Photo: Walgreens
Walgreens does its own pivot toward healthcare
Walgreens last week announced plans to focus on primary care, post-acute care and home care as part of a new Walgreens Health growth strategy.
At an investor event, CEO Roz Brewer said the pivot is “deeply personal” to her. She recalled the final months of her mother’s life, when her family juggled medical bills, numerous doctors and kidney dialysis appointments. The experience was “incredibly confusing and unwieldy and burdensome.”
She added, “This was a time when our family should have been able to focus mainly on just enjoying our remaining moments. But instead we were distracted with many unnecessary tasks and details.”
Walgreens’ ambition is to “help our patients avoid similar scenarios,” said Ms. Brewer, who joined the company in mid-March after roles as Starbucks COO and Sam’s Club CEO.
To support the shift, Walgreens spent $5.2 billion to acquire majority control of primary care provider VillageMD. The chain is set to open at least 600 Village Medical clinics inside its stores by 2025 and 1,000 by 2027, with more than half located in underserved communities. Primary care is seen as a $1 trillion opportunity.
Walgreens claims it is the first national pharmacy chain to offer full-service primary care with physicians and pharmacists co-located all under one roof.
The company has also acquired a majority stake in CareCentrix, a leader in post-acute and home care for $330 million. The purchase provides Walgreens with a new platform to coordinate with health plans, patients and providers to provide home care for patients returning from hospitals. The U.S. post-acute care market is seen as a $75 billion opportunity.
CVS has likewise shifted toward healthcare with the opening of limited-service MinuteClinics and its 2018 acquisition of Aetna joining its pharmacy benefits Caremark business.
Walgreens’ CFO James Kehoe told analysts that, beyond providing full-fledged primary care clinics, Walgreens’ differential includes remaining independent. He said, “We don’t have an insurance company directing what we’re going to do locally. Our only interest is consumer health and that’s why we believe our approach is unique and differentiated in the market.”
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Discussion Questions
DISCUSSION QUESTIONS: What do you think of Walgreens’ opportunity to support primary care, post-acute care and home care needs? How does it compare competitively to CVS and other competitors in those areas?
Poll
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DeAnn Campbell
Head of Retail Insights, AAG Consulting Group
John Karolefski
Editor-in-Chief, CPGmatters
There is a major opportunity for both Walgreens and CVS in primary care – especially making it more accessible. It is sensible for both retailers to grow this area of their business. However they need to do this at the same time as investing in retail, which both are largely failing to do. What happens on the shop floor – what it looks and feels like and how easy and compelling it is to shop – also matters and has an impact on how people perceive healthcare services. It is on this front that most drugstore are found wanting.
This is a smart move by Walgreens. Going vertical with healthcare will help Walgreens compete with CVS and differentiate from online. Also, converting prescriptions is big money if they can steal market share from CVS. Health is America’s top concern right now with what we have gone through over the last 18 months with the pandemic, and we are not out of the woods yet. They can become the primary source for Americans for vaccines, for drugs and home care visits. Sort of like Best Buy’s Geek Squad but for your health.
One challenge will be space. It looks like they’re trying to add a separate front door, but that may only be possible in limited locations. They must have done the math and seen that trading retail square footage for primary and post-care space delivers significant ROI.
Healthcare is a frontier in desperate need of help, and retailers that address any of consumers’ health needs are a sensible fit for helping. Walgreens is being specific with its mission in the health space, which will allow the brand to differentiate itself from CVS and others. I hope that as a society we really do end up seeing the positive impact of these decisions by retailers.
Fundamentally this makes great sense. Yet success or failure will be a result of the details – the execution. My one key recommendation, though, is that Walgreens maintain the separate brand for these services. They risk confusing customers badly if they don’t – and losing sales as a result.
Offering an in-person, on-site health clinic provides tremendous upside opportunities for Walgreens, but the move is full of complex decision-making for Ms. Brewer and her senior leadership. Walmart is trying something similar with the rollout of their Health Center program, which has roughly 20 locations, and these were rolled out in the last 12 to 18 months. Walgreens’ plan for 600 by 2025 is very aggressive — that’s about 200 per year for the next three years. Investment to build out locations, equip them with the right health technology and navigate the maze of healthcare/insurance payments will make or break the program. I hope they succeed, because there is a need for high quality, affordable healthcare in the U.S.
This is a solid – and necessary – repositioning strategy for Walgreens to differentiate in the eyes of the customer and staunch the bleeding from business lost to competitors. Considering that Walgreens is conveniently located inside of almost every community, expanded health services could very well win back some of the customers they have lost to Amazon and Walmart. By offering home care through CareCentrix they are tapping into one of the most rapidly growing consumer categories, since Baby Boomers still control almost 70 percent of discretionary spending in the U.S. This improved focus on healthcare and quality of life services will place them in a far better position to earn stronger customer loyalty and profit margins, and move away from relying on typical health and beauty products that more and more shoppers are choosing to buy from online competitors.
There is certainly so much opportunity in healthcare at retail that this move certainly makes financial sense and I suspect, assuming they execute effectively, it will yield very good returns for Walgreens. I’d love to see one of these retailers investing so heavily in healthcare also invest in a new model for paying for it. At some point, we have to innovate our way out of our current health insurance nightmare and national retail chains, with their reach, exceptional CRM data skills, health care tech, and financial wherewithal seem like the ideal place to start.
The best answer here is that it all depends. We don’t know how the future of healthcare delivery in America will unfold. Will we see a single payer Medicare for all? Will we see the current model extend? Or will we see something in between? The honest answer is that we just don’t know. What we do know is that the money is going out of general practitioner primary care medicine. A newly minted doctor in that field with an average med school debt load needs to see a patient every ten minutes or so to earn even a modest living. Ironically of course — or perhaps not — that’s also where the most critical doctor shortages are. So if things stay where they are – which they almost certainly won’t – this is a brilliant move. If things change – which they most certainly will – well, we’ll see. This move makes Walgreens more competitive in the short run though without question. I wonder, though, how they will deal with issues including malpractice. They are a pretty big target for litigation.
I like when a company expands and innovates while staying “in their lane.” This is a good – and even natural – fit for Walgreens. That doesn’t guarantee profitability, but I like the congruence of the new line of business. It’s a different story when an electronics retailer decides to get into the healthcare industry.
By offering these services, Walgreens is showing leadership in the chain drug channel. I expect others to follow with similar programs. I applaud the fact that half of the VillageMD services will be in underserved communities. Bravo!