walgreens - team 1 - true north consulting - ugh
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TOP-LINE
GROWTH
BOTTOM-LINE
GROWTH
GOALS & OBJECTIVES Walgreens is focused on achieving dominant growth and long-term profitability
1 Core Business Growth International expansion using unique market entry strategy
Organizational Health Identify cost efficiencies to improve margins
User/Customer Experience Include patient’s voice in service delivery mechanism
2
3
2
TRUE NORTH CONSULTING
INDUSTRY ANALYSIS U.S. pharmacy & drugstore market growth and Walgreen’s market share
TRUE NORTH CONSULTING
Pharmacy & Drugstore
Industry CAGR
6.1% (2016-2021)
USD $278 billion (2016)
USD $374 billion (2021)
(IBIS World, 2016; McKinsey, 2015, 2013)
10.7% 21.7% 32.6% 35%
Rite Aid
CVS Health
Walgreens
Others
Pharmacy & Drugstore sales Market Share
EXTERNAL COMPETITION is on the RISE
Stagnant wages and price hikes are
forcing consumers to shop at cost
leader supermarkets
( diagnosis ) dominance delivery
5
INDUSTRY ANALYSIS Key competitor analysis in the U.S. pharmacy industry
TRUE NORTH CONSULTING
(IBIS World, 2016)
6
( diagnosis ) dominance delivery
Market share
# of stores
# of clinics
Revenue segments
(Pharmacy : Retail)
Loyalty membership
32.6% + (10.7% Rite Aid) 21.7%
8,177 + (4,561 Rite Aid) 9,600
400 + (SSM Health) 1,100 (Goal of 1,500 by 2017)
70:30 78:22
Balance Rewards 85 million
ExtraCare 70 million
Recent developments
20
15
10
5
0
-5
-10 -10 -5 0 5 10 15 20
INDUSTRY ANALYSIS U.S. pharmacy & drugstore industry lifecycle 2016
TRUE NORTH CONSULTING
% Growth in number of establishments
% G
row
th i
n s
hare
of
eco
no
my
Quality Growth
Quantity Growth
Decline
Intense competition (Walmart, Target, Costco)
Revenue growing at same pace as economy
Rationalization of low margins & brands
Consolidation leads to growth M&A stage
Maturity
Pharmacy &
Drugstore
Industry
KEY FEATURES OF A MATURE MARKET
(IBIS World, 2016)
7
( diagnosis ) dominance delivery
STRATEGY REVIEW Using the Diamond E Model to identify significant factors of influence
TRUE NORTH CONSULTING
MANAGEMENT PREFERENCES
ORGANIZATION STRATEGY
CAPABILITIES & RESOURCES
ENVIRONMENT
• Mature U.S. market
• High competition; low CAGR
• Increasing regulations
• Growth by consolidation
• PPACA – Increased coverage
• Aging population
• Shift towards multi-format
offerings
GLOBAL MARKET LEADERS
Sustainable growth + Global dominance
• Market leader in the U.S.
