eCommerce in the United States

Walgreens Business Analysis 2024: Key Insights

• Pandemic Accelerated Online Growth: Online revenues at walgreens.com spiked at the height of the pandemic in 2021, reaching US$2.2 billion. The figures continued more moderately in the years after, but at a higher level than before 2020. While its physical store count declined slightly during this period, the number of stores increased again after 2021.

• Walgreens' Strategy for Success: The omnichannel retailer prides itself on high accessibility, with stores within a five-minute drive of nearly 80% of the U.S. population. Its move into primary care has been widely embraced, but poses its challenges.

• Market Leadership: Based on our benchmark KPIs, particularly average order value (AOV) of eCommerce transactions, Walgreens is ahead of the competition, although recent developments call into question the longevity of its approach.

Walgreens is a drugstore chain based in the United States. Established in the early 20th century, Walgreens is now a multinational conglomerate that has existed in its current form since 2014, when competitors Walgreens and Boots became the Walgreens Boots Alliance (WBA). 

Mentioned in our insight on leading online pharmacies, walgreens.com stood out with high online revenues. The drugstore is thriving in the U.S. online care products market, relying on eCommerce to reach more consumers and provide an omnichannel experience.

Walgreens: U.S. Care Products Online Market to Reach US$130 Billion by 2028

According to our classification at ECDB, care products include healthcare, pharmaceutical, household care, beauty, and personal care products. The U.S. online market for these products is growing steadily:

It makes sense that online revenues of care products jumped during the pandemic, but the common decline after 2021 during the economic recession has bypassed the care products market. Instead, online revenues of care products grew by 5%, or US$4 billion, amounting to US$80 billion in 2022. The following year, 2023, saw higher growth already, reaching US$86.8 billion in online net sales. 

Forecasts for the coming years predict a positive development in online revenues of care products. By 2028, online net sales are anticipated to approach US$130 billion. 

This means that the future is bright for Walgreens and its competitors, as a positive market trend also benefits their growth prospects.

How Does Walgreens Make Money?

Walgreens.com and its affiliated physical stores operate as a subsidiary of the Walgreens Boots Alliance. Walgreens itself generates revenue through its domestic and international retail branches. 

The WBA additionally manages a pharmaceutical wholesale segment under the Alliance Healthcare brand, the majority of which was acquired by Cencora (formerly Amerisource Bergen) in 2021. At the same time, Walgreens Boots Alliance owns a 25% stake in Cencora. 

Walgreens’ retail divisions primarily sell care products, but also include other categories such as groceries, electronics, furniture & homeware and hobby & leisure products. Walgreens also makes money by handling private label merchandise. See the online revenue development of walgreens.com below:

Before the pandemic, walgreens.com generated online net sales of US$1.5 billion in 2019. During the global health crisis, this figure surpassed US$2 billion, reaching US$2.18 billion in online net sales by 2021. 

Thereafter, walgreens.com continued to generate around US$2 billion, dropping first to US$1.94 billion in 2022, followed by a slight decline of US$30 million in 2023 to US$1.91 billion. Forecasts for 2024 and 2025 predict slight growth again, with US$1.96 billion in 2024 and US$1.97 billion in 2025. 

The online sales decline in 2022 was common across the global market when consumers returned to physical stores after Covid. Because Walgreens has a strong physical retail presence, the 2022 drop did not affect it as much as it would have if it were an online-only player. Especially since online revenues have been at a higher level since before 2020.

Brick and Mortar: Walgreens Operated More Than 13,500 Stores Worldwide in 2023

Examining Walgreens’ physical store count cements the claim that the retailer came out strong in the years following the pandemic, as the drugstore chain managed to increase store numbers again after the fact:

From 2015 to 2017, the number of physical stores hovered around 12,800, and in 2018 the figure jumped to 14,327. In the following years up to 2021, the number of stores dropped to 12,996, but grew again in 2022 and 2023 to 13,343 and 13,532, respectively. 

Considering the sustained increase in both eCommerce net sales and physical store count, it reflects Walgreens’ resilience on the one hand and continued consumer demand for both channels on the other. Let us see what factors are driving Walgreens’ business success.

Why Is Walgreens So Successful?

As an established brick-and-mortar retailer, Walgreens has successfully managed to integrate its online platform with its network of physical retail stores, complementing both to create a working omnichannel solution. According to the WBA, around 78% of the U.S. population lives within five minutes of either a Walgreens or its sister company, Duane Reade. This accessibility plays a significant role in customer choice to visit a particular store or use its online/hybrid services, contributing to customer loyalty. 

Another key to Walgreens’ success is its customer-centric approach. Through its omnichannel positioning, the retailer offers in-store pickup of online orders, drive-through and home delivery. 

Its assorted services are available via mobile devices, an important aspect as mobile shopping is one of the major eCommerce trends this year, which has already been apparent during last year’s holiday shopping season in the U.S.

Walgreens: One-Stop Shop for Doctor Appointments and Care Products

The consumer-centric aspect is further enhanced by Walgreens’ commitment to offering a wider range of health-related services in addition to product sales. Not only does this include in-store immunization and photo development services, but the company has also moved into primary care in a bid to expand its reach from a retail pharmacy to an all-round healthcare center. 

With WBA’s 2021 acquisition of VillageMD, the primary care company with a telehealth division, some Village Medical locations are integrated into Walgreens stores. As part of the omnichannel solution, consumers can manage their doctor’s visit on walgreens.com or in person. The goal is to provide a “one-stop shop” for doctor appointments, prescription medicines and other health-related purchases.  

Walgreens’ move into primary care has been met with similar steps by its direct competitors, CVS and Rite Aid. Transforming the pharmacy/drugstore model to include more medical care can benefit both providers and customers, but it can also go wrong. If the integration of primary care services lacks proper coordination or if the quality of delivered care falls short of expectations, it could result in diminished customer trust and satisfaction, ultimately harming the reputation and success of providers. 

At the end of 2023 Walgreens announced to close 60 of its underperforming VillageMD clinics to cut costs. Recently, in February 2024, it has been announced that this primarily affects its locations in Florida. These latest developments put to question the longevity of Walgreens’ plan to becoming a full-fledged primary care player.  

Finally, Walgreens’s supply chain management is characterized by a high degree of automation, including artificial intelligence (AI) and machine learning capabilities, as well as expansion into locations near urban centers to enable next-day delivery.

Customers Spend on Average US$97 per Order at Walgreens.com

The AOV, or average order value, of eCommerce transactions indicates how much consumers spend on average on their online orders. 

A comparison of walgreens.com’s AOV to that of its main competitor, cvs.com, illustrates Walgreens’s advantage of a higher average value of US$5 per order.

Both drugstores are ahead of the AOV for global care products of US$75.6, while U.S. consumers overall spend an average of US$121 per order. This higher figure is due to the inclusion of higher-value segments like electronics or furniture, consequently elevating the AOV compared to care products, which tend to be lower-value products outside of the premium category.

Walgreens Business Model: Closing Remarks

Walgreens’ case is the epitome of a brick-and-mortar business that has integrated eCommerce successfully, uplifting both channels in the process. Omnichannel capabilities and technological processes such as supply chain automation are key to a business model that puts the customer at its center, reaching consumers where they are and speeding up processing. 

While Walgreens’ forage into primary care is being widely mirrored by its closest competitors, recent store closures reflect a lingering uncertainty about the viability of this move. Accessibility of primary care and care products through both physical proximity and online reach is important, but does not tell the whole story in terms of quality and cost-effectiveness.

Sources: Drug Store News – Fierce Healthcare: 1 2 – Walgreens Boots Alliance