Walgreens is the largest prescription drug buyer in the world
Tom Dougherty, CEO – Stealing Share
22 June 2012
Walgreens can do better
In the battle over prescription drugs, Walgreens has announced its plans to purchase European Health and Beauty’s Alliance Boots for $6.7 billion. This purchase will make the US-based drug store chain the largest purchaser of prescription drugs in the world. It will also place Walgreens into the economic crisis in Europe and cause the drug chain to focus less on the US domestic market where it is already seeing decreased sales.
“For Walgreens, this is dropping into the pit of being a commodity business – purchase everything you can and squeeze competitors with scale.”
We have written about drug stores before. They seem to be on every corner and always come in groups – a Walgreens on one corner and a CVS on another. Like banks, choice is often predicated on what side of the street the drug store is on. There is little difference in one over the other. They are both laid out basically the same with “As seen on TV” junk in the front and the pharmacy in back. For those who have prescription cards, there is little, if any, difference in cost between them for prescriptions and the rest of the “stuff” that fills the store is the same regardless where you shop.
So why does Walgreens purchase of Alliance Boots matter? Well, it matters because it demonstrates that Walgreens fails at creating a better brand for its customers and prospects. Like Walmart, Walgreens hopes to steal market share by putting its competitors out of business through operational savings. That only works if your brand promise is just that – such as Walmart’s “Save Money. Live Better.” – and is unclaimed in the market.
The prescription drug wars and Walgreens
For Walgreens, this is dropping into the pit of being a commodity business – purchase everything you can and squeeze competitors with scale. A purchase like this is not for the consumer. It is for the business, plain and simple.
I am not saying that business should not act in its own interest. Businesses should act in their best interest, but they need to better understand where their best interest lies – economies of scale or increased consumer preference?
In highly competitive markets, consumer preference and loyalty are the only way to ensure future success. Too many businesses, including Walgreens, have moved away from this ideal in favor of a knee-jerk reaction to some projection. Without preference and consumer loyalty, businesses are always in danger of a bigger company coming along that can squeeze them out. There is always a bigger fish.
Given the current global economic climate, Walgreens spending $6.7 billion on a company guarantees only one thing – its focus will not be on creating a better Walgreens brand, it will be on figuring out how to be a bigger fish.
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