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Walgreen Says Goodbye to Express Scripts and Its Customers

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The country's largest drugstore chain, Walgreen (NYSE: WAG  ) , is off to a troubled start this year. Walgreen's same-store sales slid 4.6% for the month of January, after the company failed to renew its contract with Express Scripts (Nasdaq: ESRX  ) , which provides clients like Walgreen a range of pharmacy services such as patient care, home delivery, and benefit management services.

Express accounted for 12.5% of Walgreen prescriptions filled during January of last year. The company's decision to drop Express was a major hit for Walgreen, whose total pharmacy sales dropped 6% during January 2012. Take a look at the annual percentages and the loss seems even greater. Express pulled in about $5 billion in business for Walgreen each year.

Now that Walgreen stores will no longer fill prescriptions for these customers, patients in the Express network are forced into the arms of Walgreen competitors. Which could mean more pharmacy sales for CVS Caremark (NYSE: CVS  ) and Rite Aid (NYSE: RAD  ) . Both have launched advertising campaigns aggressively targeting ex-Walgreen customers. CVS tells potential customers: "Have you been notified that your pharmacy may stop accepting your Express Scripts insurance? We can help." Rite Aid offers a similar promotion.

Walgreen is attempting to keep these customers in its stores by signing them up for the company's new Prescription Savings Club. Walgreen said it had a record 125,000 customers sign up for the program in the first week of 2012. Still, I think this is only the beginning of what should be a difficult year for the company as it struggles to maintain customers and cut costs. Click here to use The Motley Fool's free Watchlist to track these drugstore stocks in the year ahead.

Fool contributor Tamara Rutter does not own shares of any companies mentioned in this column. Follow her on Twitter, where she uses the handle: @TamaraRutter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (5)

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  • Report this Comment On February 03, 2012, at 4:20 PM, wipster56 wrote:

    Well, I gotta tell ya, this Walgreens / Express Scripts debacle has been a major pain in the posterior for me, a consumer. I have been doing business with a small pharmacy very close to a local hospital for over 15 years. Because of numerous accidents and surgeries I take a lot of pain medication and the folks at this pharmacy have always bent over backwards to take care of my needs, including picking up prescriptions at my Doctor's office and even delivering to my home when I was in too much pain to pick it up.

    About two years ago, the owner decided to sell for personal reasons and Walgreens purchased the business. Things were pretty much unchanged until the beginning of this year, when I had to start using a different pharmacy because they could no longer accept my insurance, Express Scripts.

    This switch has really been a struggle, not only in switching all my various scripts to the new pharmacy (a RiteAid with a drive through), but the loss of the personal relationships and friendships I had developed at my old pharmacy... it was almost like a "Cheers" for me because everybody knew my name (but they served free coffee, not beer).

    I think Walgreens has really hurt themselves here much more because of the loss of the relationship than the loss of the business. I'm sure there are a lot of other folks who are in the same situation as I and this loss, if not corrected by Walgreens, will be damaging to their goodwill as well as their bottom line. I certainly hope that picking and choosing which insurance you will accept is not the new business strategy for pharmacies.

  • Report this Comment On February 03, 2012, at 5:51 PM, hdramirez wrote:

    dear wipster56 , im sorry you are not able to use Walgreens pharmacy anymore, i work for Walgreens and was told that express scipts wanted Walgreens to take a deal that would be money losing to the company , i do not think this decision to drop express scrips was done lightly in light of the large down side to Walgreens which is in the billions of dollars. best wishs to you.

  • Report this Comment On February 03, 2012, at 11:55 PM, JBKirtley wrote:

    Yes, WAG is taking a hit in gross sales but at least it's not losing money every time it dispenses a prescription. There are early indications that CVS is laying off support staff pursuant to rapidly declining prescription margins and rapidly increasing inventory costs directly resulting from increasing volume is ESRX business. Rite Aid, one of last years 10 most likely companies to go bankrupt, may be drowning in a pool of ESRX quicksand - the more business it gets, the deeper into debt they sink. WAG is still the primary innovator and first mover in the retail drug industry. And, they may never regain the lost ESRX revenues through selling the prescription commodities, even though some ESRX clients may choose to change Pharmacy Benefits Managers when it comes time to renew thier contracts (after all, there is a WAG store within 3 miles of 80% of US households - no one else comes close). But, WAG is already positioning itself to begin rebuilding revenues in other ways. Even losing $7 Billion doesn't set the company back to its 2009 gross revenues figure. This event is just a bump in the road.

  • Report this Comment On February 06, 2012, at 2:45 PM, vaderblue wrote:

    Walgreens cannot hold up on it's store sales alone. It takes five years before new stores will show a profit with Express Scripts. Most of the stores only have a 30% Operating Margin and the turnovers are killing them. Mr. Wesson, CEO

    has laid on so many rules and regulations has choked the performance of these stores. Glad he is not a congressman. Employees make a business in retail successful not management and marketing. Marketing can get the customer in the front door but good employees get them to come back. Remember that.

    Return Sales is a very high number, some fraud and mostly people found it elsewhere at a better price. Stores cannot stand alone for profitable sales.

    For sure this company is doomed.

    I am Vaderblue and have studied this company very much in depth including conversations with

    Mark Wagner, Vice Pres.

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