Assignment #1:

Reminder: This is the senior capstone course with senior level expectations.

Review the Company Analysis requirements. Companies will be assigned on a “first-in” basis on or before:  1/25/22. Begin the research by finding/reading the last four annual reports and all current information on the company selected. 
Suggestion: start working on this analysis ASAP.
 Prepare the following sections for this assignment (note: the purpose of this assignment is to ensure successful progress is being made toward completion of the final Company Analysis and to provide an initial review by the professor of the APA requirements). 

· Cover page.

· Historical background of the company (4-5 pages).

· Discuss the distinguishing features (Market size, Market growth rate, Industry strength, etc.) of the industry that the company is in (4-5 pages).

· All papers must be typed, double spaced, 12-font, plus attachments, saved in a Word Document–loaded into Blackboard.

· Review the Sample Papers posted in the “Course Syllabus” tab of Blackboard. Also review the recommended APA sites.

· Document all sources properly (APA style is required–this is not an option), failure to do so, results in a plagiarized paper 
(using MLA for this paper results in a plagiarized paper), 
and the resulting grade is an F (zero points)–refer to the student dishonesty section of the syllabus. Make sure all sources are verified and acceptable—example: 
Wikipedia is not an acceptable source for this project (and all other similar sources are not acceptable as well). 

· Format the paper in APA: review the sample papers included as a guideline (posted in the Additional Resources section).

· APA requires source documentation at the end of each statement for every name, date, number, amount, event, etc.

· Paraphrasing also requires source documentation at the end of each statement when APA is required.

· Failure to cite sources results in a plagiarized paper; i.e. zero points.

· Review the rubric posted in Blackboard for the assignments/analysis. 

· Posting the assignment in any format other than Word results in zero points for the assignment, no resubmissions are available for the respective assignment.

· Websites that provide written assignments for students (e.g., Chegg, Course Hero, Fern Fort University, MBASKOOL, etc.) are not an acceptable source for student coursework. Use of these sites will result in an automatic ‘0’ for the assignment and may result in failure of the course.

·
Value = 50-points. Note: 5-points will be deducted for each statement missing source documentation (note this is plagiarism as well), each misspelled word, and each grammatical error; before the assignment/analysis is graded for content.

·
Submissions for partial credit (do-overs) after this assignment has been graded are not available, simply submit “Senior Level-A-Quality” work with the first submission.

While the Walgreens company established a strong presence in the pharmaceutical and retail industry during its early years, they continued to innovate and produce new products that set new standards for organizations. Walgreens always ensured their employees were taken care of, and were one of the first American companies that established a pension plan for all employees with an initial fund of $500,000 (Gale, 1970). Walgreens was also the first major pharmacy to place prescription medications inside child-resistant bottles, which was before the government required this type of safety precaution (Cain, 2019). These are only several examples of how this organization refused to just keep pace with the status quo, and instead implemented new practices that became the standard for other companies to follow.

After Charles Walgreen III took over as president in 1969, Walgreens stores hit the milestone of $1 billion in sales by 1975 (Walgreen, n.d.). When Walgreen III opened the 1,000th store in 1984 in the town of Dearborn, IL, Governor James Thompson stated, “Walgreens has been a pioneer, not just in pharmaceuticals, but in retail service as well, since 1901. It’s not just that Walgreens is an old and famous name in Chicago, and Illinois, and across the nation. In this

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life of uncertainty, people from my generation like to reach back and cling to the ‘good old days.’ Sometimes the good old days never really existed except in our imaginations. Walgreens good old days always existed, and the very comforting thing is that they’re still here” (Pajak, 2020).

While Walgreens experienced phenomenal success dating back to 1901, they began a two-step strategic partnership with Alliance Boots in 2012, which was finalized on December 31, 2014 (Polzin, 2021). This new endeavor combined Boots, the European retail pharmacy leader, with Alliance Healthcare, a leading international distributer and wholesaler, and Walgreens who at the time was paving the way as the largest drugstore chain in the United States (Letter, 2015). This merger allowed Walgreens to not only expand their footprint globally, but with two powerhouses who have already established their presence overseas. With the merger complete, Walgreens is now Walgreens Boots Alliance headquartered in Deerfield, IL, and trades common stock on the Nasdaq stock exchange under the symbol WBA (Mergent, 2021).

