200 Wilmot Road
In a word, Walgreen drugstores mean "convenience." Start outside. New Walgreen stores are freestanding buildings conveniently located at major intersections. The stores introduce themselves with highly visible readerboard signs, some electronic. Ample parking and easy in-and-out access are mandatory, and more than 700 stores now offer convenient drive-through prescription service--a concept pioneered by Walgreens.
Inside, new Walgreen prototype stores are 14,000 square feet. Pharmacy waiting areas, consultation windows, fragrance bars, food departments and clerk-served photofinishing departments all add to customer convenience.
Walgreen Co. is the largest drugstore chain in the United States in terms of sales, nearly half of which derives from retail prescriptions. Walgreen fills more than 8 percent of all retail prescriptions in the United States. It operates more than 2,200 Walgreens drugstores in 34 states and Puerto Rico. In addition to the flagship Walgreens, the company also manages Walgreens RxPress units, AdvanceCare institutional pharmacies, and Walgreens Home Medical Centers. As of 1996, Walgreen was the 16th-largest retailer in the United States.
Early Years of Rapid Growth
The company had its origin in 1901, when Charles R. Walgreen bought the drugstore, on the south side of Chicago, at which he had been working as a pharmacist. He bought a second store in 1909; by 1915, there were five Walgreen drugstores. He made numerous improvements and innovations in the stores, including the addition of soda fountains that also featured luncheon service. Walgreen also began to make his own line of drug products; by doing so, he was able to control the quality of these items and offer them at lower prices than competitors.
By 1916, there were nine Walgreen stores, all on Chicago's South Side, doing a business volume of $270,000 annually. That year, the stores were consolidated as Walgreen Co. with the aim of assuring economies of scale.
By 1919 there were 20 Walgreen stores, 19 of which were on Chicago's South Side while the other was on the near north side. Also in 1919, the company opened its first photofinishing studio; it promised faster service than most commercial studios.
The 1920s were a booming decade for Walgreen stores. In 1921, the company opened a store in Chicago's downtown, its first outside a residential area. Walgreen stores introduced the milkshake at their fountain counters in 1922. To meet the demand for ice cream and to assure its quality, Walgreen established its own ice cream manufacturing plants during the 1920s. The company continued to add to its number of stores, and by mid-1925, there were 65 stores with total annual sales of $1.2 million. Fifty-nine of the stores were in Chicago and its suburbs, with others in Milwaukee, Wisconsin, and St. Louis, Missouri. Before the year was out, the company had expanded into Minneapolis and St. Paul, Minnesota.
The company opened its first East Coast store, in New York's theater district, in 1927. That year, the company went public, listing its shares on the New York Stock Exchange. By the end of 1929, there were 397 Walgreen stores in 87 cities; annual sales were $47 million with net earnings of $4 million.
Great Depression Years
At first, the company suffered little from the 1929 stock market crash and the subsequent Great Depression. Sales actually rose in 1930, to $52 million. The same year, the company opened a 224,000-square-foot warehouse and laboratory on Chicago's southwest side. Early in the 1930s, the company expanded on a project begun in 1929 setting up an agency system by which independent drugstores could sell Walgreen products.
By 1934, 600 Walgreen agency stores were functioning in 33 states, mostly in Midwestern communities with populations of less than 20,000. By 1932, however, the company was feeling the Depression's pinch. Sales dipped to $47.6 million, and wage cuts were instituted; the company also set up a benefit fund to assist retirees and needy families inside and outside the company. The company continued promoting itself, however; in 1931, it had become the first drugstore chain in the United States to advertise on radio.
There were several major events for Walgreen in 1933. The company paid a dividend on its stock for the first time, its concessions at Chicago's Century of Progress exposition helped boost sales, and Charles Walgreen Jr. became a vice-president of the company. With the repeal of Prohibition late that year, Walgreen Co. acquired liquor licenses and soon was selling whisky and wine in 60 percent of its stores.
In 1934 the company opened its first Walgreen Super Store, in Tampa, Florida. At 4,000 square feet, the store was nearly double the size of the typical store, and it had a much larger fountain and more open displays of merchandise than an average store. Other Super Stores followed in Salt Lake City, Utah; Milwaukee, Wisconsin; Miami, Florida; and Rochester, New York.
Walgreen's business recovered in the mid-to-late 1930s; 1938 sales totaled $69 million. By 1939 the founder's health was failing; Charles Walgreen Sr. resigned the presidency of the company in August. His son was named to succeed him, and Justin Dart, who had been with the company in various capacities since 1929, was named general manager. Dart had been married to and divorced from Ruth Walgreen, the founder's daughter. Charles Walgreen Sr. died in December 1939 at the age of 66.
