aggressively market their online sales, with specific emphasis on prescription drugs and home deliveries. This should happen immediately so they can establish their presence in a market where home delivery is becoming the norm.

3. Brand recognition is what sets Walgreens Boots Alliance apart from other retailers, so this needs to be capitalized on through the promotion of in-store brands that can easily be associated with Walgreens. 4. Expand the Balance Rewards program currently available to the most valued customers of Walgreens (Walgreens, WBA, 2021). Every single customer that walks through the door should be valued, so extend the program to 100 percent of customers and add a higher tier for the most valued customers.

5. Rosalind Brewer recently took the helm as the CEO for Walgreens Boots Alliance, so now is the time to exploit her leadership and expertise on a national and worldwide

WBA ANALYSIS 55

platform (Smulevitz, Appoints, 2021). Use this opportunity to share her mission and vision through major advertising, which would appeal to shareholders and stakeholders, alike. 6. Walgreens Boots Alliance produces a higher amount of revenue during the winter months (Walgreens, WBA, 2021), and needs to market their products and services as year-round necessities for consumers. This should be in the form of advertising the store as the place to go for all consumer needs during the summer, spring, winter, and fall. 7. Set realistic expectations for potential job candidates when advertising careers through the current marketing campaign. The Walgreens Boots Alliance website boasts of countless career opportunities in all levels of management, yet more than one-third of employees are employed part time (Walgreens, WBA, 2021). 8. Capitalize on the VillageMD pilot stores that produced successful results during the past two years. Now is the time to open more health clinics since healthcare is the top priority of communities, states, and even the federal government, instead of waiting until 2025 (Walgreens, WBA, 2021). Shift the current plan to open additional VillageMD stores to the left by two years and saturate the market with healthcare clinics. 9. Install self-checkout lanes in all retail stores along with updated software and equipment. While interaction with employees can be beneficial, customers now have to wait in long lines with only one or two registers available at any given time. 10. Increase the level of cybersecurity throughout the entire infrastructure of Walgreens Boots Alliance. Walgreens is a much softer target than organizations such as Amazon or Walmart, and increasing the level of protection against an attack would also increase the level of confidence among customers and shareholders. Training should also be provided

WBA ANALYSIS 56

to employees to identify when hackers or possible terrorists are probing their organization. 11. Increase efficiency of Walgreens Boots Alliance’s research and development department through developing more affordable and reliable products for consumers. Focus on the latest trends and demands from consumers, to include clothing, healthcare items, and retail products. 12. Develop a succession plan for employees, starting at the entry level and progressing through the corporate ladder. This should include employees in all departments at every level, with emphasis on training, goal-setting, and establishing a mentorship program for staff members. 13. Create and establish a social media campaign, which would reach demographics previously untapped. 4.4 billion people are expected to use some form of social media by 2025, which needs to be addressed to avoid falling behind the power curve (Tankovska, 2021). 14. Conduct a wage comparison and analysis at all levels and consider a wage increase across the board. Walgreens Boots Alliance lags behind the industry average when setting wages (Salary, 2021), and can also benefit by increasing wages to recruit and retain the highest caliber employees. 15. With a new CEO on board with Walgreens Boots Alliance, this is the time to review and overhaul the existing organizational structure within each division. Since other companies own the majority of shares in divisions such as wholesaling and distributing, a new structure should be established to ensure each department is on track with the vision, mission, and culture of the Walgreens Boots Alliance (Radelet, 2021).

WBA ANALYSIS 57

16. Instead of placing posters throughout all stores displaying how Walgreens’ employees treated customers in 1901, retrain the staff to provide the same extreme customer service customers experienced over 120 years ago (Walgreens, About, 2021). This would set Walgreens apart from its rivals in an already extremely competitive market.

17. Walgreens Boots Alliance’s international retail pharmacy division is one of the top leaders in the optical market, with only a handful of options within the United States (Walgreens, WBA, 2021). Take this best practice and enter the optical market throughout the United States, which would support the statement of providing for the health and well-being of every community in America (Walgreens, About, 2021).

18. In order to keep ahead of the latest methods for serving customers, Walgreens should invest in drone technology. This would be the standard delivery method of products and prescription medicines to customers who live in rural areas not easily accessible through normal means of transportation.

19. Establish relationships with PBM companies to reduce or eliminate overlapping contracts and frequent fluctuations in prices (Walgreens, WBA, 2021). Entering long- term contracts would establish a guaranteed pipeline without the need to constantly search for new PBM companies that could interrupt revenue streams and overall efficiency of their pharmaceutical operations.

20. Relocate the pharmacy to the front of stores so customers can experience the heartbeat of Walgreens. Walgreens’ pharmacies are currently tucked away in a back corner of their stores, and the layout of the isles makes it difficult to navigate. A remodel of isles and organized product placement would bring the stores into the 21st century and set them apart from their rivals.

WBA ANALYSIS 58

21. With strong alliances through AmerisourceBergen and Alliance Healthcare, Walgreens Boots Alliance should expand their international footprint outside of the United Kingdom (Walgreens, WBA, 2021). Entering into the pharmaceutical markets in the Middle East and Asia would further strengthen their opportunity to become a global leader in the international wholesaler and distributor of prescription drugs and healthcare products. 22. With the Covid restrictions being lifted across the United States and abroad (CDC, 2021), now is the time for Walgreens to launch a grand reopening campaign. Advertising should feature smiling and happy customers patronizing the VillageMD stores, pharmacies, and retail stores with specific emphasis on the Walgreens brand. Other recommendations listed should also be included in the advertisements, as this will bring awareness of Walgreens Boots Alliance’s pursuit of strengthening their brand and becoming the number one retailer of pharmaceuticals and healthcare products.

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59

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Appendix A

Walgreens Boots Alliance Income Statement (Mergent, Income, 2021)

Walgreens Boots Alliance (In Thousands) (USD) 2020 Total Revenue 139537000 EBITDA 2541000

2019

136866000 6567000 4834000 3982000 148.53 4.31 4.31 895388 921500

923500 4.32

2018

131537000 7800000 6223000 5024000 132.73 5.05 5.05 952133 991000

995000 5.07

2017

118214000 6711000 5422000 4078000 110.12 3.78 3.78 1023849 1073500

1078500 3.8

2016

117351000 7003000 5964000 4173000 108.05 3.82 3.82 1082987 1083100

1091100 3.85

Operating Income Net Income Revenue per Share EPS from Continuing Operations EPS - Net Income - Diluted Share Outstanding

Weighted Average Shares Outstanding - Basic Weighted Average Shares Outstanding - Diluted

Earnings per Share - Basic

972000 456000 158.24 0.52 0.52 865604 879400

880300 0.52

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Appendix B

SWOT Analysis for Walgreens Boots Alliance

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Appendix C

Recommendations and Correlation with SWOT Analysis