project

DePaul University

Department of Marketing

Driehaus College of Business

Center for Sales Leadership

Procter & Gamble / Walgreens Case

Spring 2020

Your Distributor

McKesson's Roots in Health Care Services

McKesson is the world's oldest and largest health care services company, providing pharmaceuticals, medical supplies and technology solutions that improve the quality of health care while reducing costs. McKesson people, products and solutions touch every facet of the health care system - from physicians and hospitals to pharmacies, payers and patients. This connective role in health care enables them to drive innovation and empower their customers to achieve their full potential.

The history of McKesson dates back to the beginnings of organized health care in the United States. Founded in 1833 by John McKesson and Charles Olcott in New York City, the company was focused on the importation and wholesaling of therapeutic drugs and chemicals from its inception.

Run out of a small shop in the city’s financial district, the business quickly began to thrive in an era when sailing ships were introducing America to a new world of global trade. McKesson and Olcott did a brisk business stocking the medicine chests aboard those ships, providing them with drugs imported from Europe and medicinal herbs, roots and spices acquired from Shaker colonies in Pennsylvania.

Soon the partners hired an assistant, Daniel Robbins, who within a few years would be made a partner himself. After Olcott’s death in 1853, the firm was renamed McKesson & Robbins. By then, the company was already distributing pharmaceutical products via covered wagons in 17 states and territories, from Vermont to California. In 1855, the company became one of the first wholesale houses to manufacture drugs. McKesson & Robbins' fluid extracts, tinctures, pills and tablets soon became known all over the world and the company won medals for its pioneering work.

The 20th Century: Expanding Horizons

In the early 1900s McKesson & Robbins made a critical strategic decision to persuade a number of well-established wholesaling firms to become its subsidiaries, forming a national drug wholesaling company. That move made McKesson & Robbins the leading distributor of pharmaceutical drug products in the United States. It also shifted the company's focus to distribution for various lines of businesses outside of health care.

During the 1960s, McKesson & Robbins continued its focus on distribution by merging with Foremost Dairies of San Francisco to form Foremost-McKesson Inc. The new company included four main operating units: McKesson & Robbins Drug Company, Foremost Foods Company, McKesson Liquor Company and McKesson Chemical Company. Foremost-McKesson became the largest U.S. distributor of drugs, alcoholic beverages and chemicals; the largest supplier of whey by-products; the largest producer of processed water; a leader in the fresh dairy products field; and a multiregional distributor of hospital and laboratory supplies and equipment. In the 1980s and 1990s, McKesson decided to focus more on health care and divested its unrelated businesses such as Foremost Dairies, McKesson Chemical, McKesson Wine & Spirits and Armor All Products. During this time, McKesson acquired Automated Healthcare, now part of McKesson Automation, and General Medical, the largest distributor of medical-surgical supplies. The company also acquired HBO & Company for $14 billion in stock and operated for a time as McKesson HBOC—the world's largest health care services company. In 2000, McKesson divested its only remaining non-health care asset, McKesson Water Products.

McKesson Today

Today, McKesson is ranked 15th on the FORTUNE 500 with more than $106.6 billion in annual revenue. The company delivers vital medicines, medical supplies and health care information technology solutions that touch the lives of patients in every health care setting. The depth and breadth of the company’s product and service offerings, coupled with the largest customer base in the health care industry, uniquely position McKesson to meet the needs of its customers:

· 200,000 physicians

· 26,000 retail pharmacies

· 10,000 long-term care sites

· 5,000 hospitals

· 2,000 medical-surgical manufacturers

· 750 homecare agencies

· 600 health care payers

· 450 pharmaceutical manufacturers

McKesson Corporation, currently ranked 15th on the FORTUNE 500, is the nation’s largest health care services company. McKesson is dedicated to helping its customers deliver high-quality health care by reducing costs, streamlining processes and improving the quality and safety of patient care. Over the course of its 176-year history, McKesson has grown by providing:

· Pharmaceutical supply management across the spectrum of care

· Medical-Surgical supplies to non-acute care sites

· Health care information technology for hospitals, physicians, homecare and payers

· Pharmacy automation

· Services for manufacturers and payers designed to improve outcomes for patients

Empowering the evolution of health care, McKesson’s products and services improve the quality of care, eliminate errors, reduce unnecessary costs, synthesize information for physicians, improve the workflow of nurses and free up pharmacists to counsel patients.