• Post-merger integration
• Org: health & culture
• M&A
• Strategic alliances
• Vertical integration
Acquisition of
Rite Aid
($17.2 bn)
Experience in
global markets
(WBA)
Partnership
with Ameri-
sourceBergen
(IBIS World, 2016)
8
( diagnosis ) dominance delivery
OUR RECOMMENDATION Two-fold approach aligned with existing strategy
TRUE NORTH CONSULTING
STAY STRONG AT HOME Strengthening core business 1 INTERNATIONAL EXPANSION
Achieving dominance in global markets 2
( ( ( ) ) )
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diagnosis ( dominance ) delivery
1. STAY STRONG AT HOME Strengthening core business in the U.S. through differentiation
TRUE NORTH CONSULTING
RETAIL DIVERSIFICATION
Current mix
70%
30%
Proposed mix
60%
40%
• Increase high margin premium beauty product offerings
• Leverage synergies from Duane Reade, Boots
DEMAND FOR GENERICS
• Leverage alliance with AmerisourceBergen
• Vertical integration – Valeant (CAN), SSM Health
88 %
of Rx dispensed in
U.S. were generic
Focus on
promoting new
generic drugs with
higher margins
ENHANCE USER EXPERIENCE
• Invest in digital technology platforms + API
• Acquire health-tech start-ups:
Retail Retail
Drugs Drugs
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diagnosis ( dominance ) delivery
(IBIS World, 2016)
2. INTERNATIONAL EXPANSION Global pharmacy & drugstore market growth in USD $ (in billions) 2016-2021
TRUE NORTH CONSULTING
$128
$42
$20
$17
$39
$10
$6
$6
BRIC-MT
Other emerging
Asia
Eastern Europe
North America
Japan
Western Europe
Other developed
MATURE MARKETS
EMERGING MARKETS
2.9%
0.5%
1.6%
1.9%
6.5%
8.8%
8.1%
9.3%
CAGR 2016-2021
Global Pharmacy &
Drugstore CAGR
5.61% (2016-2021)
USD $986 billion (2016)
USD $1,246 billion (2021)
(IBIS World, 2016; McKinsey, 2015)
12
diagnosis ( dominance ) delivery
INVEST IN INDIA But why is India the optimal target market for Walgreens?
TRUE NORTH CONSULTING
annual forecasted growth
rate in govt. spending
amounting to $101 billion
by 2020
INDIA Health insurance is expected to
reach 655 million people by 2020
Health insurance penetration
26 45 % %
(2010) (2020)
CAGR of 14.5% is more than optimal
relative to growth in other
emerging markets
India pharma market growth
13 55 bn
(2010) (2020)
bn
$
Middle class consumption Govt. expenditure in healthcare
of global middle class
consumption will be
generated in India by 2030
(the largest in the world)
17
$
% 23 %
13
diagnosis ( dominance ) delivery
(IBEF, 2016; Strategy&, 2013; Brookings, 2013)
20
15
10
5
0
-5
-10 -10 -5 0 5 10 15 20
INDUSTRY ANALYSIS India pharmacy & drugstore sales industry lifecycle 2016
TRUE NORTH CONSULTING
% Growth in number of establishments
% G
row
th i
n s
hare
of
eco
no
my
Quality Growth
Quantity Growth
Decline
Organized pharmacies yet to gain wide-scale acceptance
Rapid increase in demand for drugs
Focus on rapid expansion to meet consumer demand
Maturity KEY FEATURES OF A GROWTH MARKET
India Pharmacy &
Drugstore Industry
(IBIS World, 2016)
Favorable regulatory environment
U.S.
14
diagnosis ( dominance ) delivery
POTENTIAL ALTERNATIVES Market entry strategies
TRUE NORTH CONSULTING
2 GREENFIELD INVESTMENT Direct entry method; brick and mortar
BROWNFIELD INVESTMENT Mergers and acquisitions 1
JV / STRATEGIC ALLIANCE Establish subsidiaries or partner with existing networks 3
CAPITAL RISK REWARD
MODERATE
CAPITAL
LOW
RISK
HIGH
REWARD
HIGH
CAPITAL
HIGH
RISK
HIGH
REWARD
LOW
CAPITAL
LOW
RISK
LOW
REWARD
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diagnosis dominance ( delivery )
POTENTIAL ALTERNATIVES Market entry strategies
TRUE NORTH CONSULTING
2 GREENFIELD INVESTMENT Direct entry method; brick and mortar
BROWNFIELD INVESTMENT Mergers and acquisitions 1
JV / STRATEGIC ALLIANCE Establish subsidiaries or partner with existing networks 3
CAPITAL RISK REWARD
MODERATE
CAPITAL
LOW
RISK
HIGH
REWARD
HIGH
CAPITAL
HIGH
RISK
HIGH
REWARD
LOW
CAPITAL
LOW
RISK
LOW
REWARD
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diagnosis dominance ( delivery )
RECOMMENDED APPROACH Bridging strategy and investment
TRUE NORTH CONSULTING
VISION: to be the customer’s first choice
for their health & wellness needs
MISSION: to revolutionize healthcare
delivery in India
VALUES: customer centricity, honesty,
fairness, innovation, equality
2nd largest organized
pharmacy chain in India with
1,244 pharmacies
Serving 150,000 customers
daily, focus on educated
middle class in high
populated regions
$200 million USD in gross
revenues in 2014
BROWNFIELD INVESTMENT Acquisition of a leading pharmacy chain
Madhukar Gangadi, MD, MBA
Founder & CEO
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diagnosis dominance ( delivery )
LEVERAGING SYNERGIES Strategic rationale & financial benefits of the MedPlus acquisition
TRUE NORTH CONSULTING
STRATEGIC RATIONALE FINANCIAL BENEFITS
1. OPERATIONAL SYNERGIES
Economies of scale
Higher growth in new market
2. FINANCIAL SYNERGIES
Debt capacity
30 million USD
$ In total potential
synergies by the
year 2021
1. Perfectly aligned vision and
values
2. Advances Walgreens strategy
to be global healthcare leaders
3. Allow direct access to fastest
growing pharmacy market
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diagnosis dominance ( delivery )
FINANCIAL ANALYSIS Cost of investment vs. Revenue forecast and ROI
TRUE NORTH CONSULTING
200
324
517
0
100
200
300
400
500
600
2015 2016 2017 2018 2019 2020 2021
REVENUE GROWTH
Revenue (millions USD)
Net Margin (%)
Net Profit (mn)
2 2.3 2.6 2.9 3.3 3.7 4.1
4 5.4 7.1 9.3 12.4 16.3 21.2
COST = $375 million
ROI YEAR
2017
2018
2019
2020
2021
1.9%
2.5%
3.3%
4.4%
5.7%
5Y ROI
17.8%
Avg 10Y/Y ROI
12.8%
10Y ROI
128%
2027 26%
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diagnosis dominance ( delivery )
IMPLEMENTATION TIMELINE Bridging strategy and investment
TRUE NORTH CONSULTING
INITIATIVE 2016 2017 2018 2019 2020 2021+
EXPANSION
INTO INDIA
ACQUIRE
MEDPLUS
LEVERAGE OPERATIONAL SYNERGIES
EXPAND DISTRIBUTION NETWORKS
DEVELOP & ROLL-OUT
FRANCHISE MODEL
RESEARCH OTHER
EMERGING MARKETS
EVALUATE POST-ACQUISITION PERFORMANCE
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diagnosis dominance ( delivery )