Since the merger, Walgreens Boots Alliance now employs more than 450,000 employees in 25 countries, with more than 21,000 stores in operation (Walgreens, 2021). Walgreens has also continued with expanding their footprint across the globe with the acquisition of Farmacias Benavides in Mexico, Farmacias Ahumada in Chile, GuoDa retail pharmacy chain in China, and entered into long-term agreements with Valeant Pharmaceuticals and Fareva (Walgreens, 2021). In 2018, Walgreens joined the Dow Jones Industrial Average as one of its 30 components, and hit a milestone of serving over 500,000,000 customers in China (Walgreens, 2021).

When the Covid pandemic hit the United States in 2020, Walgreens took strides to ensure the health and welfare of their employees and customers were at the forefront. While Walgreens took a financial hit due to this unforeseen threat, which will be discussed later in the analysis, they still managed to partner with the federal government to provide testing and vaccines

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throughout locations in America. Walgreens began administrating Covid vaccines on December 21, 2020, and by January 22, 2021 they had administered over 1 million vaccines to individuals in long-term care facilities and other vulnerable populations (Hein, 2021). Walgreens President, John Standley, stated, “This unprecedented effort has not been without challenges, but as federal, state and local jurisdictions continue to advance their prioritization and distribution plans, we have been able to rapidly expand vaccine access to our nation’s most vulnerable populations and help our communities begin to emerge from this pandemic” (Hein, 2021). At the time of this analysis, Walgreens has implemented a plan to administer Covid vaccines to healthcare workers and those 65 and older due to their partnership with the federal government (Weil, 2021).

Market Features

Walgreens is a holding company that operates through its subsidiaries and is organized into three separate divisions, which include Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale (Mergent, Details, 2021). Retail Pharmacy offers prescription pharmaceuticals and retail health and beauty offerings in 50 states, the District of Columbia, the U.S. Virgin Islands, and Puerto Rico, while Retail Pharmacy International has pharmacy-led health and beauty retail businesses abroad (Mergent, Details, 2021). The Pharmaceutical Wholesale division supplies medicine and healthcare products to pharmacies, physicians, healthcare centers, and hospitals (Forbes, 2021).

The Retail Pharmacy accounts for 75 percent of sales in their pharmacy department, while retail make up the remaining 25 percent (Walgreens WBA, 2021, p. 6). Since the majority of medications are prescribed during the flu season and winter months, revenue through their pharmacy can quickly shift throughout the year. Because of this, Walgreens is focusing on creating a neighborhood health destination and modern pharmacy aligned to a wider range of

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healthcare services in 2021 (Walgreens WBA, 2021). This move would allow a wider range of demographics to patronize their services, as well as attract more private healthcare companies that will contribute to their income. Retail Pharmacy International’s breakdown is somewhat different that their division in the United States, where 61 percent of sales is dependent upon retail, and 39 percent on pharmacies (Walgreens WBA, 2021). This is largely due to the healthcare system abroad, where many platforms for customers are online. Walgreens’ subsidiary, Boots, also accounts for much of the division’s sales, as they are one of the leaders in the optical market (Walgreens WBA, 2021).

The Pharmaceutical Wholesale division consists of Alliance Healthcare pharmaceutical wholesaling and distribution, and is not as seasonally dependent as the other two divisions (Walgreens WBA, 2021). This division supplies healthcare products and related services to over 115,000 pharmacies, doctors, and hospitals every year from 306 distribution centers located primarily in Europe (Walgreens WBA, 2021, p. 8). As with all wholesalers and distributers, providing timely and accurate delivery at competitive prices is a key element to success, and Walgreens ranks in the top three in market shares in the majority of countries they conduct operations with.

