How Walgreens plans to drive more traffic to its stores

Pharmacy retailer Walgreens is struggling, and it’s looking to CPG retail, grocery and beauty products as lifelines.

Squeezed by chief pharmacy rival CVS, as well as Walmart and Amazon, the company is fighting to stay competitive in response to its worst quarter since its Boots acquisition in 2014 with a same-store sales drop of 3.8 percent. The company is looking to revamp its inventory selection to drive traffic to stores, including partnerships with brands like Kroger and Birchbox, investing in its private label brands, and adding new types of products, like CBD.

CEO Stefano Pessina told investors Tuesday the company will be aggressively pursuing its partnership strategy, rethinking its retail approach and building out stores as one-stop shops for customers’ wellness needs.

For Walgreens, non-pharmacy retail is the way forward for the business, as it faces revenue pressure from declining benefit plan reimbursements and lower generic drug prices. It marks a shift in approach for Walgreens, which reported that in the second quarter, pharmacy sales accounted for 71.9 percent of its U.S. division’s sales. But as it expands its areas of focus, it’s up against a crowded field of retailers looking to get a piece of the market: CVS has effectively become a service provider through its Aetna acquisition; Walmart is expanding its service offerings through in-store clinics; and Amazon has made moves into the pharmacy space through its PillPack acquisition.

“Walgreens is trying to look for new pockets of growth,” said Neil Saunders, managing director of GlobalData Retail. “Competitive forces are unfavorable.”

To date, Walgreens has embarked on a series of initiatives to drive traffic to stores and build its e-commerce offerings, efforts which fall under three core areas, according to a recent investor presentation: accelerating the “digitalization” of the company, redesigning retail locations and partnering with healthcare providers to host on-site clinics. Over the past year, Walgreens launched a series of retail initiatives to drive traffic, including a trial to include a curated assortment of Kroger grocery products and Home Chef meal kits at some Walgreens locations; the rollout of mini Birchbox stores within Walgreens locations (and offering Birchbox kits on Walgreens’ e-commerce site); and a health services e-commerce marketplace called Find Care Now.

Beyond its in-store initiatives, the lack of online-offline consistency of experience is a disadvantage for Walgreens, said Bill Duffy, associate director at Gartner L2.

“They’re partnering strategically with key retailers to increase store traffic, but in digital we’re seeing mixed results,” he said, noting that while customers can purchase Birchbox products online, the Kroger partnership hasn’t resulted in any new e-commerce offerings.

Despite the challenges, partnering with large brands such as Kroger has a significant upside, due to Kroger’s significant footprint and tech investments. Over the long term, the arrangement could reap gains for Walgreens due to reduced overhead costs and profit-sharing possibilities, said Kacie McKee, director of e-commerce at Wavemaker U.S.

And while adding inventory from other brands helps Walgreens attract more customer traffic, store design and presentation are also considerations to take into account.

Deep Dive: Amazon strategies

“Walgreens and CVS have always taken the view that their job is really in prescriptions, and that retail is a bolt-on part of the business, and that’s a false assumption,” said Saunders. And despite having a strong portfolio of private-label products, the presentation hasn’t been well thought out, he added.
Digiday Top Stories
  • Member Exclusive
    After a quiet three months, DTC brands resume launches

    After months of Instagram posts about how "we're all in this together," and turning their factories into production centers for masks, direct-to-consumer brands are finally starting to return to business as usual. That's particularly evident by the number of new startups entering the market.

  • Member Exclusive
    The dream of the DTC exit is fading

    Last week Lululemon announced plans to acquire Mirror, a connected fitness startup, for $500 million. It may give a false sense of hope to DTC startups about what type of exits are possible in this environment.

  • Member Exclusive
    How DTC startups fall flat in marketing their values

    Direct-to-consumer startup founders have found themselves in a number of unprecedented situations over the past three months -- from having to keep their company afloat while stores were closed to having employees confront them about racism within the company. Many of these same startups have also found themselves in hot water for how they responded to these situations. The issue at hand is simple: customers feel like these companies aren't practicing what they preach.

  • Member Exclusive
    As cities reopen, the DTC store strategy is changing

    For digitally-native brands, Soho has often been the first place for digitally-native startups to open stores. Now, it's a ghost town, and is indicative of the challenges DTC brands will face going forward in plotting out their physical retail strategies.

  • Member Exclusive
    As calls for improving diversity increase, many VCs are silent

    Over the past two weeks, there's been a flood of direct-to-consumer startups issuing statements about steps they will take to better support the black community, and build more diverse companies. But venture capitalists have remained largely quiet.