Continued Expansion in the 1940s
The company began the 1940s with the opening of a superstore in downtown Chicago. The store was the 489th in the chain and featured a two-way high-speed escalator to provide access between the two floors of the store, the first of its kind in any drugstore in the world. The store also contained a full-service restaurant-tea room. In April 1940 the Marvin Drug Co., which operated eight stores and a warehouse in Dallas, merged with Walgreen Co. At year-end, Walgreen Co. announced the establishment of a pension plan, with an initial contribution of more than $500,000 from the proceeds of Charles Walgreen Sr.'s life insurance policy.
In 1941 there was a split between Charles Walgreen Jr. and Justin Dart. Dart's unorthodox management style made others in the company uncomfortable; he was arbitrary in determining bonuses to store managers and critical of the company's conservative approach to business. Board members considered him erratic and extravagant. They called for his resignation in July 1941. In November of that year he resigned and joined United Drugs Inc., where he built a substantial career and diversified beyond the drug business.
Walgreen Co. put continued growth and expansion on hold with the United States's entry into World War II after the Pearl Harbor attack in December 1941. The company felt the war's impact in a variety of ways; certain foods became scarce, as did film and tobacco products. More than 2,500 Walgreen employees served in the armed forces; 48 did not survive. Walgreen stores sold war bonds and stamps. In 1943, the company opened a store in the Pentagon, in Washington, D.C.
After the war, expansion was once again possible. In 1946 the company acquired a 27 percent interest, later increased to 44 percent, in a major Mexican retail and restaurant company, Sanborns. More Walgreen Super Stores were opened in the late 1940s, including one on Chicago's Michigan Avenue, a street of elegant shops and restaurants. In 1948 the company expanded its corporate headquarters in Chicago. That year, sales were up to $163.6 million, and Walgreen began advertising on television.
Transition to Self-Service Begins in 1950s
The 1950s ushered in the era of self-service in drug retailing, a concept Walgreen had tried on an experimental basis at three stores in the 1940s. In 1949 the company canceled plans for a merger with Thrifty Drug Co., a California chain, largely because Thrifty's clerk-service style would hamper a conversion of the entire company to self-service. In the course of the merger negotiations, however, Charles Walgreen Jr. had researched Thrifty's competitors and had been impressed by the self-service Sav-On chain, which fueled his interest in taking his stores in that direction.
The first self-service Walgreens opened on Chicago's South Side in June 1952; the second followed in a few months at Evergreen Plaza, Chicago's first major shopping center. The self-service stores offered lower prices than traditional stores but often actually required more employees, because the stores were larger and carried more products. By the end of 1953, there were 22 self-service Walgreens. Self-service continued to grow throughout the 1950s; the company built many new self-service units and converted conventional ones. It also closed some older conventional stores because they were too small or in locations that had become undesirable. While the number of stores grew to only 451 in 1960--from 410 in 1950--sales grew from $163 million to $312 million over the course of that decade, thanks largely to the increased size and wider selection of the self-service stores.
With the opening of a self-service store in Louisville, Kentucky, at the end of 1960, self-service units outnumbered traditional ones. Another major event of 1960 was the opening of the first Walgreens in Puerto Rico.
Diversified Beyond Drugstores in 1960s and 1970s
In 1962 Walgreen Co. entered the discount department store field by paying about $3 million for the assets of United Mercantile Inc., which owned three large Globe Shopping Center stores and seven smaller Danburg department stores, all in the Houston, Texas, area. The company expanded the Globe chain throughout the South and Southwest; by 1966, there were 13 Globe stores generating annual sales of more than $120 million.
Operating Globe gave Walgreen Co. experience in running larger stores, and the company began to open ever-larger stores under the Walgreens name. The first Walgreens Super Center opened in 1964 in the Chicago suburb of Norridge. By 1969 there were 17 Super Centers around the country.
Walgreen Co. changed and diversified its restaurant operations in the 1960s. A detailed analysis early in the decade showed that the return on investment of Walgreen's fountains and grills was generally less than that of the rest of a store. Therefore, the company decided not to include fountains and grills in new stores and began closing them in others. Instead of getting out of food service altogether, however, the company went into full-scale restaurants; the first of these was the Villager Room, located within a Walgreens in Oak Park, a Chicago suburb. Also added during the 1960s were the fast-food chain Corky's and the medieval-decor Robin Hood restaurants. By the decade's end, there were 287 in-store restaurants, 14 Corky's and two Robin Hoods.
