At Walgreens, slow and steady wins the tech race

Summary:The 112-year-old U.S. drug store chain is surprisingly adept when it comes to revenue-driving, customer-pleasing technology.

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Photo illustration: Andrew Nusca

CHICAGO—Most Americans are familiar with Walgreens, the century-old drug store chain that is quite literally ubiquitous, located on what appears to be every U.S. street corner. (Indeed, 76 percent of all Americans live within five miles of one of the company's locations.) 

What they may not be familiar with is Walgreens, the forward-thinking technology company behind a mobile application that can refill your drug prescription by snapping a photo of the barcode on the bottle and a shiny, new downtown Chicago office with 20,000 square feet dedicated solely to its e-commerce efforts.

This morning, Walgreens president and chief executive Gregory Wasson kicked off the final day of the annual Shop.org Summit with a keynote that revealed a surprising amount of competency for a company that eschews flash.

Despite the modesty—"We haven't really leapt at every fad," he admitted early in his speech—the $53 billion, 240,000-employee-strong company has invested wisely in digital enterprises that have clearly made a major impact on both its bottom line and its more than 50 million customers.

The right ideas

It started by defining a clear strategy. Around 2008, the company slowed its feverish expansion effort—at its peak, it had a new store opening every 16 hours—freeing up resources to fund innovative thinking.

"As a management team, we stepped back and thought about our strategy," Wasson said. "We knew our predecessors had left us the best [store network] in America. But we knew we had to innovate to stay relevant. So we decided to slow the rate of our store openings," from a growth rate of upwards of nine percent to just two percent. "It allowed us to free up capital. We were putting up $800 million to $1 billion in capex."

From there, the Walgreens management team hit the road, visiting the U.K., Japan and other markets to evaluate peers and take notes.

"We began to incorporate many of those concepts in our stores," Wasson said. "The following year, we acquired [New York City drug store chain] Duane Reade, which accelerated our journey—it gave us the leading position in the largest drug store market in the U.S., but it also brought in a management team that was really doing some neat things."

One of those things was completely rethinking the way it lays out its more than 8,000 brick-and-mortar stores, both to inject a sense of excitement in the brand and accommodate a world in which digital can equally replace or augment that environment.

"Our goal was to step out of the traditional drug store format and create something completely new and unique," Wasson said. "I think we've done that by combining leading edge design, new layouts, new content, a seamless omnichannel solution with a highly engaged employee, to deliver a differentiated experience."

Another item on Wasson's agenda was to embrace the rapidly changing U.S. healthcare market, which is increasingly pushing primary care to medical professionals who aren't physicians. For a company that is foremost a pharmacy, that creates new business opportunities, from mobile applications that remind customers when to take their medication to its extensive immunization program (at nine million served last year, it's second only to the U.S. government in scope) to its decision to staff stores with iPad-wielding "health guides" and co-locate nurse practitioners to offer services beyond the norm. 

"We believe that access to healthcare will become more important as more Americans gain coverage [under the Affordable Care Act, colloquially known as "Obamacare"]," he said. "We think the community pharmacy can help fill the void."

All of this culminates in a massive partnership with Alliance Boots, the parent company of the dominant U.K. drug store chain, to reach beyond its U.S. base.

"Together, we're trying to build the leading pharmacy-led health and well-being provider in the world," Wasson said. "We do believe that bringing together these three iconic brands will be difficult, potentially impossible, to replicate."

Enabling innovation

It wasn't easy to get such a large company thinking beyond its traditional mandate, especially as the rest of the retail industry copes with a blurring of lines between "bricks and clicks," i.e. physical stores and the online environment.

To kick the company's efforts into gear, Wasson hired Sona Chawla, vice president of global online business at computer maker Dell, to lead the company's e-commerce efforts. Then he got everyone and everything out of her way.

"Sometimes I feel like a B-52 bomber clearing a path of resistance," he joked, adding that "chief executive" is really a euphemism for "chief roadblock remover" and "chief doubt remover."

The company moved quickly.

It added capability for employees to order for customers online products that they may not have been able to find in their local store, which can then be picked up at that location without additional shipping cost.

"We're in early stages of really trying to understand that," Wasson said. "We have, we believe, 8,000 mini distribution centers."

It unified its mobile and social strategies and didn't hesitate to be the first out of the gate on small experiments.

"We were the first retailer to offer scannable mobile coupons immediately after checking into Foursquare," Wasson said. Walgreens also grew its base on various channels—it has three million Facebook followers, for example—to leverage when it needed to. "That's why we're using social networks like Facebook and Twitter to advertise our Get a Shot, Give a Shot campaign," a partnership with the United Nations.

It also launched its Balance Rewards customer loyalty program, which after a year of operation has 85 million customers in the database. "It's probably one of the most successful loyalty launches in retail," Wasson boasted. The company also jumped on Apple's Passbook application when that first launched, and was the first major retailer to launch in-app coupons that can be used at checkout. "The data we get is just helping us tailor our product selections and price and promotions both in store and online," Wasson said.

And then there's the aforementioned Refill by Scan mobile application, which has a companion in the Scan to Transfer app, which will refill a prescription originally filled at a competing pharmacy.

The list goes on: SMS-based prescription pickup reminders. Mobile maps for in-store wayfinding. The Refill Reminder program, which will deploy an e-mail or SMS to a customer that need only be replied to with "refill" to make it happen.

Together, you've got a battery of simple but useful tools to improve a person's experience with the company.

"It's good for customers, and it's obviously good for our business," Wasson said. "We want to fit their lives and their needs. We think we are best positioned to create a seamless digital and physical experience."

Insights

So what did Walgreens learn from its digital foray?

For one, that a modern retail company may have employees on its rolls that have little expertise in retail—and that's a good thing.

"The first lesson we learned is about how to organize," Wasson said. "Digital isn't something Walgreens was born with; we've had to develop a digital mentality over the years." Hiring analytics experts, mobile designers, engineers and other people who "live and breathe digital" helped change that. "They're not your typical retail store professional, so to speak."

Making sure everyone is on the same page about the overall strategy is also key. "It's hard to provide a seamless solution if you are not connected internally," Wasson said. "Innovate with a customer-crazed culture, but with a clear sense of your mission, purpose and strategy."

And don't forget to remember your roots. "There are a lot of digital innovations going on every day," Wasson said. "It's tempting to sometimes let those drive the bus. It's all about knowing who you are and who your customers are."

More from the 2013 Shop.org Summit:

Topics: E-Commerce, Mobility

About

Andrew Nusca is a former writer-editor for ZDNet and contributor to CNET. He is also the former editor of SmartPlanet, ZDNet's sister site about innovation. He writes about business, technology and design now but used to cover finance, fashion and culture. He was an intern at Money, Men's Vogue, Popular Mechanics and the New York Daily Ne... Full Bio

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