Walgreens to Escalate Online Drug War

Perhaps responding to plans by two other major drugstore chains to expand their Internet presences, Walgreen Co. (NYSE: WAG) announced Monday it will launch an online pharmacy in September.

Walgreens will challenge CVS, Rite Aid and vitamin store General Nutrition Company for online prescription sales. CVS recently bought online drugstore Soma.com for $30 million (US$). Rite Aid and GNC bought into drugstore.com last week, with Rite Aid taking a 25.3 percent stake for $7.6 million and GNC buying 8 percent of the company for $2.4 million.

Walgreens did not disclose how much it expects to spend to launch its own online store, though the company did say it can continue to fund its Internet and brick-and-mortar store expansion plan with its own cash reserves – more than $250 million – rather than seeking loans or outside investors.

Head Start

Walgreens will not be starting its online business from scratch. The company says it has spent the past 18 months building an online refill business that receives about 1,400 request per day. The online service processes refill orders but does not ship them or accept payment online – customers must pick up their prescriptions at a local Walgreens store. Walgreens, based in Deerfield, Illinois, has been in business since 1901.

Walgreens also says by launching its own site, rather than teaming up with another online provider the way Rite Aid and GNC are doing, it will create an online presence more “tightly integrated” with its retail stores. “Just as we prefer building our own new stores over acquisitions, we’re building our pharmacy Internet site organically, rather than simply acquiring or partnering with an existing one,” Walgreens President David Bernauer said.

The online store will allow patients to look up their prescription history in a secure, password-protected area. The personal profiles will include all prescriptions filled at a Walgreens store or its Internet site, plus over-the-counter medication purchases. Walgreens online pharmacy will also allow patients to submit new and refill prescriptions for either mail delivery to their homes or pickup at any Walgreens drugstore.

Physical Stores Remain Foundation

Walgreens has more than 2,700 stores in the United States and plans to increase that number to 6,000 by 2010. Despite its aggressive expansion plan, Walgreens continues to post strong earnings. In its earnings report for the quarter ended May 31, the company posted its best quarterly improvement in 10 years. Walgreens reported earnings of $159 million, or 16 cents per share, for the quarter, up 26.5 percent from $126 million, or 13 cents per share, a year ago.

Prescription sales accounted for 54 percent of sales in the quarter. Sales in that area increased 24 percent, compared to a 20 percent rise in prescription sales across the entire drug store sector, according to Walgreens.