Porter’s Five Forces Analysis of Walgreens
Charlene A. Richmond
May 29, 2013
Porter’s framework focuses on a business’ core competencies; those assets that tip the competitive balance in a business’ favor and provide advantage over the competition. While on its face, the framework merely determines whether a business or industry is “attractive” or “unattractive,” depending on how they fair in an assessment of each of the five forces. It also provides a useful tool for strategic business planners in helping business to refocus and strengthen areas where a company may have exposure and potential weakness and exploit those areas where they have a competitive strength (Investment Answers, 2010). This paper will give you a better understanding of where Walgreens stands in the drug store industry. Please refer to Figure 1 for an illustration of Walgreens competitive position in the drug store industry. Drug Store Industry
Retail drug stores fall into many different categories. Some are independent drug stores licensed to dispense medication and sell retail goods; others are national or regional chains. Some chain drug stores use the franchise model, allowing individual owners who open their own locations to use corporate branding, distribution channels and marketing methods in exchange for fees. However, most retail drug stores combine a dedicated pharmacy section with a general retail store, dealing in over-the counter medication, personal care and beauty products, food items and assorted merchandise, ranging from games and toys to electronics and clothing (Hartman). Drug stores dispense prescription medication and over-the counter drugs directly to patients. However, their roles are not just simple distribution. Drug stores dispense medication in specific doses and give valuable advice to patients as well as information on how medication should be stored. They ensure patients safety by providing drugs that have not expired or been damaged by errors in storage. Walgreens Co.
Charles R. Walgreen Sr. of Chicago, Illinois, opened the first Walgreens drug store in 1901. The corporate headquarter is located in Deerfield, Illinois. As of January 31, 2012, the company operates 8,300 stores in all 50 states, the District of Columbia, Puerto Rico, and Guam. Walgreens is the nation’s largest drugstore chain, with fiscal 2012 net sales of $71.6 billion and net earnings of $2.1 billion (Walgreens Annual Report, 2012). The company has 240,000 employees. According to the company’s 2012 annual report, Walgreens was named to Fortune magazine’s World’s Most Admired Companies list for the 19th consecutive year, and was ranked 32nd on the Fortune 500 list of largest U.S. based companies (Walgreens Annual Report, 2012). Walgreens currently has two divisions Walgreens Health Services and Walgreens Health and Wellness. Walgreens also runs several on line stores such as www.Beauty.com (http://Beauty.com), Drugstore.com and www.VisionDirect.com (Walgreens Annual Report, 2012). Competitive Rivalry: High
Walgreen operates across many industries, with its retail pharmacy, Walgreens Health Services and Walgreens Health and Wellness division. Walgreens retail pharmacy industry depends heavily on prescription drug sales for continued revenue but also offers customers basic consumer goods and over the counter drug. The retail pharmacy industry has two 800 pound gorillas: Walgreens and CVS, both companies have over 7,000 pharmacy stores. Both count on prescription drugs for about 65 percent of their revenue. Not far behind the two major players is Wal-Mart. Wal-Mart is able to provide some generic prescriptions to individuals for a very low cost. Some other competitors are independent drug stores, mail order prescriptions providers and retailers such as grocery stores. Numbers of players have diversified to sell other products easing rivalry in this sector.
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