Flu & Loyalty

Walgreen rewards program, private-label benefiting from harsher flu season

DEERFIELD, Ill. -- Walgreen Co.'s top executives this week will outline what's ahead for the nation's largest drugstore chain in 2013, with some analysts saying a busy flu season and firmer prescription orders could help the company outperform its rivals, reported The Wall Street Journal.

Throughout last year, Walgreen reported weak same-store sales as a since-resolved contract dispute with pharmacy-benefits manager Express Scripts Holding Co. sent customers to rival drugstores. Shares of Walgreen, though, rose 15% over the final six weeks of the year as the company appeared to be winning back lost customers and benefiting from a nasty flu season.

Investors on Wednesday will listen for clues regarding whether that momentum will continue, when the company hosts its annual shareholders' meeting in Chicago. Specifically, investors want to know whether Walgreen can strengthen its core business with its new loyalty-card program and by selling more private-label offerings.

"I think the key things they'll focus on are rebuilding the U.S. business and taking share [after] their agreement with Express Scripts," ISI Group analyst Ross Muken told the newspaper about themes for the coming meeting.

Muken said that since the Express Scripts settlement, Walgreen had won back the retailer's most loyal customers, most likely recapturing 40% to 45% of lost Express Scripts clients. He said it would be more challenging for the company to win more customers going forward, though the loyalty card and other targeted promotions could be helpful.

Walgreen signed up 45 million customers to the company's first-ever loyalty card just three months after introducing the program in a bid to improve sales and offer personalized products. It remains to be seen if the cards will inspire repeat store visits and higher purchase orders over the long term.

Observers have worried it could be costly for Walgreen to reverse its foot-traffic losses, but some people are encouraged by improving prescription trends. Prescriptions filled at Walgreen's comparable stores dropped 2.3% in December, continuing a trend of easing volume declines.

The additional traffic could give the retailer an opportunity to sell more private-label offerings, which increase margins and help foster store loyalty.

Meanwhile, drugstores are experiencing more traffic because of the flu season, and that impact is potentially greater for Walgreen because it provides more flu vaccines in the United States than any other retailer. So far this season, Walgreen has administered nearly 5.5 million flu shots, up from 5.3 million last year.

As the nation's largest drugstore chain with fiscal 2012 sales of $72 billion, Deerfield, Ill.-based Walgreens operates 8,057 drugstores in all 50 states, the District of Columbia and Puerto Rico.