Your Customer

America's premier pharmacy

How did a neighborhood drugstore, founded in 1901 and measuring just 50 feet by 20 feet, become the pharmacy all others are measured by and one of the most respected American corporations?

It all started in a town called Dixon

It would be impossible to tell the story of Walgreens drugstores without telling the story of Charles R. Walgreen, Sr. the man who started it all. Walgreen was born near Galesburg, Illinois, before his family relocated to Dixon, Illinois - a town 60 miles north of his birthplace - when his father, a farmer turned businessman, saw the great commercial potential of the Rock River Valley. It was here that Walgreen, at the age of 16, had his first experience working in a drugstore, though it was far from a positive one. Working at Horton's Drugstore (for $4 a week) was a job he took only because of an accident that left him unable to take part in sports. While working in a local shoe factory, Walgreen accidentally cut off the top joint of his middle finger, ending his athletic competition. Were it not for the accident, Walgreen might never have become a pharmacist, business owner and phenomenally successful entrepreneur. Ironically, his initial experience working at Horton's was itself a failure. Walgreen left after just a year and a half on the job.

Still, Walgreen realized that his future lay not in Dixon, but in a far larger city — Chicago.

Chicago in 1893, the year of Walgreen's arrival, was far from promising for a future drugstore entrepreneur. More than 1,500 drugstores already competed for business (many extremely successful) and customers had no lack of choice. Given this stiff competition, Walgreen's ultimate achievements are all the more remarkable.

A lesson well learned - and never forgotten - by Walgreen

In a series of jobs with Chicago's leading pharmacists - Samuel Rosenfeld, Max Grieben, William G. Valentine and, most importantly, Isaac W. Blood - Walgreen grew increasingly knowledgeable - and increasingly dissatisfied - with what he saw as old-fashioned, complacent methods of running a drugstore. Where was the desire to provide superb customer service? Where were the innovations in merchandising and store displays? Where was the selection of goods that customers really wanted and could afford? Where was the sense of trying to understand, please and serve the many needs of drugstore customers? And, most of all, where was the commitment to providing genuine value to the customer?

The answer was obvious: Walgreen had to open his own pharmacy.

However, it was not until 1901 that Walgreen was able to put together enough money for the down payment on his pharmacy. He wanted to buy the store in which he was working, owned by Isaac Blood. Walgreen had been not only a trusted employee, but a valuable business advisor as well. Yet even in view of Walgreen's outstanding business counsel on Blood's behalf, Blood was unyielding in the sale to Walgreen, raising his asking price from $4,000 to $6,000. Though it would take years for Walgreen to pay off the loan he signed for the purchase, he went ahead. He was now his own man and well on his way to building one of the most remarkable businesses in America.

By every account, Walgreen succeeded brilliantly, simply by practicing what he preached and instituting what he felt were clearly needed innovations. New, bright lights were installed to create a cheerful, warm ambiance in the store. Each customer was personally greeted by Walgreen or his colleague, Arthur C. Thorsen. Aisles were widened, creating a spacious, airy, welcoming feeling - a far cry from the cramped interiors of other drugstores. The selection of merchandise was improved and broadened, including pots and pans (unheard of in a drugstore!) at the bargain price of 15¢ a piece! Prices were kept fair and reasonable. The quality of Walgreen's pharmaceutical compounds (he had become a registered pharmacist in 1897) met the very highest standards for purity and freshness. Efficiency was increased. But the most dramatic change Walgreen instituted was a level of service and personal attention unequaled by virtually any other pharmacy in Chicago.

