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Walgreens' Prescription for Growth

We think the pharmacy retailer can further leverage its significant scale.

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Founded in 1901,  Walgreens Boots Alliance (WBA) is the leading pharmacy retailer, leveraging its scale to provide convenience. The company generates nearly $140 billion in revenue and dispenses over 1 billion prescriptions annually, representing one fourth of the drug market. Its 10,000-plus domestic stores are strategically located in high-traffic areas to generate over $13 million per store, which drives scale and helps the company to negotiate more effectively with suppliers. Scale remains critical in an increasingly competitive market that has witnessed some rationalization of subscale peers. The core business is centered on the pharmacy, which accounts for nearly three fourths of revenue and is the main driver of traffic. Management will need to pull through more volume in the recently acquired Rite Aid locations along with stores abroad as reimbursement stabilizes in Europe.

Management has been focused on leveraging scale to foster strategic partnerships to increase traffic and cross-selling opportunities with a long-term focus on improving coordinated care. Historically, the company’s strategy was based on footprint expansion, but having established a scalable infrastructure, the focus has evolved and the concentration has shifted to improving store utilization and strategically aligning with healthcare partners to address the macro trend of localized community healthcare. WBA has incurred most of the operating and capital investments to successfully complete numerous clinical and consumer packaged goods trials. The successful rollout of these initiatives has not been incorporated into guidance but should help offset continued reimbursement pressures.

Soo Romanoff does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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