Walgreen (NYSE:WAG) is the largest drugstore chain in the US with fiscal 2012 sales of $72 billion and operating 8541 drugstores across 50 states in the US, the District of Columbia and Puerto Rico. Each day, Walgreen serves more than 6 million customers and provides them multichannel access to consumer goods, pharmacy, health and wellness services. Revenues for the month of March 2013 increased by 2.3% to reach $6.16 billion as compared to the same month last year. 
Walgreen recently announced that it will start offering a host of health care services including assessment, treatment and management for chronic conditions such as hypertension, diabetes, high cholesterol, asthma and others, as well as additional preventive health services at its Take Care Clinics. Take Care Health Systems is a Walgreen’s subsidiary and is also the largest manager of work-site health and wellness centers and in-store convenient care clinics with more than 700 locations throughout the US.  Under the new service expansion, in addition to chronic condition management, Take Care Clinic providers can evaluate, recommend and order preventive health services such as screenings or lab tests, based on a patient’s age, gender and family history.
Retail clinics have continued to gain greater consumer acceptance, popularity and recognition for delivering quality care. A recent Rand Corporation study showed the use of walk-in retail clinics is on the rise – increasing 10-fold over the past two years.  Studies have also found that retail clinics provide care for routine illnesses at a lower cost and similar quality as physician offices, urgent care centers or emergency rooms. 
This will not only help Walgreen to increase customer stickiness but also improve the brand loyalty among its customers. Walgreen will be able to leverage its vast reach and simultaneously increase its revenues through cross selling its front end products which have a higher margin. The average EBITDA margin for its front end sales stands at 10.5% which is estimated to grow to about 11.5% by the end of our forecast period.
Trefis price estimate for Walgreen stands at $42 which is at a 13% discount to the market price.Notes:
- Walgreens March Sales Increase 2.3 percent, Walgreen’s Newsroom, April 2013 [↩]
- Take Care Clinic Expand Scope of Health Care Services, Walgreen’s Newsroom, April 2013)
Solid growth in revenues supported by higher front end sales
The total front end sales, which includes the revenues from sales of all products except pharmacy and prescriptions, increased by 5.4% in March 2013 as compared to the same month in fiscal 2012. The comparable store front-end sales increased 4.2% for the same period. This is in line with our expectation of a sustained rise in average front end revenue per square feet. Although the number of customer walk-ins reduced by 1.3%, the average revenue per customer increased by 5.5% leading to a net positive growth.
Former Express Scripts customers are returning to the store as is evidenced by the fact that prescriptions filled at comparable stores increased by 4% in March 2013 over March 2012. If we take into account that this March had an additional Sunday and one fewer Thursday as compared to March 2012, the growth rate for comparable store prescription sales comes out to 7.4%. This is also because of the reason that Easter fell on March 31 this year as opposed to April 8 last year.
Going forward we expect the former Express Scripts customers to return to Walgreen as the company makes its Balance Rewards Loyalty Program more attractive and adds more services to its already exhaustive list.
Take Care Clinics expand scope of health care services
With an aging population, a shortage of physicians, the growing prevalence of chronic diseases and almost 30 million people projected to gain insurance coverage in 2014 through the Affordable Care Act, access to health-care services is becoming very critical for the US population. ((ref:1 [↩]
- RAND Corporation, “Trends in Retail Clinic Use Among the Commercially Insured” [↩]
- RAND Corporation, “Comparing Costs and Quality of Care at Retail Clinics with That of Other Medical Settings for 3 Common Illnesses” [↩]