Walgreen feels pain of falling drug sales

The chain suffers for a fifth straight month after the termination of a contract with a key pharmacy benefits manager.

By Trefis Jun 11, 2012 11:36AM
TrefisImage: Pills (© Sean Justice/Corbis)Walgreen's (WAG) sales continued to decline for the fifth consecutive month after the disruptive discontinuation of Walgreen's contract with pharmacy benefits manager Express Scripts (ESRX) this year. Express accounted for more than 12.7% of Walgreen's business in May 2011, and its exit helped to send same-store sales down by 5.8% in May 2012.

Walgreen walked out of Express Scripts' network last year over a reimbursement-rate dispute. Walgreen's dispute with Express Scripts and its prescription business exodus has significantly benefited its rivals, particularly CVS Caremark (CVS) and Rite Aid (RAD).

Walgreen and Express Scripts have recently dropped the legal claims filed against each other in September, fueling market expectations that there might be a reconciliation between the estranged companies. However, Walgreen has denied any connection between the withdrawal of legal claims and the possibility of a new contract.

Walgreen's sales continue to suffer

Walgreen's May sales decreased by 1.6% compared to May 2011 on reduced pharmacy sales, which were partly offset by the opening of seven new stores and the acquisition of 28 Bioscrip community pharmacies.


As a result, prescriptions filled at its comparable stores declined by 8.5%, leading to 4% lower pharmacy sales. Comparable-store pharmacy sales also were negatively affected by 4 percentage points because of generic drug introductions. Prescriptions processed by Express Scripts composed 12.7% of Walgreen prescriptions in May 2011 and contributed to a 10.8 percentage point decline in comparable-store prescriptions. Decreased footfall due to Express' exit also moderated front-end sales. Overall, 3Q sales for fiscal 2012 were 3.3% lower compared to the same period last year, with 6.5% lower comparable store sales and 9% fewer prescriptions.


Walgreen's biggest competitors, CVS Caremark and Rite Aid, have significantly benefited from the fallout last quarter gaining millions of new prescriptions as Express members looked for non-Walgreen pharmacies to fill their prescriptions, and ended up at CVS or Rite Aid stores. In particular, CVS has raised its full-year guidance, and is trying to make the new customers permanent,  taking advantage of the delays in hammering out a new deal. CVS could tap up to 20 million transferred prescriptions if the impasse continues through 2012.


Walgreen Share of Retail Prescriptions Filled in US

Recently another large PBM Medco folded into Express Scripts, creating the industry's largest pharmacy benefits manager, which has raised concerns about the future of Walgreen's business with Medco, even though both expect to honor the existing contracts. Walgreen has recently renewed a pharmacy-services deal with another major PBM partner, UnitedHealth's OptumRx with a "long-term" agreement.


We value Walgreen with a $35 Trefis price estimate of its stock, 10% ahead of the current market price.

190Comments
Jun 12, 2012 9:07AM
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First of all, it's Walgreens, not Walgreen. Now then...

 

My husband is a long-time Walgreens pharmacist and pharmacy manager with over 20 years of service. Walgreens used to be a great place to work, but the culture has definitely changed in the last several years. It's tough to provide great customer service with unhappy employees. Pharmacy hours have been cut, tech hours have been cut, and store managers are not willing to help in the pharmacy. But that's just the tip of the iceburg.

 

My husband's store has lost 20% of their business with the Express Scripts debacle, through no fault of his own. Yet, corporate has demanded that HE come up with a plan to regain that business in his store. In addition, he is required to visit a certain number of local physicians to "market" the pharmacy -- on his own time. He is required to call local businesses and beg to let Walgreens set up a flu clinic at their location. He is not a salesman and has no desire to be. He is required to attend countless "leadership" and "marketing" meetings.

 

And, I would also like to note that he delivers excellent service to his customers. I know this because we live in a smallish community and we constantly see his customers while out and about. They are always happy to see him, call him by his first name, and strike up conversations. It is apparent that he is well-liked and respected.

 

But Walgreens is now more concerned with marketing and buzz words (Be Well!) than the happiness of their employees. Do more with less. Work harder. Sell, sell, sell! Sadly, my husband is looking for another job. All the stress, combined with the bad attitude from corporate, is just too much. It's such a pity... he used to be proud to work for Walgreens and now he is ashamed. Very telling.

Jun 11, 2012 3:05PM
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I worked at Walgreens. They bought out our mom and pop pharmacy and that was the worst company I have ever worked for. I lost my job last Nov. They suck! The company it self sucks, some of the people that I worked for were nice but when you have to answer to the big boys, you learn to be an **** kisser real fast. They have standards and if you do not meet them, you are gone. I worked in retail for over 23 yrs and most of that in pharmacy and a pharmancy tech. I knew my job and was lead tech and did all the training. Rite aid liked my work for 18 yrs so why did Walgreens say that I was not up to their standards? Customer service does not come first. Its the numbers that matter to them. How many people can we get in or out. You have to type so many prescriptions per week and have a 3 or 4 percent sig(directions on scripts) code per week and so and so. I was told that the old way of doing things is out. Funny that some of us did the old things and the customers liked it and they kept comming back.
Jun 11, 2012 9:44PM
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I am an employee at Walgreens. I no longer enjoy working for them because you are so under- appreciated for your work and no matter how good of a job you do there is never a thank you - good job from managers / store manager. Nothing is good enough for them or for the District office or corporate. Sell, sell, sell is all they think of never thinking we are doing the best we can. We have to constantly bug  customers to buy " suggestive sell items " at our registers. If we don"t we can be written up and lose our job. There is no caring about our customers ...this company thinks only of their bootm line and that"s why they are at the bottom of the list..  Right where they belong.

Jun 12, 2012 12:41PM
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With the lose of ESI has come the lose of job security.  Employed as an overnight assistant manager for 12 yrs. I am now having to take a $6/hr pay CUT to keep my overnight slot.  They can call it "management reconstruction" but the bottom line is that the decision makers made a stupid decision and low ranking employees are paying the price.  Big bonuses are still being paid, new stores are still being built, store remodels are still on schedule, and lets not forget the buying out of more infusion companies.  Know where the priority is--line the pockets of the executives at the cost of hard working people just trying to make ends meet.  My only hope is to find a new job because as things look I will be a minimum wage cashier in another year.
Jun 12, 2012 12:23PM
Jun 11, 2012 9:43PM
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Most comments here are based on a customer service perspective. The poor service is a direct result of understaffed pharmacies due to poor reimbursement from Your Insurance company.  I might add that reimbursement rates are negotiated by all the higher up corporate goons that never set foot in a retail pharmacy or pay for their own insurance or prescriptions so they are way out of touch with how it all goes down at the pharmacy counter.  The real issue is that:

 

(Express Scripts = Your Insurance Company) is reimbursing (Walgreens & all other pharmacies for that matter) BELOW the pharmacy's cost to fill a prescription.  Walgreens was the only major chain I know of that had the size, strength, and balls to say NO to Express Scripts for their strong arm / dirty pool  / take it or leave it business tactics.

 

Here is a simple SHORT example of how it works everywhere:  They fill your prescription with $10 worth of drug, hopefully they caught all the drug allergy, drug interaction, duplicate therapy warnings etc, to prevent your doctor from accidentaly killing you.

 

Express Scripts pays the pharmacy $1-2 dispensing fee and $6-8 for the drug.  Barely break even and usually at a loss.  It is now up to the pharmacy to make up the LOSS and pay their staff  by selling you soap, bandaids, soda, etc...

 

You can not pay the pharmacy electric bill at the end of the day with reimbursment like this or provide enough salary to staff the pharmacy with enough pharmacists and staff (who mostly have Ph.D educations these days). It is a bare bones, race to the bottom business model.

 

Ever wonder why real pharmacists look unhappy and worried in contrast to those stupid TV commercials where the pharmacist stops everything they are doing to come out from behind the counter to talk to you,....most pharmacists work 12-14 hour shifts with NO Lunch, NO breaks, and NO technician help.  This is due to inferior reimbursement from YOUR insurance company.

 

Don't be mad at the pharmacy, be mad at the insurance companies. The pharmacists are mad about this too.

 

Most of your insurance premiums go to Express Scripts Shareholders (yes they profit off your insurance premiums instead of providing you good health care) and to Express Scripts CEO's who make Millions/Billions for managing your prescription insurance.  The pharmacy does not set the price or make any profit on your prescription Your Insurance Company or Pharmacy Benefit Manager does!  How did this happen?  I wish we could turn this around because this is not how it worked when my dad owned his own small town neighborhood pharmacy 50 years ago.

 

Don't be mad at the pharmacy,  be mad at the insurance companies.  The pharmacists are mad about this too.

 

Most Retail Chain Pharmacies operate at a loss if they are staffed well enough to fill prescriptions safely and provide good customer service.