The year was 1910. Walgreen now had two stores. His challenge: how to find ever-new ways of satisfying a growing customer base while outshining his competitors. Over the preceding 100 years, the soda fountain had become key to virtually every American drugstore. Beginning in the early 19th century, bottled soda water, and later charged soda water, were considered important health aids, making it a natural fixture in drugstores. Manufacturers vied in creating ornate fountains, with onyx counter-tops and fixtures of silver and bronze and lighting by Tiffany. Walgreens® was no exception to such a popular trend. Indeed, its soda fountains were among Chicago's most beautiful. Yet the reality was that the items soda fountains served - ice cream and fountain creations - were invariably cold. And cold items sold only in hot weather. That meant each fall drugstore owners everywhere were resigned to mothballing their soda fountains until the warm weather returned. Thus, the drugstores lost an important revenue stream, not to mention valuable store space that could have been used for other, profitable purposes.

Why not serve hot sandwiches? Beginning with simple sandwiches, soups and desserts, Walgreen was able to keep his fountain open during the winter and provide his customers with affordable, nutritious, home-cooked meals. As a result of this common-sense innovation, Walgreen once again demonstrated his knack for helping his company while better serving the public. From then on, through the 1980s, food service was an integral part of the Walgreens story. Every Walgreens® was outfitted with comfortable, versatile soda fountain facilities serving breakfast, lunch and dinner. Just as Walgreen had reasoned, customers coming to the stores for food usually stayed to purchase other necessary items. And with its friendly waitresses, wholesome food and fair prices, loyalty to Walgreens increased exponentially.

By 1913, Walgreens® had grown to four stores, all on Chicago's South Side. The fifth Walgreens® opened in 1915 and the ninth in 1916. By 1919, there were 20 stores in the rapidly-growing chain. As impressive as this growth was, even more impressive was the superb management team that Walgreen had begun to assemble since his second store opened. Walgreen would often say - without any show of false modesty - that one of his greatest talents was his ability to recognize, hire and promote people that he considered smarter than he was. In his ability to spot talent, Walgreen was rarely wrong. In fact, his uncanny ability to hire extended even as far as the people who manned his soda fountain, including the man who created Walgreen's next sensation. By 1920, now 20 stores strong and growing quickly, Walgreens® was an established fixture on Chicago's retail scene. Throughout this decade, Walgreens® underwent phenomenal growth. By 1929, the total number of Walgreens® stores reached 525, including locations in New York City, Florida and other major markets. Many factors contributed to this unprecedented growth: a superb management team, modern merchandising, innovative store design, fair pricing, outstanding customer service and exceedingly high pharmacy quality and service. Yet, one can't overlook something that may have seemed a minor innovation at the time. This was the invention of Walgreens® immortal malted milkshake, an instant classic, by Ivar "Pop" Coulson in 1922. Response could not have been stronger if Coulson had found a cure for the common cold! His luscious creation was adopted by fountain managers in every Walgreens® store. It was written about in newspapers and talked about in every city where there was a Walgreens®. But most of all, it was the object of much adoration. It was not at all unusual to see long lines outside Walgreens® stores and customers stand three and four deep at the fountain waiting for the new drink. Suddenly, "Meet me at Walgreens® for a shake and a sandwich" became bywords as popular as "Meet me under the Marshall Fields' clock" at State and Randolph in Chicago. So, once again, Charles Walgreen's prediction that his soda fountain would be absolutely essential to his stores as a source of revenue, company growth and increased customer satisfaction (which translated into even higher levels of customer loyalty and patronage) came true. In its own way, Coulson's malted was the fuel for Walgreens dramatic growth.

