Exclusive: Walgreen CEO confident despite consumer angst

CHICAGO Tue Feb 9, 2010 5:36pm EST

Greg Wasson, CEO of Walgreens, poses in front of the Walgreens flagship store in New York's Times Square, November 19, 2008. REUTERS/Brendan McDermid

Greg Wasson, CEO of Walgreens, poses in front of the Walgreens flagship store in New York's Times Square, November 19, 2008.

Credit: Reuters/Brendan McDermid

CHICAGO (Reuters) - Walgreen Co, the largest U.S. drugstore chain, wants to expand its position as a provider in the larger healthcare arena, but still sees cigarettes and alcohol as goods that convenience-oriented customers expect to find in its stores.

Meanwhile, consumers remain skittish about spending and the flu season has been weaker than anticipated, pressuring sales.

Chief Executive Greg Wasson is trying to navigate the 109-year-old Walgreen through a change in what it offers at its stores, whether that means bringing back beer and wine or adding more fresh food and health services such as diabetes screenings.

Wasson, who got his start at Walgreen as a pharmacy intern back in 1980, is pleased that his company has taken on a bigger role in healthcare. Walgreen has also forged relationships with state and federal agencies as it administers millions of flu shots.

In some ways, selling items such as cigarettes and now bringing back beer and wine goes against Walgreen's healthcare expansion.

For Wasson it all comes down to what consumers want at its more than 7,160 stores and hundreds of clinics -- convenience.

"We do think that offering beer and wine adds to the convenience that our shoppers are looking for. And we're going to be very disciplined. We're not going into spirits," Wasson said in an interview on Tuesday. "We're going to be disciplined in how much space we devote to it within the store."

As far as cigarettes, "at this point in time we think it's part of the selection we have to offer. We'll continue to review it as we go forward," Wasson said.

He also said there are categories the company would look at exiting, without naming any specifically.

Walgreen has already started to pare back its offerings. A typical store used to have about 22,000 to 25,000 general merchandise goods, ranging from flashlights to cough drops. That selection has been reduced by about 17 to 18 percent, though some items that were taken out, such as eye droppers, could return, Wasson said.

ONE YEAR IN

Walgreen's monthly sales at stores open at least a year fell in December and January, disappointing investors who had anticipated increases.

Meanwhile, CVS Caremark Corp said on Monday that its same-store sales rose 4.9 percent during the last quarter of 2009, outpacing Walgreen in that period.

Still, Wasson is pleased with how his company stacks up against CVS one year after becoming its CEO.

"When I look at the October-November-December period that they just reported, and our October-November-December period, I feel good," Wasson said of his company's performance in general merchandise and the pharmacy segment.

After two months of unanticipated declines, bringing Walgreen's same-store sales back into positive territory will depend, in large part, on the economy, Wasson said.

"We are certainly feeling the effect of the economy. We are still seeing a cautious consumer" buying fewer discretionary items, he said. "I'm extremely confident in our strategy but I'm still cautious on the economy."

One strategy that could help drive sales is a loyalty card. Walgreen plans to test different loyalty strategies, all including cards at first, in three to four unnamed markets this spring, he said.

CVS has seen success with its ExtraCare loyalty card program, which has millions of members.

Shares of Walgreen rose 1 percent to close at $33.61 on Tuesday, while CVS ended the day unchanged at $32.72.

(Reporting by Jessica Wohl, additional reporting by Brad Dorfman; editing by Gerald E. McCormick and Matthew Lewis)