YES – through continued acquisitions and mergers they grew and positioned themselves very well
• Was the company strong out the gate or a laggard? Pro-active or reactive? Pro-active throughout the economic downturn – positioned themselves well with the change in healthcare laws too (although this happened a few years after recession ended officially)
Maybe compare earnings stability and how dividends faired during recessionary years?
Earnings stability is critical for dividend-paying stocks.Walgreen (WAG) is solid in this respect, carrying a five-year Stability Factor of 3 on a scale of 0 (calm) to 99 (wild). The three-year rating, at 2, is even better. During the recession of 2007-09, Walgreen continued to increase its dividend, and earnings stability had something to do with that.
• Did the company sit on its resources or put it towards building competitive
advantage?Walgreens instituted “Rewiring for Growth” slowing store openings and offering early retirement and severance packages to corporate employees.
• How did the company fare with respect to its most direct competitor? In Recession CVS Seems Better Positioned Than WalgreenFeb. 11, 2009 2:42 AM ET | 15 comments | Includes: CVS, WAG Retailers CVS Caremark Corporation (NYSE: CVS) and Walgreen Co. (NYSE:WAG) both experienced lower sales in January compared with December numbers. January saw the average monthly spending among Geezeo users fall 18% at Walgreen stores, compared to only a 4.92% decrease at rival CVS. Looking at the 3-month and 12-month trends for these two firms may shed some light on this fact. click to enlarge
CVS customers averaged spending $53.35 throughout the month of January, an amount up 17.22% from October and 16.47% from January ‘08 figures, respectively. CVS’ good fortune has not been mirrored at Walgreen locations, suggesting that January’s declines are indicative of a more serious problem. The average customer to shop at the chain spent nearly 10% less over the month than over the same period last year.
The last quarter has also seen declines at Walgreen stores, with customers spending 1.24% less compared with October. Looking at these facts side-by-side, CVS appears to be better positioned to handle the economic recession, than its cross-town rival, so expect the firm to keep setting the pace. This data was compiled by the Geezeo Main Street Spending Index (MSSI).
For this part, make sure you rely on relevant frameworks and models covered over the course of
the semester, again, by comparing your company to its main competitor:
• The Business Model Canvas from Osterwalder & Pignuer
• The Strategy Patterns from Mintzberg, Slywotzky, etc.
Walgreens chooses a more conservative approach to their operations by growing organically, while CVS Caremark assumes a riskier business model by growing through acquisitions. This fundamental difference in the two organizations cascades throughout their financial statements in the form of debt for CVS Caremark which is offset by growth of margins and profits; and in the form of a much healthier balance sheet for Walgreens.
This analysis shows the results of each company’s operations, the ramification of those operations on their financial statements, and the conclusion that because of their more conservative, less risky business model, Walgreens maintains a healthier operation, despite equally impressive growth by both companies.
• The Retrenchment – Repositioning Matrix from Braun and Latham
• The Industry Change Matrix from Anita McGahan
• The M&A Typology from Bower
• The Value Net by Branderburger and Nalebuff
Looking at the company’s annual revenue from 2007-present, we see that the only drop in sales was a very slight one between 2009 and 2010. Since then, shares have increased to a level well beyond the company’s pre-recession numbers. CVS also raised its dividend every single year during that period of time and also continued share buybacks, lowering the outstanding share count every year.
Q. How has the downturn affected your expansion plans?A. We are slowing store growth from a 9 percent square footage growth in fiscal 2008 to 5 percent in 2011. It allows us to put about a half-billion dollars of capital expenditures back into the stores or other strategic opportunities. Q. Several years ago, senior citizens were arranging tours to Canada to buy drugs. With the recession, can we expect to see a resurgence of that phenomenon and might it spread to other segments of the population?
A. Since then, we’ve had a Medicare part D benefit rolled out to seniors. In most cases, the seniors that have a part D benefit will have generic co-pays of $5 and many plans have free generic benefit design. We recently released a prescription savings club card targeted for the uninsured and underinsured with complete discounts on over 5,000 prescriptions with 400 generics at $1 a week. We have well over a million members on our card.
Q. Your company is introducing a pharmacy system in Florida that you say will remove much of the routine of filling a prescription. How does it work? A. This approach to filling prescriptions transfers the data entry, insurance adjudication, follow-up with doctors’ offices and other administrative work out to a central processing facility. It also moves the actual filling of prescription refills to the central facility.
The patient will still drop off and pick up their prescriptions at the retail pharmacy. It lowers the cost of filling prescriptions to keep us competitive with other retail and mail pharmacy providers. Q. Your company has created more than 600 in-store clinics and work site health centers. What’s the importance of the centers? On a work site, what steps have you taken to protect worker privacy?
A. There are millions of Americans going to emergency rooms for care for common ailments we’re able to treat in our clinics. We feel there’s a huge cost reduction available to treat those types of conditions. We feel there’s opportunity to be a big part of this nation’s health care solution by providing nurse practitioners in our retail stores. Employers across the country are looking for ways to lower their health care costs and deliver better employee benefits. This is a way for an employer to do both.
The employer has absolutely no access to the patient records that we care for on their campus. We’re looking to have 800 retail and employer retail clinics open by the end of calendar year 2009. Q. You have made a decision to enter the area of specialty pharmaceuticals. Why did you decide to pursue this strategy? How will this change the configuration of the pharmacy counter? A. Complex high-cost drug therapy, such as injectables and infusions, are close to a $70 billion sector. It’s where pharmacy is going, and we want to make sure we participate and make pharmacy services available for our patients. I don’t think you’ll see an actual change in the drugstore.
If a patient comes into a pharmacy and has a prescription for an injectable or infused product, we’ll be able to take that prescription, scan it in and send the injectable to the patient’s home or a drugstore or refer them to one of our home infusion facilities for therapy. Q. What is hiring like for pharmacists in a period of escalating unemployment?
A. There’s been a shortage of pharmacists for probably about the last decade; not as harsh today as it was probably a few years ago. We’ve put a lot of investment into benefits and store conditions and technology. We haven’t seen anything significant as far as that changing due to the economy.