A third generation of Walgreens ascended to the company presidency in 1969. C. R. (Cork) Walgreen III was named president, succeeding Alvin Borg, who had become president when Charles Walgreen Jr. became chairman of the board during a 1963 corporate reorganization. This made Walgreen Co. one of the few companies headed by second- and third-generation descendants of the founder, though the Walgreen family no longer owned a controlling share of company stock. Also in 1963, the company elected its first outside directors to the board.
Several changes occurred in the mid-1970s. In 1974 the company opened its first Wag's restaurant; Wag's were freestanding family restaurants, many open 24 hours a day. That year it also acquired the Liggett chain of 29 Florida drugstores. In 1975 Walgreen Co. moved into a new corporate headquarters in Deerfield, a suburb of Chicago. The previous facility had become inadequate in size and outmoded. Also in 1975, the company completed the first phase of a new drug and cosmetics laboratory in Kalamazoo, Michigan; expanded its distribution center in Berkeley, Illinois; and, in Chicago, replaced its plastic container plant and photo processing studio with new ones. The company surpassed the $1 billion mark in sales in 1975.
In 1976 Charles R. Walgreen III succeeded his father as chairman of the board, and Robert L. Schmitt, who had been with the company since 1948, became president. Schmitt oversaw the liquidation of the Globe chain, which had been showing significant losses. He also was charged with forming a partnership with Schnuck's, a St. Louis grocery store operator, to establish combined supermarkets and drugstores, and with opening optical centers in Walgreen stores. Schmitt's tenure ended, however, when he died suddenly in October 1978. Fred F. Canning, a 32-year company veteran, succeeded him. In 1979 Walgreen Co. acquired 16 Stein drugstores in the Milwaukee area. It closed the 1970s with 688 drugstores, sales of $1.34 billion, and earnings of $30.2 million.
Refocused on Drugstores in 1980s
The company began the 1980s by refocusing on drugstores and eliminating certain businesses. In 1980 it ended the agency program, begun in 1929, which accounted for only 2 percent of sales. This step did not sit well with some former agency stores; a group of store operators in Wisconsin sued Walgreen Co., eventually winning a $431,000 judgment. The following year, Walgreen closed its 27 optical centers and ended the partnership with Schnuck's. The company also eliminated many in-store restaurants, concentrating on Wag's instead; in-store restaurants decreased in number from 231 in 1979 to 119 in 1984.
Expanding the drugstore business, Walgreen Co. brought the Rennehbohm chain, based in Madison, Wisconsin, in 1980. Rennehbohm had 17 drugstores, two clinic pharmacies, two health- and beauty-aid stores, a card shop, and six cafeterias. In 1981 Walgreen bought 21 Kroger SuperX drugstores in Houston. In 1982 the company added additional services to its drugstores: it made next-day photofinishing available chainwide and put grocery departments in some stores located in urban areas.
In 1983 Walgreen completed chainwide installation of its Intercom computerized pharmacy system. By the end of the decade Intercom connected each store in the chain via satellite to a mainframe computer in Des Plaines, Illinois. This system enabled customers to have their prescriptions filled at any Walgreens in the country.
Walgreen opened its 1,000th store, on the near north side of Chicago, in 1984. The company continued expanding in the drugstore area, while divesting itself of other businesses; also in 1984 it sold its interest in Sanborns, by then 46.9 percent, to Sanborns's other principals for about $30 million, a move spurred by Mexico's high inflation rate.
In 1986 Walgreen bought the 66 Medi Mart stores, located primarily in New England, in the company's largest single acquisition ever. That year, the company also bought 25 stores from the Indiana chain, Ribordy, and opened 102 new stores, making 1986 Walgreen's biggest year for expansion.
In 1988, continuing to trim non-drugstore businesses, Walgreen sold its 87 freestanding Wag's restaurants to Marriott Corporation. In 1988 the Haft family sought regulatory clearance to acquire a block of Walgreen stock--a move that company officials feared would lead to an unfriendly takeover bid, as the Hafts had tried to acquire other retailers. Walgreen responded with a move that was seen as an antitakeover device--the establishment of "golden parachutes," payments to be made to executives if they left the firm after a takeover. No bid came through, however.
In 1989 the company opened four mini-drugstores called Walgreens RxPress, which offered a full-service pharmacy and popular non-prescription items in areas where full-sized store locations are difficult to find. By the mid-1990s, these 2,000-square-foot units, some of which offered one-hour photofinishing services, also featured convenient drive-through pharmacies. There were 25 RxPress locations by 1996.