Surviving - and conquering - the Great Depression

By 1930, Walgreens® had well over 500 stores and quickly was becoming the nation's most prominent drugstore chain. Throughout this period, Walgreens® continued to innovate. It had already become convinced of the value of advertising and remained one of the biggest newspaper advertisers in Chicago as well as other parts of the country. In fact, Walgreens® ran the largest promotion campaign in its history - costing more than $75,000 - during 1931. Perhaps even more significant was Walgreens® entry into broadcast advertising. Also in 1931, Walgreens® became the first drugstore chain in the country to advertise on radio, with legendary Chicago Cubs announcer Bob Elson as the "voice" of Walgreens ®. Walgreens® expanded its line of high-quality, private label, value-packed items, from sundries and over-the-counter remedies to the hugely popular "Peau Doux" (pronounced "Po Do") golf balls, talc and other products. As a result Walgreens® saw consistent sales growth during the Depression years. In fact, so confident was Walgreen of his country and his company, he erected a brand-new building to serve as Walgreens® state-of-the art warehouse/distribution center for stores in the greater Chicago area.

From the 1940s to today, the story of Walgreens® is the story of a company that has never rested on its laurels, finding ever-new ways to satisfy its customers and stay ahead of the curve in operating its business. With Walgreen’s insistence on innovation and commitment to customers, growth and prosperity lay ahead. By 1975, more than 1,500 pharmacists in 633 stores filled close to 30 million prescriptions annually, four times the 7.5 million dispensed in 1962 and five million more than in 1972.

Walgreens® today By 1984, Walgreens® opened its 1,000th store - and today, with 425 new stores opening each year and 7,000 planned by 2010, Walgreens continues to innovate. Walgreens® new computer system for filling prescriptions, Intercom Plus, links all stores into a single network and represents how advanced technology serves customers' needs better than any other pharmacy resource. In fact, Walgreens® is the largest private user of satellite technology (second only to the United States government). Billing, labeling and prescription histories (for tax planning and reimbursement) are available more quickly and easily than ever before. At the end of the 2009 fiscal year, Walgreens® reported annual sales of $63.3 billion (up 7.3% from the prior year), and earnings of $2.01 billion (down 7.3% from the prior year). Prescriptions account for 66% of Walgreens sales.

Your Company

The World's Brand Expert

Since 1837, P&G has built a rich heritage of touching consumers’ lives with brands that make life a little better every day. This simple purpose has enabled them to become one of the world’s leading consumer products companies—and will continue to guide them as they seek to improve lives now and for generations to come.

The Strength of P&G

P&G focuses on five core strengths required to win in the consumer products industry:

Consumer understanding

No company in the world has invested more in consumer and market research than P&G. P&G interacts with more than five million consumers each year in nearly 60 countries around the world, and conducts over 15,000 research studies every year. P&G invests more than $350 million a year in consumer understanding. This results in insights that tell them where the innovation opportunities are and how to serve and communicate with consumers.

Innovation

P&G is the innovation leader in our industry. Virtually all the organic sales growth delivered in the past nine years has come from new brands and new or improved product innovation. More than half of all product innovation coming from P&G today includes at least one major component from an external partner. The IRI New Product Pacesetter Report ranks the best-selling new products in our industry in the U.S. every year. Over the past 14 years, P&G has had 114 top 25 Pacesetters—more than their six largest competitors combined. In the last year alone, P&G had five of the top 10 new product launches in the U.S. and 10 of the top 25.

Brand-building

P&G is the brand-building leader of the industry. They have built the strongest portfolio of brands in the industry with 22 billion-dollar brands and 19 half-billion-dollar brands. Eleven of the billion-dollar brands are the #1 global market share leaders of their categories. The majority of the firms are #2 in their categories.

Go to Market Capabilities

P&G is consistently ranked by leading retailers in industry surveys as a preferred supplier and as the industry leader in a wide range of capabilities including clearest company strategy, brands most important to retailers, strong business fundamentals and innovative marketing programs.

Scale

Over the decades, P&G has established significant scale advantages as a total company and in individual categories, countries and retail channels. P&G’s scale advantage is driven as much by knowledge-sharing, common systems and processes, and best practices as it is by size and scope. These scale benefits enable them to deliver consistently superior consumer and shareholder value.

The P&G Brands

P&G's portfolio is led by 22 billion-dollar brands, focused in three broad categories - Beauty and Grooming, Health and Well Being, and Household Care. Brands in the billion dollar category include: