Walgreens’ Future Market Trends Market Structure Walgreens Pharmacy operates in an Oligopoly market structure. The retail pharmacy environment also has the Oligopoly characteristic of significant entry barriers. The barriers are restriction of ownership and restriction of where the business can be established (Walgreens). The ownership barriers are established by the government and state only Pharmacists or an incorporated company that has directors and shareholder members that are registered pharmacists are allowed to open and own a pharmacy.
Licensed pharmacists are required to be on duty during the hours of operations. Current Economic Trends Walgreens faces many challenges. In the face of a slowing economy families are making tough decision on how to spend money. Many American are making the choice of putting food on the table or buying medication. Some of the challenges that Walgreens must face are a slowing economy, new competition, and government regulations changes. Pharmacy sales and script counts as an industry are slowing. From 2007-2008 sales increased 1. 8% from 249. 2 billion from 253. billion. Script counts increased 0. 6% from 3. 52 billion scripts to 3. 54 billion scripts. Walgreens is a company that is use to double digit growth numbers. To face the new slowing economy Walgreens has created a program called Rewiring for growth and POWER. The Walgreens Rewiring for growth project is about protecting the company’s profits in a slowing economy. The program will reduce operating cost and create more productivity. The program will realign Walgreens capabilities, culture, and costs to meet its goals and the current economic environment.
The target savings is one billion dollars in annual cost savings by 2011. The saving will be reached by reducing over head at corporate and work throughout stores. Walgreens has also planned to open fewer stores in the future and concentrate on extracting more profit from existing stores. Rewiring for growth will free up Capital and give greater flexibility for investment in strengthen the core business. Technology As with any industry, technology constantly evolves and can improve process and product. The distant future cannot be predicted for an organization like Walgreens.
However, the organization is taking advantage and switching older technologies to new ones to make minor improvements. Instead of using technology to make major changes to the way the business operates, smaller things are being looked at to make an impact. For example, Walgreens is looking at ways to cut down energy. Walgreens has conducted research on lighting, coolers, sensors and other electronics to cut down their electric and cooling bills. As with any technology, when it first comes out, the price of that technology is at its highest and least efficient.
As time progresses, it becomes more efficient and affordable. This goes for any organization in the same industry as Walgreens. Walgreens must find the balance between price, efficiency, and convenience to maintain optimal use of resources. Trends Walgreens may face dramatic changes in the prices of prescription drugs due to the health reform that the government might implement. However, Americans are not sure if that health reform will even pass. One element that seems to bring changes to Walgreens is the increasing demand for prescription drugs.
According to USATODAY (2001) “Drug spending is driven by three factors: an increase in prescriptions written; a rise in individual prescription costs; and a shift to more expensive drugs from older, or generic, products, the study found” (¶ 6). Many people are getting sicker and more doctors are over treating many patients. These two factors lead to an increase in spending on prescriptions drugs. Another important trend to take into account is that many people are also getting older and will need to buy more prescription drugs. When a drug enters the market it changes the landscape dramatically.
These drugs that enter the market are used either to replace other drugs or to enhance treatment. New drugs are generally expensive which makes it difficult for people to buy. Many other drugs also lose patent protection leading to the creation of substitutes that are cheaper. People today depend a great deal on online services to acquire information and products. Services like on online photo benefit Walgreens because people pick up their photos at the store. When people go to the store they will be more tempted to buy goods sold at Walgreens.
Keeping up with online trends is very important and crucial to the success of the company. According to Mullis (2006) “In order to further focus on convenience and maintain its number one market position, Walgreens must also concentrate on expanding its online services. Online services add convenience and contribute to Walgreens’ brand image while allowing the company to achieve the benefits of a multichannel strategy” (p. 13). Walgreen’s image is about creating value and making shopping either for consumer goods or prescription drugs more convenient.
Finally, changes in government programs such as Medicaid, social security, and others will bring changes to the prescription drug industry. Health insurance and those changes that the industry might go through if the health reformed is passed by congress will also have a major impact on Walgreens and how products are priced. Price Elasticity of Demand Walgreens offers a variety of products and services. Based on the economic times, price increases due to increase in wages, fuel, products and inventory, and operational costs. It is anticipated Walgreens will experience a change in price elasticity.
Depending on the product or service measured by Walgreens the price elasticity will vary as the price will change and demand for the product or services will change over time. As new medications become available the consumers may increase the demand for the products. Price will vary based on many factors. As the economy continues to change the types of products families are buying may be changing based on needs and necessity or want and desires. Individuals and families are trying to trim their budgets and will evaluate the true need to purchase a specific item or extras when times are touch.
This will have an effect on the price elasticity of demand, related to Walgreens operations. Competitors In general, the future looks positive for Walgreens. Of the pharmacy chains, Walgreens continues to expand in order to meet the increasing demand. Walgreens is setting themselves apart from the competition through two methods. Consistently offering substitute over the counter drugs at a more lucrative price. Additionally, Walgreens is offering more high quality products that are not available in stores like CVS. These products include beauty supplies and small electronics.
Even though competitors are growing, so is Walgreens because of the baby boomer generation requiring more pharmacy needs. But by offering additional products, and making it more convenient for the consumers, Walgreens is able to grow at a much more rapid pace than their competitors. Supply and Demand Analysis The demand for Walgreens stores and services are on the rise. Sales have grown from 2007 to 2008; this is a direct result of the demand of products and services Walgreens provides. Over the past two years Walgreens has increased the number of stores they have from 5000 to 6000 (Walgreens 2009).
By late 2010 Walgreens plans to increase their stores to 7000 based on demand. A demand for prescriptions is on the rise based on the increase in baby boomers. As a result of this increase, Walgreens will benefit greatly from this increased demand in the pharmaceutical industry. With the possibility of government health care plans, this will have an increase need on pharmaceutical industry needs. Impact of Government Regulations Government regulations and political pressure are now heavenly impacting Walgreens bottom line.
The government is trying to pass laws that will cut the Medicaid reimbursement to pharmacies. The cut in profits will cause less incentive to fill the prescription due to the slash in profit. In some states the reimbursements are so low that Walgreens will not accept Medicaid at all like Delaware. As the government is the biggest provider of scripts to Walgreens this is a series problem that Walgreens is facing. New competition is also a major threat to Walgreens. Wal-Mart, Target and many new grocery chain pharmacies are now coming into the market.
Wal-Mart introduced a four dollar prescription plan for three hundred medications. The program was intended to steal customers away from Walgreens. Walgreens answered back with a 90 day generic supply for $12. 99. The program has proven to be very useful and enrolled over 1 million customers. To help combat the changing head winds and maintain profitable Walgreens has created Power. Power will accomplish two things lower the cost to fill scripts and create better customer service to distinguish Walgreens from its competitors. The Power program will be located in Orlando Florida.
The fatality will handle the majority of all phone calls, data entry drug utilization, third party rejects, clinical reviews also fill and deliver one third of all prescriptions in the state. The program will decrease the work load in the stores considerably which will translate in less payroll and more productivity. The pharmacist will be free to council with patients because they will not have to answer phone call from patients or doctors. Techs will not have nearly as many scripts to enter and fill. Now all phone calls will go to one central location along with faxes, online scripts and any insurance problems.
The new stream lined system will enable Walgreens to be more price competitive and gain more productivity out of the existing stores. The Power program will allow Walgreens to continue to participate in Medicaid. The program will not be rolled out until September 2010 for now it’s still being debugged and refined in the Florida stores. Conclusion Walgreens faces many challenges. In the face of a slowing economy families have to make tough decisions on how to spend their money. Many Americans have to sacrifice medication and simple household supplies in exchange for putting food on the table.
As the trouble economy may get worse many are worried about long term success of businesses. Walgreens has set up establishments in many local neighborhood communities. The demand for these stores has increased. Walgreens will face many challenges including trying to meet the demand for additional stores in these tough economic times, new competition, government regulations changes and pharmaceutical sales are beginning to decline. References Walgreens Co (2009). Walgreens Company Info. Retrieved August 16, 2009, from http://news. walgreens. com/article_display. cfm? rticle_id=1046 Coogler, T. (n. d. ). How to Open an Independent Pharmacy Business. Retrieved 08 22, 2009, from E how: http://www. ehow. com/how_4576914_open-independant-pharmacy-business. html Walgreens. (2009). Walgreens Prescription Savings Club. Retrieved 08 29, 2009, from https://webapp. walgreens. com/MYWCARDWeb/servlet/walgreens. wcard. proxy. WCardInternetProxy/RxSavingsRH Mullis K. (2006). A SWOT Analysis of Walgreens in the Competitive Pharmacy Marketplace. Retrieved August 24, 2009, from http://acraretail. org/documents/Katy_Mullis_-_Walgreens_SWOT_Analysis. pdf