Accelerated Expansion in the 1990s
For Walgreen, the 1990s were dominated by an unprecedented rate of expansion. Walgreen ended the 1980s with 1,484 units. By mid-1997 the company had more than 2,200 units (an increase of almost 50 percent) and was aiming for the 3,000 mark by the turn of the century. Although most of this growth was accomplished organically, the 1990s began with an acquisition, the 1990 purchase of Lee Drug, a nine-unit drugstore chain in New Hampshire and Massachusetts. That same year Fred Canning retired as president. L. Daniel Jorndt, who had been senior vice president and treasurer, succeeded him.
For the pharmacy industry as a whole, the 1990s were a decade of profound change. Demographically, there were more and more people over the age of 50; as a result, more prescriptions were being filled each year, making pharmacies a hot commodity. Consequently, competition became fiercer as aggressive chains such as Wal-Mart challenged Walgreen's leading position in prescription drugs. Additionally, managed care health plans grew increasingly important as the decade progressed putting pressure on drugstores to lower prices on prescriptions, thereby squeezing margins. Walgreen responded to these challenges by investing heavily in technology and by launching new initiatives aimed directly at taking advantage of the trend toward managed care.
On the technology side, the company improved its inventory management capabilities when it rolled out point-of-sale scanning equipment chainwide in late 1991, followed by the chainwide completion in 1994 of SIMS (Strategic Inventory Management System), which united all elements of the purchasing-distribution-sales cycle. By 1997 Walgreen was rolling out a second-generation Intercom Plus system, which performed more than 200 functions and enabled customers to order prescription refills using the keys on a touchtone phone. The system also cut in half the time customers had to wait to receive their prescriptions.
In response to the managed care boom, one byproduct of which was the growth in cost-effective mail-order pharmacies, Walgreen formed a subsidiary--Healthcare Plus--in 1991 to offer managed care providers a pharmacy mail service of its own. Launched with an Orlando, Florida, mail service facility capable of handling 5,000 prescriptions a day, Healthcare Plus added a second facility in late 1994 in Tempe, Arizona, with a capacity of 7,500 prescriptions per day. Mail service sales were expected to hit $500 million by 1998. In the fall of 1995 Walgreen expanded Healthcare Plus into WHP Health Initiatives, Inc.--a pharmacy benefits manager--in order to offer additional products and services to managed care providers, including long-term care pharmacies, durable medical equipment, and home infusion services. WHP was aimed at small and medium-sized employers and HMOs in Walgreens' top 28 retail markets.
Meanwhile the expansion of the Walgreens chain continued apace, supported by the opening of two more distribution centers--in Lehigh Valley, Pennsylvania, in June 1991 and in Woodland, California, in July 1995--bringing to eight the number of such centers. The Woodland center was particularly important as it supported an aggressive expansion in California, as well as the opening of the first Walgreens in Portland, Oregon. Walgreens also expanded into several other new markets in the mid-1990s, including Dallas/Fort Worth, Detroit, Kansas City, Las Vegas, and Philadelphia. Throughout the 1990s expansion, the chain concentrated on opening freestanding stores, which were considered more convenient than mall stores. By 1996 more than half of all Walgreens were freestanding. Drive-through prescription service at more than 700 Walgreens further enhanced the chain's image of convenience. In addition to all the store openings--210 in 1996 alone--the chain also remodeled or closed some of its older units; consequently, the average age of a Walgreens stood at 7.4 years in 1996, about half what it was 10 years earlier. Walgreen posted 1996 net sales of $11.78 billion, more than double that of 1989.
In May 1997 Walgreen entered foreign territory for the first time since the failed Sanborns venture. That month the company formed a joint venture--RX Network Inc. (RXN)--with Itochu Corp. and five other Japanese companies to set up a drugstore chain in Japan. RXN aimed to create a 500-unit chain by 2002. In January 1998 Charles R. Walgreen III retired as CEO (but remained chairman), with Jorndt taking over the CEO position.
Walgreen flourished during the challenging environment of the 1990s, turning such threats as managed care into opportunities for further growth. The company was well on the way to meeting its goal of 3,000 Walgreens by the year 2000 and was well-positioned to profit from the aging of the American population. Most remarkably the company grew dramatically without the benefit of a major acquisition. As a new century approached, Walgreen seemed likely to remain America's leading pharmacist for years to come.
Principal Subsidiaries: WHP Health Initiatives, Inc.
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