Tuesday, February 12, 2013

Walgreen+Alliance Boots: Questions about Global Pharmacy

Tomorrow, London investors will get an early Valentine’s Day gift—an analyst day presentation from Walgreens and Alliance Boots. (How romantic!) View the agenda or listen to the webcast.

As background, I provide a brief overview of the Boots retail pharmacy business. Then, I cheekily suggest some questions that will (or should) be asked at tomorrow’s meeting. Add your own questions in the comments below. Just keep in mind that Alliance Boots is primarily a pan-European wholesaler and only secondarily a British retailer.

If Walgreens mentions a long-expected announcement about its U.S. strategy, then I shan’t be too surprised. Shame I can’t pop by for a spot of tea after what will surely be a jolly fun meeting.


Prior to its acquisition by Walgreens, Alliance Boots’ Health & Beauty (retail) division accounted for 29% of Alliance Boots’ revenues, but 61% of its trading profit. The wholesale business accounts for almost exactly the opposite financial shares (63% of revenues; 31% of trading profits).

Boots is ubiquitous in the UK, with nearly one-quarter of the pharmacy market share. While the pharmacy business is technically global, the UK accounts for 87% of revenues and 92% of profits.

Boots has quite limited EU expansion opportunities. Many large EU countries—France, Greece, Italy and Spain—require pharmacist ownership. EU countries also restrict the number of pharmacies under common ownership or limit ownership to minority stakes beyond the first one. For example, Italy prohibits ownership of more than one pharmacy, while France limits chain size to 5 pharmacies.

Yes, the EU is a true independent pharmacy paradise!

Compared to Walgreens, Boots UK pharmacies are much less dependent on prescription revenues. Non-drug sales are 49% at Boots, vs. 25% at Walgreens. Here’s a look at the sales mix:

For years, Boots beauty products have been available in the U.S., although sales have been minimal. Boots beauty brands are currently sold in Target stores, and online on target.com, drugstore.com, beauty.com, and on the ShopBootsUSA.com direct-to-consumer website. The Boots No7 beauty products are sold in Ulta beauty stores and on ulta.com.


By 2016, Walgreens expects $1 billion in synergies, primarily from purchasing and sourcing cost savings.

I’m more curious to hear about the revenue synergies within the retail pharmacy business. Here are some questions that I hope get asked (and answered!) at tomorrow’s meeting.
  • There are very limited geographic expansion opportunities within the slow-growth U.S. and EU markets. What are the company’s plans to expand into the fast-growing BRIC (Brazil, Russia, India, or China) countries? Which retail brand—Walgreens or Boots—will be used for this expansion? How, if at all, will expansion be easier because Walgreens acquired Alliance Boots?
  • What new pharmacy services will be available that would not have been available without the merger? What pharmacy-based clinical services are available in the UK, but not the U.S.?
  • How will business mix differences between Walgreens and Boots stores affect the combined company’s ability to share best practices?
  • What are the current U.S. sales of Boots beauty products? How big is the sales opportunity in the saturated U.S. beauty market? How much will Walgreens spend to re-launch the Boots beauty brand in the U.S.? Will Boots brands be removed from existing retailers and become exclusive to Walgreens?
  • Under what circumstances would Alliance Boots purchase one of the big three U.S. drug wholesalers?
Add your own questions in the comments below.


Pembroke Consulting, Inc., is named for Oxford University’s Pembroke College, where I studied for a year in the long-lost 1980s. Bob’s your uncle!


  1. i believe walgreen purchases alliance for its whole sale and not pharmacy.

  2. I would like to hear an update on the status of warehousing brand drugs. Please update the loyal readers if this comes up.

  3. I have been working with multiple brand-name manufacturers to analyze Walgreen's proposal for direct purchasing. Therefore, I can only discuss developments that are public. If Walgreens says anything, then I'll highlight it.

  4. If we assume there is a price subsidy on brand products between the US and EU, would Alliance revenue or mix be different if they purchased their Brand pharmaceutical product at US based WAC? How will the manufacturers manage through this dynamic with a very large combined entity? Do fundamental differences in the healthcare models (EU vs US) limit the purchasing synergies between the two two companies?

  5. Is this the long expected US strategy update you're referring to?