Walgreens also competes in three separate industries, which are Drug Retailers, Drugstores and Proprietary Stores, and Pharmacies and Drugstores, which include both public and private companies (Mergent, Details, 2021). There is a total of 328 combined public companies in all three industries, and 16,201 combined private companies (Mergent, Industry, 2021). While public companies such as Walgreens have stocks traded on the stock exchange and file reports with the Securities and Exchange Commission, private companies are also considered major competitors within the industries. While pharmaceuticals are closely regulated by the Food

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and Drug Administration in the United States, prices for these medicines are not. In 2020, consumers paid $358.7 billion in prescription drug costs alone within the United States, making for an extremely competitive industry (Mikulic, 2020). This paper will further analyze how Walgreens can gain the competitive edge on its industry rivals while still providing healthcare needs to consumers at a reasonable price.

Walgreens holds the vision of being the first choice for pharmacy, well-being and beauty – caring for people and communities around the world (Walgreens, 2021). Executive leadership takes this vision to heart, and recently released their Corporate Social Responsibility Report which trains and holds management accountable for increasing diversity within all departments and implementing safety, health, and workplace flexibility measures for employees (Johnson, 2021). While much time and effort contributed to detailing all aspects of their social responsibility, this is considered a weakness and one area to consider revisiting. Just Capitol polled stakeholders of publicly traded companies for their 2021 report, which covered issues that matter most in defining just business behavior (Capital, 2021). Walgreens ranked 188, over 100 rankings below their top competitor, CVS Health, in areas such as how a company delivers value to its shareholders and how companies invest in their employees and communities (Capital, 2021). Further analysis will be conducted on this area to determine the preferred course of action moving forward.

The overall growth rate of the retail pharmacy industry has been on a steady incline during the past several years, with a higher increase expected in 2021 (IBIS, 2021). IBIS World Industry Statistics show the pharmacies and drugstore market at $319.3 billion in 2020, which is a 3.3 percent increase from 2016, and this year it is predicted to rise 3.3 percent from 2020 (IBIS, 2021). During the same time period, Walgreens experienced an increase in total revenue

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worldwide of $139.5 billion, a 16 percent increase, but their net income dropped from $4.17 billion in 2016 to $456 million in 2020 as noted in Appendix A (Mergent, Income, 2021). While this is a significant drop in net income during 2020, external factors have contributed to this reduction which will be studied in the SWOT analysis. Many factors could have attributed to this, such as a reduction in foot traffic due to the Covid pandemic, more online sales and home deliveries, and massive cleaning costs associated with Covid. The drop in net income is cause for alarm, but this is a threat that Walgreens can overcome by developing a new strategy moving forward in 2021.

Walgreens has many major competitors within their industries, with the largest being CVS Health Corporation, Cardinal Health, Inc., Rite Aid, and Albertsons Companies (Mergent, Competitors, 2021). The one competitor that initially comes to mind when thinking of retail drugstores in CVS. Many Walgreens and CVS stores are sometimes within eyeshot of one another, and both have stores placed in key market locations throughout the United States. While Walgreens is now a global organization, they currently have 8,915 locations nationwide, with CVS closely behind with 8,170 locations (Mergent, Comparison, 2020). Although CVS formed a strategic partnership with Target to house 80 clinics within their stores(Mergent, Comparison, 2020), Walgreens focuses on strategic locations where their stores are within five miles of 78 percent of the Unites States population (Walgreens, 2021). In addition to Walgreens locations within the Unites States, they also operate an additional 4,534 stores overseas (Mergent, Details, 2021).

There have been many external factors that affected the pharmaceutical industry in recent history, such as a change in the political climate in the Unites States, the United Kingdom’s withdrawal from the European Union, and the global pandemic the entire world is still

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experiencing in one form or another. The political climate in the United States can greatly impact the future of the healthcare industry, as there is the possibility of appealing the Affordable Care Act. When government restrictions are modified for patients, third party payers such as Medicare Part D will also be impacted, and the end result can be reduced profits for the pharmacy industry (Walgreens WBA, 2021, p.4). Since there is not a defined end to the Covid pandemic, the length of the recovery is also uncertain. While Walgreens must still make adjustments in their strategic direction, they continue to stay true to their mission and values. Helping people across the world lead healthier and lives is the cornerstone of their purpose, with trust and transparency being at the forefront of their philosophy (Walgreens, About, 2021). With change being the only constant in the business environment now more than ever, Walgreens must entertain an in-depth analysis of their strategy for the immediate future, and also for long-term growth.