 

 

Jun 12, 2012 5:42AM
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well as an express script customer, not being able to go to walgreens really sucks, there are 2 by me and now I have to drive almost 10 miles to CVS and they have screwed up every prescription I have gotten or are out of stock for days. I wish they would fix this....
Jun 12, 2012 7:01AM
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I stopped going last month when I went to fill an Rx and the clerk was rude to me about the wait time.  I had a sick child in the car and she told me 30 min.  No one was ahead of me.  I asked if I could wait ad she said in a rude manner that it would be exactly 30 minutes no matter what I did or did not do.  I drove my child home and called my husband to pick it up as I was driving away.  The pick up time was exactly 8 minutes later.  Apparently she wanted to feel powerful by sending a mom away with a sick kid and make them return 30 minutes later.  Thank goodness my husband was available to run over 5 minutes later.  We moved our Rx's to CVS after that.
Jun 11, 2012 4:29PM
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Being an previous Walgreens Employee, their RX prices are in general more, even with insurance.  Their prices on other items are also more costly, except of course if they are on sale.  If you have had no trouble with Walgreens you are lucky, as I know of several people who got mixed up RX's and bad service.  The biggest problem is their CEO makes a fortune and they pay their employees barely above minimum with very little benefits.  I am not surprised they are losing $$. 
Jun 12, 2012 8:34AM
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Why is Walgreens any different than Walmart? They both come in and promise hundreds of jobs, but in fact studies prove over and over they add no new net jobs after you factor in the small local businesses that fold after thy come in. Walmart and the chain stores are a plague and scourge on small towns employment. I still can't believe how stupid city managers and planners are to believe the lies about tax base increases or jobs increases. The math never comes out as purported three year after they are established.

Stop using chains people.
Jun 12, 2012 12:18PM
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Drug sales is a subject I have info which all Americans need to know and take heed. The cost of meds is far to great as is all medical costs here in the United States. I first must say America is the greatest country in the world and I would never want to live anywhere else. I was the third generation born on the cattle ranch where I grew up 55 years ago. I am pro business and as such a business must have profit , fair profit, to maintain existence, sustenance and grow.


At one point I also used Walgreens but changed to Walmart due to proximity. Now I have change to an on-line pharmacy. The reason for this is gouging costs. I am not looking for sympathy or a bleeding heart liberal. The latter is a lot of the problems we see today. I take a number of meds and 5 of those meds were costing me $732 per month to use, COPD. I lost my job in December and could not afford the cobra offered therefore I am on my own, no state aid, no SSI, no assistance. This out of pocket cost was destroying my limited budget at $25 per day cost. I began investigating the on-line pharmacies selling the same pharmaceuticals, Pfizer, GlaxoSmithCline,Teva and lowered my out of pocket cost to $2.50 per day for these 5 meds. What is wrong with this picture? How can Pfizer sell their meds on the open world market for a fair profit to a third party who in turn will mark this medicine up with a fair profit and sell it to me and ship it to me at a cost 1/10 the price of buying same med here in the local marketplace? Is the mark-ups the same to the states and federal agencies? Grossly overpriced? I stated earlier I am pro business, but at what point does fair profit turn to excessive greed and extortion? Last week I heard a brief partial news bite that the federal government will not allow the pharmaceutical companies to sell meds in the United States at world market pricing. Please someone enlighten me.

Jun 11, 2012 9:23PM
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For those of us who understand...Walgreens generates 95% of their profits FROM prescription drugs...its glaringly evident that there are far too many people commenting on this thread that have NO idea what their talking about. Unlike Walmart, Costco, Target, [insert whatever big box store here]...they could care less about drug sales. They want you to take the long walk through the store and watch for the Blue Light Special - essentially they want you to buy stuff you don't need. THAT's THEIR bread and butter. Walgreens cannot (not will not....cannot) compete with them in that game. And neither can Rite-Aid or CVS! And yes...those guys will also taste the wrath of Express Scripts when their new contract(s) [at some point in the near future] ]come due. Watch and see.

That being said...the Walgreens 'suits' had better get their house in order, and remember from whence they came: Pharmacists placed in executive, decision making positions (as it used to be)! Quit hiring the egg-head, number crunching, pencil pushers; and start listening to what going on in the trenches. The bottom line IS customer service, you morons! Make service your hallmark [ once again]!

I hope you're reading some of these comments from customers regarding such. Let your pharmacists be pharmacists - they're not nurses or lab technicians, etc., et. al. And cutting Tech's hours isn't a move in the right direction either. Way too many Pharmacists are pushed to the limit!

