Walgreens Pharmacy (WAG)
An Industry Leader at the Inflection Point
The following report is an in-depth discussion of Walgreens Pharmacy with an analysis and assessment of the company’s strategic initiatives. Each strategy yields a direct purpose of diminishing the influence of a specific force from Porter’s 5-force Model as the supporting data culminates an outlook on the company’s future. COMPANY OVERVIEW
Charles Walgreen of Chicago, Illinois, pioneered the first Walgreens in 1901, with corporate headquarters now located in Deerfield, Illinois. In the company’s 100-year reign as the prescription industry leader, Walgreens changed from war bonds, soda fountains, and restaurants to 24-hour store access, nationwide locations, easy-to-use online stores, and health care clinics. 6,400 stores now operate in all 50 states including Puerto Rico, with 30% open 24 hours. By 2010, Walgreen’s aspires to operate 7,000 stores nationwide and pave the way for the organic growth of 13,000 sites. As of December 2007, Walgreens employs 226,000 associates, hiring 25,000 in 2007 (WAG Annual Reports, 2007). According to the company’s 2007 annual reports, “Walgreens has been listed on: Fortune magazine’s Most Admired Companies in America list…ranked 44th on the Fortune 500 list of largest U.S-based companies…[and] ranked the leading online drugstore.” (WAG Annual Reports, 2007) In the past 2 years especially, Walgreens embarked on several ventures that will enable them to have first-mover advantage in the healthcare industry. CURRENT FINANCIAL INFORMATION
In 2007, Walgreens increased net sales by 13.4% to $53.7 billion and increased net income by 16.6% to $2.04 billion. Long-term investments, which have consistently increased by roughly $100 million dollars each year since 2004, reflect company profits (WAG Annual Reports, 2007). In the 2007 operating cash flow analysis, Walgreens yielded a yearly total over $23 million in deferred taxes that arose for tax relief in advance of tangible asset depreciated accounting expenses. While net cash flows in the operating sector dropped by $80 million in a single year production, sales, and delivery continue to expand. In the 2007 investment cash flow analysis, the company directed $6.4 billion toward short-term investments (auction rate securities) available for sale amounting to an accumulated $6.8 billion (WAG Annual Reports, 2007). With a staggering $1.8 billion spent on new additions in 2007, this perceived overextension by shareholders of the company’s business and intangible asset acquisition of $1.1 billion doubles the amount of cash used in the invested activities of 2006 (WAG Annual Reports, 2007). Employee termination and salary cuts yielded a 50% drop in proceeds received from company life-insurance policies. The $5.5 million proceeds of 2007 pale in comparison to the $10.7 million received only a year before. Walgreens spent $2.4 billion in investing activities during 2007, more than that of 2005 and 2006 combined (WAG Annual Reports, 2007). In the 2007 financial cash flow analysis, net proceeds were $850 million. With a $141 million debt payment, $1 billion in stock repurchases, $310 million cash dividends to shareholders, and a $214 million bank overdraft sum, Walgreen’s 2007 net cash used for financing activities rose to $626 million from 2006’s $413 million (WAG Annual Report, 2007). In summation, the initial cash and cash equivalents of 2007 declined from $920 million in January to $255 million by the end of December resulting from the company’s overextension, and may result of losing their position as the industry leader in the near future (WAG Annual Reports, 2007)
POWER OF BUYERS
According to Porter, a buyer who has power “can always find an equivalent product, [then] play vendor against [one] another” (Porter, 2008). Consumers reap the benefits of an industry that pays for...