Competition

Competition within the pharmaceutical industry has been fierce since its inception, and will continue to grow as innovation and technology change with consumer demand. Walgreens Boots Alliance has several major competitors within their industry, such as Amazon, CVS Health Corporation, Cardinal Health, Albertsons Companies, Rite Aid, and Ingles Markets, which are ranked in order of revenue. Rivalries have remained intense, with Walgreens Boots Alliance purchasing 1.932 Rite Aid stores and three distribution centers, to attempted mergers between Rite Aid and Albertsons (Mergent, Acquisitions, 2020). Although many government regulations and restrictions are embedded throughout the industry, it still remains a highly lucrative global business. Several factors are critical to successfully competing within the industry, which will be explained through Porter’s Five-Forces Model of Competition.

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One of the key players in the industry, CVS Health Corporation, is the top rival of Walgreens within the United States, and provides similar products and services throughout their locations. These includes health and beauty products, prescription drugs through their pharmacy, and even a photo lab similar to Walgreens (CVS Health, 2021). CVS Health topped Walgreens with their net income and assets in 2020, with $7.179 billion and $230.7 billion respectively, compared to Walgreens with $456 million and $87.2 billion (Mergent, Competitors, 2021). With CVS Health consisting of over 300,00 employees compared to 223,000 of Walgreens, CVS Health also has more than double total liabilities with $161.3 billion (Mergent, Competitors, 2021).

Cardinal Health is another major competitor within the industry, which made over a dozen acquisitions in the past decade by using cash on hand to complete the purchases (Mergent, Competitors, 2021). Although Cardinal Health experienced a loss of operating earnings of almost $163 million in 2020, they are focused on major growth during 2021 (Mergent, Cardinal, 2021). According to their 2020 annual report, their strategic direction is to enhance their infrastructure within their pharmaceutical division, expand their self-manufacturing capacity and sourcing capabilities, and position themselves for consistent, sustained future growth through establishing a strong cash flow and working capital efficiency in fiscal year 2021.

While Albertsons is well known for their strong foothold in the grocery retail market nationwide, they also own and operate over 1,700 in-store pharmacies across the United States, serving an average of 5.5 million customers each year (Albertsons, 2021). Albertsons’ rivalry with Walgreens Boots Alliance may not be as intense as other competitors throughout the industry, but they continue to focus on providing a welcoming hometown atmosphere that

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attracts local consumers. Albertsons also has a total of 20 banners across 34 states, to include Safeway, Vons, and United Express (Albertsons, 2021).

Rite Aid continues to be a driving force within the industry, and although they sold 1,932 stores to Walgreens as previously mentioned, their current strategy is to focus on long-term growth of their organization. Their goals are to reduce their corporate expenses on an annual basis, extend 35 percent of their 2023 bond maturities to 2025, reduce debt and improve their leverage ratio, and become the dominant mid-market pharmacy benefit manager within the retail pharmacy market (Rite Aid, 2021). Although Rite Aid is exiting certain markets within the industry, they will continue to remain a rivalry of Walgreens within the pharmaceutical industry.

As with all top competitors of Walgreens Boots Alliance, Ingles Markets is also publicly traded on the stock market, with a 2020 net income of $178.6 million (Mergent, Competitors, 2021). With their footprint in retail, distribution, and the pharmacy industry, Ingles Markets is able to remain one of the top six competitors with Walgreens Boots Alliance (Mergent, Competitors, 2021). Ingles Markets has a diverse line of healthcare products with in-store brands, and pharmacists on site within the majority of their locations throughout the United States (Ingles Markets, 2021). Ingles Markets is also another force in the marketplace Walgreens cannot ignore due to the growth of beauty and pharmaceutical products available.