RISKS & MITIGATION Bridging strategy and execution
TRUE NORTH CONSULTING
RISKS MITIGATION
Likelihood
Imp
act
low
low
m
ed
h
igh
med high
3 2
4 1
1. Political/regulatory uncertainty in U.S.
2. Rise of PBMs by consolidation
3. Unorganized drugstores in India
4. Integration failure of synergies
1. Vertical integration to improve margins
and pursue entry into new markets (India)
2. Acquisitions of PBMs, pharmaceutical
manufacturers, and leverage long-term
alliances (AmerisourceBergen)
3. Strengthen consumer and govt. confidence
via marketing and lobbying efforts
4. Build synergy roadmap to help achieve
long-term objectives
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diagnosis dominance ( delivery )
INDIA
BROWNFIELD
INVESTMENT
SYNTHESIS Walgreens’ journey to global dominance
TRUE NORTH CONSULTING
DIAGNOSIS DOMINANCE DELIVERY
OUR 3D STRATEGY
• Health insurance penetration of 45%
• Largest middle class consumption in the world
• 17% growth in govt. healthcare spending
$128
$42
$20
$17
$39
$10
$6
$6
BRIC-MT
Other emerging
Asia
Eastern Europe
North America
Japan
Western Europe
Other developed
MATURE
MARKETS
EMERGING
MARKETS
2.9%
0.5%
1.6%
1.9%
6.5%
8.8%
8.1%
9.3%
CAGR 2016-2021 43 % MARKET SHARE IN
INDIA IN 5 YEARS
3,031 STORES IN
INDIA BY
2021
12.8 % 10 YEAR Y/Y
AVERAGE
RETURN
23
up from 1,244 stores in 2016
TRUE NORTH CONSULTING
Team 1
April 23, 2016
Thank you for your time
Appendix 1
Market share
calculations
Appendix 2
Financial
forecast
Appendix 3
Consumer
demographics
Appendix 4
Alternative
regions
Appendix 5
Price conscious
consumers
Appendix 6
Industry cost
structure
Appendix 7
Health issues
in India
Appendix 8
Organizational
Values
APPENDIX 1 – MARKET SHARE CALCULATION Organized pharmacy market in India (2015-2021)
TRUE NORTH CONSULTING
25
APPENDIX 2 – FINANCIAL FORECAST Post-acquisition performance forecast of MedPlus (2016-2021)
TRUE NORTH CONSULTING
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APPENDIX 3 – CONSUMER AGE GROUPS Trends in drug consumption across U.S.
TRUE NORTH CONSULTING
Ages 17 and
younger
11%
Ages 18-44
28%
Ages 45-64
36%
Ages 65+
25%
% Expected Share of Total
Rx Revenue in 2016 by Age
Group
(Civicscience, 2014)
27
APPENDIX 4 – ALTERNATIVE REGIONS Analysis of other potential markets did not appear favorable
TRUE NORTH CONSULTING
CANADA BRAZIL CHINA
CAGR 2016-2021
Market potential
Barriers to entry
2-4% 11-14%
Limited
High
Industry rivalry High
Power of suppliers Low
Power of buyers Moderate
Attractive
Low
Moderate
High
Moderate
15-18%
Uncertain
High
Moderate
High
Low
Threat of substitutes Low Moderate High
(IBIS World, 2016)
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APPENDIX 5 – PRICE CONSCIOUS CONSUMERS
INCOME STAGNATING RISING PRICES
(Washington Post, 2016; Pew Research Center, 2015)
TRUE NORTH CONSULTING
Average annual
INFLATION
2.2 %
Prescription prices
INCREASED
10 %
U.S. consumers are becoming increasingly price conscious
Stagnant wages and price hikes are
forcing consumers to shop at cost
leader supermarkets
2016-2020 2015
29
APPENDIX – 7 – BETTER HEALTHCARE FOR INDIA Leading causes of death in India (2012)
TRUE NORTH CONSULTING
(WHO, 2015)
Cardiovascular
disease
Chronic obstructive
pulmonary disease Stroke
12.4 % 10.8 % 9.4 %
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APPENDIX – 8 – ORGANIZATIONAL VALUES Mission, vision and core values of Walgreens
TRUE NORTH CONSULTING
(Walgreens Corporate, 2016)
Our Mission To be America's most loved pharmacy-led health, wellbeing and beauty retailer.
Our Purpose To champion everyone’s right to be happy and healthy.
Our Values Based on the principles upon which Walgreens was founded more than a century ago:
Honesty, trust, and integrity with our customers, our shareholders, suppliers, the communities we serve, and among
ourselves.
Quality through consistent and reliable service, advice, and products across every touchpoint and channel.
Caring, compassionate and driven to delivering a great customer and patient experience through outstanding service
and a desire for healthy outcomes.
A strong community commitment and presence built through service, expertise, and the personal engagement of every
Walgreen team member.
