Walgreens Business Analysis 2024: Online Revenues, AOV & Care Product Market

Walgreens Business Analysis 2024: Key Insights

• Post-Pandemic Slump: Walgreens has been struggling to maintain the pandemic revenue high across its sales channels. Store closures are meant to serve as a cost reduction method.

• Walgreens' Success Strategy: The omnichannel retailer prides itself on high accessibility, with stores within a five-minute drive of nearly 80% of the U.S. population. But store closures due to shrinking profitability reduce general access and hinder Walgreens' move into primary care.

• Market Lead: Based on ECDB benchmark KPIs, particularly average order value (AOV) of eCommerce transactions, Walgreens is performing better than the rest. But recent developments call into question its leading position.

Walgreens is a U.S. pharmacy chain. 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 the highest 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.

But recent store closures suggest that Walgreens is struggling to maintain its lead. Let's find out with the help of ECDB data.

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:

• 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, with 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.

Here is how eCommerce revenues on walgreens.com developed.

• 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, with slight fluctuations. 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.

But Walgreens has had problems in maintaining its financial health, which is said to be caused by declining consumer interest and rising costs.

Brick and Mortar: Walgreens' Store Count Fluctuates

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.

But recent reports indicate that the number of Walgreens stores is declining. Analysts suggest that Walgreens is falling behind hypermarket chains like Walmart, which offer a wider variety of similar products at significantly lower prices. Amazon is another competitor that Walgreens can't quite keep up with.

In addition, Walgreens' foray into primary care is another cost with diminishing returns that is weighing on the company's performance.

At the end of 2023 Walgreens announced to close 60 of its underperforming VillageMD clinics to cut costs. Taken together, these developments put to question the longevity of Walgreens’ plan to becoming a full-fledged primary care player.

Expanding Walgreens’ range of services is only one part of a larger strategy to uphold the pharmacy chain’s viability. Let’s see what these strategies look like in more detail.

Growth Strategies

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.

While this accessibility has always played a significant role in customer choice to visit a particular store or use its online/hybrid services, it is now a point of contention in store closures that lead to so-called “pharmacy deserts”. According to CNBC, a growing number of the U.S. population, 15.8 million to be exact, do not have immediate access to a pharmacy, a problem that is being exacerbated by store closures.

Walgreens looks to distinguish itself in the market

Large U.S. pharmacy chains are going through difficult times. RiteAid recently declared bankruptcy and needs to restructure operations to stay in business and CVS is shuttering stores to maintain financial health. The widespread move into primary care among these retailers, including Walgreens, has not been as successful as was hoped.

The goal to provide a “one-stop shop” for doctor appointments, prescription medicines and other health-related purchases has proven an additional cost factor to diminishing returns.

Despite the hurdles, Walgreens is well-positioned within the market, particularly in comparison to its direct competitor CVS.

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 faces challenges related to changing consumer preferences, competition from retailers with higher assortments and lower costs, and macroeconomic problems that increase operating costs.

Widespread store closures reflect these issues, but are expected to help Walgreens achieve financial viability. Addressing the access and assortment issues is sure to reinvigorate Walgreens' positive performance in the future.

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