Jun 11, 2012 2:47PM
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Walgreens pretends to be Pro-Military.  They will grant a military discount on Mondays only.........  I told the cashier that when the communist are in thier back yard to call me on Monday.
Jun 12, 2012 1:38PM
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I work for  walgreens this ceo is the worst I have everseen.  He will do walgreens in.  He is very into technolgy but not for a human employee his goal is to have robots serving cusomers and do away with all human beings.   Also treats employees like robots.  Threating jobs if we don't say Welcome to Walgreens,  and Thank you and be well.  Most of my customers hate this and they want to be spoke to a perosn not like a robot that can't think or have any emotions at all.  

 

Jun 12, 2012 2:24PM
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While CVS enjoys this windfall they have not earned the business nor did they prepare knowing months ahead of time new business was heading their way.

Yes, they added staff but with complete idiots who know nothing about customer service and could care less about their new customers.

In the long run- they are heading for a fall and the retreat is on to alternatives

from sources that simply care.

I'm flat done with them !!

Jun 12, 2012 1:38PM
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  As a recent ex assistant Manager at Walgreens I can say, we are constantly ran around to the point of exhaustion. Also to be clear, we want to help in the pharmacy, but we have to be certified to fill prescriptions. At one store I worked, I wasn't even allowed back in the pharmacy to hand someones prescription because I wasn't certified.  Don't let me start on how long it took Walgreens to set up the process. I've paid money, but no action or class had been set for me to go. 
     
          We are also lead by unqualified store managers that blatantly show favoritism amongst  each other. in our district, managers and District Managers are best friends, go on vacation with each other and " Kiss each others back side" to get where they want to go. 

Riddle me this, why has an executive manager for 6 years with customer service, store improvement awards, and previous management experience, has yet to be promoted to full store manager, yet some one with less experience, with less time in the position gets promoted, mind you this has happened more then once with this individual, and an unclear answer has been given why.
    
      The Straw that broke the Camel's back for me was the approval of the management reform program being set around March 2013. In a nut shell Assistant Managers will be reinterviewed for the new Management trainee position. Those who don't make it get demoted, and see a drastic pay decrease. Those who qualify will still see a pay decrease from their previous assistant manager position with an increase of responsibility, While upper management will not see any pay cuts among each other with a lot of their responsibilities handed over to The new Management position. So, we are being rewarded with a pay decrease with added responsibilities, while upper management rep the rewards and keep the same pay with less responsibility? Upper management called it "keeping the best of the best." I call it, keeping the mom's boy's and the yes men that will bend to the will of what ever Walgreens push. 
        
        It's bad enough we are dragged into meetings told how much we suck, and given unrealistic tools to bring in customers simply lost by Upper Management's careless decisions.  I speak for most of the lower managers by saying " they are over worked, unrewarded, and fed up" how long do you think Walgreens is going to last moving in this direction?     
Jun 12, 2012 1:27PM
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I take a prescription that is not available in generic form.   I did not have insurance at the time.  When I went to Walgreens they told me it was going to cost me $800 for a 30 day supply.  When I talked to another local pharmacy they told me it was $150 which was a little more manageable.  So feel no sympathy for you. 
Jun 12, 2012 11:50AM
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CVS is absolutely abhorrent with their service and customer care.  Their pharmacy personnel change daily and there is no cohesive structure.  My mother had 10 prescriptions there that were all refillable at the same time and were on their 'auto-refill' program.  I would get the monthly calls that each prescription would be filled, and then a call that the prescriptions were ready.  However, when I arrived to pick them up, only one or two of them were filled, they had to check the computer, they'd tell me I was wrong about the others, they were never on auto-refill, I never received a call - in short, I was lying and I didn't know what I was talking about.  So we would get all the others on auto-refill, put in orders to get them refilled, arrange for me to drive back the next day to pick up the refills.  I'd come back the next day and guess what.  Only a couple had been refilled and we had to go through the whole dance again. I put up with this for a year (because Mother's Rx's were on Express Scripts) and then I said, "no more".  I moved her Rx's to Walgreens where mine are and everything has been absolutely beautiful.  And I wrote Express Scripts about the service at CVS and corporate CVS about the service at that store.

Jun 12, 2012 9:47AM
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Thje  WALGREEN executive that  made  THAT decision..Should de  F I R ED on the spot ....and NO  golden parachutet
Jun 11, 2012 3:40PM
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Sorry...should have read ALL the comments below before my comment...because I would have used more "CAPS" to emphasise the fact that I have NEVER had any difficulty with my local Walgreens Pharmacy in Bellevue, NE.  They were ALWAYS on top of everything...even re-adjusting one of my wife's meds to our pay because it was better than the generic, which is all that Express Scripts would pay for. 

 

Truly sorry to have lost Walgreens!

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