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REFERENCES Comprehensive list of source materials
TRUE NORTH CONSULTING
Apollo Hospitals. (2015). Annual Report 2015. Retrieved from Apollo Hospitals: https://www.apollohospitals.com/apollo_pdf/annual-report-year-2015.pdf
Ascher, J., Bogdan, B., Dreszer, J., & Zhou, G. (2015, July). Pharma's Next Challenge. Retrieved from McKinsey: http://www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/pharmas-next-challenge
Civic Science, Inc. (2014, October). Insight Report: Researching the Personas of CVS, Rite Aid, and Walgreens Fans. Retrieved from Civic Science: https://civicscience.com/ourinsights/insightreports/insight-report-researching-the-personas-of-cvs-rite-aid-and-walgreens-fans/
CVS Health. (2015). Annual Report 2015. Retrieved from CVS Health: http://investors.cvshealth.com/financial-information/annual-report-archive
CVS Health. (2016, April). About. Retrieved from CVS Health: http://cvshealth.com/about
Euromonitor International. (2013, July). Opinion: Loblaws Cos and Shoppers Drug Mart.
Euromonitor International. (2015, May). Industry Overview: Beauty and Personal Care in Canada.
Euromonitor International. (2015, July). Industry Overview: Beauty and Personal Care in India.
Euromonitor International. (2015, May). Industry Overview: Beauty and Personal Care in the US.
Euromonitor International. (2015, December). Industry Overview: Consumer Health in Canada.
Euromonitor International. (2015, November). Industry Overview: Consumer Health in India.
Euromonitor International. (2015, December). Industry Overview: Consumer Health in the US.
IBISWorld. (2015, November). Beauty, Cosmetics & Fragrance Stores in the US.
IBISWorld. (2016, March). Beauty, Cosmetics & Fragrance Stores in Canada.
IBISWorld. (2016, March). Pharmacies & Drug Stores in Canada.
IBISWorld. (2016, April). Pharmacies & Drug Stores in the US.
India Brand Equity Foundation. (2016, February). Indian Pharmaceutical Industry. Retrieved from http://www.ibef.org/industry/pharmaceutical-india.aspx
Kharas, H. (2011, June). The Emerging Middle Class in Developing Countries. Retrieved from Brookings Institution: http://www.brookings.edu/
Mattioli, D., Siconolfi, M., & Cimilluca, D. (2015, October). Walgreens, Rite Aid Unite to Create Drugstore Giant. Retrieved from Wall Street Journal: http://www.wsj.com/articles/walgreens-boots-alliance-nears-deal-to-buy-rite-aid-1445964090
McKinsey & Company. (2007). India Pharma 2020. Retrieved from McKinsey: http://www.mckinsey.com/global-locations/asia/india/en/latest-thinking
McKinsey & Company. (2012). Unlocking Pharma Growth. Retrieved from McKinsey: http://www.mckinsey.com/
Meyer, A. (2013, March). Walgreens Broadens its Horizons. Retrieved from Retail Leader: http://www.retailleader.com/article-walgreens_broadens_its_horizons-5708-part1.html
PwC (Strategy&). (2013). Pharma Emerging Markets 2.0. Retrieved from PwC: http://www.strategyand.pwc.com/media/file/Strategyand_Pharma-Emerging-Markets-2.0.pdf
PwC. (2007). Pharma 2020: The Vision. Retrieved from PwC: http://www.pwc.com/gx/en/pharma-life-sciences/pdf/pharma2020final.pdf
Reingold, J., & Jones, M. (2016, February 1). The Billionaire Behind Walgreens' Quest for Global Dominance. Retrieved from Fortune: http://fortune.com/walgreens-greg-wasson-stefano-pessina/
Sachdev, A. (2015, August). Walgreens Strives for Cost-Effective In-Store Clinics in Partnership. Retrieved from Chicago Tribune: http://www.chicagotribune.com/business/ct-walgreens-health-clinic-0821-biz-20150820-story.html
Walgreens. (2016, April). http://www.walgreens.com/topic/about/company.jsp. Retrieved from Walgreens: http://www.walgreens.com/topic/about/company.jsp
Walgreens Boots Alliance, Inc. (2015). Annual Report 2015. Retrieved from Walgreens Boots Alliance: http://investor.walgreensbootsalliance.com/annuals-proxies.cfm
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