Other major competitors that have a heavy presence in the market are Kroger, Walmart, and Target, with each specializing in discount pricing, health and beauty products, and online and in-store pharmacies. The strongest up and coming competitor in the pharmaceutical industry would have to be Amazon Pharmacy, who’s slogan is “We bring the pharmacy to you” (Perlet, 2021). This recently launched online pharmacy allows customers to create a secure pharmacy profile, browse name brand or generic prescriptions, and have two-day deliveries with their

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Amazon Prime membership. (Perlet, 2021). Grocery stores and clothing items were also recently launched in 2020, and Amazon experienced record net sales with an increase of 38 percent increase totaling $385.1 billion in 2020 (Perlet, 2021).
Porter’s Model of Competition

When analyzing competition within the pharmaceutical industry, Porter’s Model of Competition is used to determine how competitive forces shape the strategy of an organization. The five forces used to determine an effective strategy are rivalry among competing sellers in an industry, substitute products offered by firms in other industries, potential entry of new competitors, bargaining power exercised by suppliers of inputs, and bargaining power exercised by buyers of the product (Thompson, et al., 2010, p. 61). This model will identify how strong specific competitive pressures are, and if the strategy of Walgreens will be strong enough to result in appealing profits.

Rivalry is a key factor within the retail and pharmaceutical industry, especially with the recent boom of online shopping and delivery. While consumer spending for prescription drugs in the United States was $358.7 billion in 2020, this is not a drastic increase in buyer demand (Mikulic, 2020). Since there is a slow and steady increase for the demand of prescription drugs, rivalry is greater and competitors search for new and innovative ways to strengthen their foothold in the market. Brick and mortar stores who used to rely on foot traffic entering their doors are now offering their products online, with Amazon being a prime example. Amazon took the pharmacy out of retail stores and offer them online, with many other competitors offering similar services with their own particular products.

Substitute products continue to be a threat to Walgreens, as consumers have options to meet there needs outside the retail and pharmacy industry. For individuals who strive to maintain

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a healthy lifestyle, gyms are an option instead of health products available at Walgreens. While this threat has remained low due to the pandemic restrictions, online training continued to remain an option. Walgreens continues to promote their photo centers (Walgreens, About, 2021), but people also have the option of using their own printers or digital platforms for viewing options. Generic prescription medications are also widely available within their industry, but there are other options available through a multitude of online sites that offer even cheaper discounts and deals.

The entry of new competitors remains high, as new entrants are not necessarily up and coming businesses but have already established themselves as existing competitors. Major contenders such as Kroger, Walmart, Target, and Amazon are not new to the market, but they pose a major threat since they already have the resources to expand their reach where they previously did not have a presence. While pharmaceuticals are heavily regulated by the federal government (FDA, 2021), these major organizations have the capability to make any and all necessary steps to adhere to these policies, as many have recently done.

The bargaining power of suppliers differs between the retail and pharmaceutical markets, as retail products are not as closely regulated as pharmaceuticals. In the retail industry, consumers are always searching for reliable and reasonably priced items, and Walgreens has aligned itself with these values (Walgreens, About, 2021). Instead of incurring costs associated with switching suppliers for their retail stores, Walgreens focuses on their research and development team to provide in-house brands and products. Suppliers for the pharmaceutical industry are readily available and heavily regulated, so the competition turns to generic medications. Since suppliers of generic medications do not have to undergo the stringent and expensive clinical trials as name brand drugs, their costs can be drastically reduced by up to 80

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percent (FDA, 2021). Even when focusing on generic prescription drugs, their costs remain relatively the same across the board.

The bargaining power of buyers is similar between the retail and pharmaceutical industries, since companies have a higher bargaining power associated with both industries. While consumers have little negotiating power when purchasing prescription drugs or household items, stores such as Kroger and Walgreens can negotiate with the sellers to have their product promoted throughout their locations. This allows companies to reduce costs when negotiating contracts since …