Porter's Five Forces Analysis by Walgreens - nmra.org (2023)

Porter's framework focuses on a company's core competencies; those assets that tip the competitive balance in favor of a company and provide an advantage over the competition. At first glance, the framework merely determines whether a company or industry is “attractive” or “unattractive” based on how they score on each of the five forces. It also provides a useful tool for strategic business planners to help companies refocus and strengthen areas where a company may have exposure and potential weakness and capitalize on those areas where it has competitive strength (Investment Answers , 2010).

This document will give you a better understanding of where Walgreens stands in the drugstore industry. See Figure 1 for an illustration of Walgreens' competitive position in the drugstore industry. Drugstore retail drugs fall into many different categories. Some are independent drugstores licensed to dispense medication and sell retail goods. others are national or regional chains. Some drugstore chains use the franchise model, which allows individual owners who open their own locations to use the company's branding, distribution channels, and marketing methods for a fee.

However, most retail drug stores combine a specialty pharmacy section with a general retail store that offers over-the-counter medicines, personal care and beauty products, groceries, and miscellaneous goods ranging from games and toys to electronics and clothing (Hartman). Drugstores dispense prescription and over-the-counter drugs directly to patients. However, their roles are not just simple distribution. Drugstores dispense medicines in specific dosages and give patients valuable advice and information on how to store medicines.

They keep patients safe by providing medicines that have not expired or been damaged due to storage errors. Walgreens Co. Charles R. Walgreen Sr. of Chicago, Illinois opened the first Walgreens drugstore in 1901. Corporate headquarters are in Deerfield, Illinois. As of January 31, 2012, the company operates 8,300 stores in all 50 states, the District of Columbia, Puerto Rico and Guam. Walgreens is the country's largest drugstore chain with fiscal 2012 net sales of $71.6 billion and net income of $2. 1 billion (Walgreens Annual Report, 2012).

The company has 240,000 employees. According to the company's 2012 annual report, Walgreens was named to Fortune magazine's list of the “World's Most Admired Companies” for the 19th consecutive year and was ranked 32nd on the Fortune 500 list of largest US-based companies (Walgreen's Annual Report, 2012). Walgreens currently has two divisions, Walgreens Health Services and Walgreens Health and Wellness. Walgreens also operates several online stores such as www. Beauty. com (http://Beauty.com), drug store. de and www. VisionDirect. com (Walgreen's Annual Report, 2012).

Competitive Rivalry: High Walgreen operates in many industries through its retail pharmacy, Walgreens Health Services, and Walgreens Health and Wellness. Walgreens' retail pharmacy industry depends heavily on the sale of prescription drugs to generate additional revenue, but also offers basic consumer products and over-the-counter medicines to customers. The retail pharmacy industry has two 800-pound gorillas: Walgreens and CVS, both companies have over 7,000 pharmacy stores. Both rely on prescription drugs for about 65 percent of their sales. Not far behind the two big players is Wal-Mart.

Wal-Mart is able to offer some generic prescriptions to individuals at a very low cost. Some other competitors include independent drugstores, mail order prescription companies, and retailers such as grocery stores. Numerous players have diversified to sell other products to reduce rivalry in this sector. Walgreens competes by continually redefining and revolutionizing the drugstore experience. Walgreen is able to give consumers what they want; when they want it, where they want it, at a reasonable price without compromising the quality of the products they sell (Walgreens Annual Report, 2012).

Threat of New Entrants: High The barriers to entry within the sector are not really high, but as participants in the drug retail industry, drug retail companies in a number of countries are subject to state and federal laws and regulations that govern the purchase of prescription drugs and related services. The new entrant would also require an immense infrastructure. More than 50% of the population is within 2 miles (3.2 km) of a Walgreens store. This is Walgreens' primary strategy, which is the geographic location of its stores.

Walgreen's vision is to have a store on every corner of every major intersection. It is on the corner so it is easily accessible. That's nothing that corner shops can compete with. It wouldn't be difficult to participate via mail order/online approach; However, key players and customer relationships between retailers and suppliers are well established. In an industry where there is little differentiation between the big companies, one way to maintain or create an advantage is to temporarily develop a strategy that differentiates your product from the competition.

That's exactly what Walgreens did when they opened the Take Care Clinics. They have nurses who can prescribe medicines that are filled immediately. However, shortly after Walgreens developed this CVS, the Minute Clinics came along and offered much the same service. Since there is so much rivalry, neither company is able to come up with secret strategies. Supplier Power: Low Suppliers are under increasing pressure as brand loyalty is weakened and players have examples of backward integration.

Generics are very common because they are much more affordable. Large retailers have many suppliers nationally and internationally. Price competition from cheap imitators threatens the profits of brand manufacturers. Big players sell their own OTC products and put the providers under pressure. Walgreens receives inventory from numerous domestic/international suppliers. Losing a group shouldn't affect sales. Buyer Power: Medium The drug retail sector is experiencing increasing consolidation, increasing rivalry. There is a large number of potential buyers.

The government/state-backed schemes account for a large portion of players' total revenue. 96% of Walgreen's prescription sales are covered by third-party payers. Yet no single customer accounts for more than 10% of the company's net sales (Walgreens Annual Report, 2012) Threat of Substitutes: High According to the Merriam-Webster Dictionary, a substitute is a person or thing that takes the place or function of another ( Merriam-Webster dictionary). Threats from drugstore substitutes come from convenience stores and supermarkets.

Such retailers offer the convenience of selling the product in one place, which can appeal to the end consumers. Generic products that imitate branded products at significantly reduced prices have become more common and accessible. Counterfeit products are easily available. Summary of the Five Forces for Walgreens The drugstore industry is a billion dollar industry and it continues to grow. Although the sector offers high levels of competition and low supplier power, it continues to make Walgreens a lot of money.

Walgreens continues to be number one in the industry and that's because they continue to find ways to stay ahead of their competition. The geographic location of their stores makes it very convenient for consumers, and that keeps the smaller corner shop from opening in areas where Walgreens are located. When corner shops open, they are not served. Walgreens will continue to make acquisitions and expand the business as it sees fit. Walgreens won't stop until they are the best in the business.

References:

• Plowman, Kenneth D., et al. "Walgreens: A Case Study in Health Issues and Conflict Resolution."Journal of PR Research7.4 (1995): 231-258.
• Frederick, James. "Walgreens is preparing to open its own online pharmacy."News from the drugstore9.7 (1999): 2.