Walgreen to slow pace of store openings

CHICAGO (Reuters) - Walgreen Co (WAG.N) said on Thursday that it would slow down its rapid pace of new drugstore development and put more resources into developing growing health care businesses like intravenous drug treatment services and in-store health clinics.

The company said it was cutting its new store growth rate to 5 percent by fiscal year 2011 from the current rate of 9 percent and target of about 8 percent.

The slowdown in store openings will save $500 million over the next three years, Walgreen said.

Aggressive store openings have been a key strategy for Walgreen, one of the largest U.S. drugstore chain operators, as it competes with rival CVS Caremark Corp (CVS.N). The company has increased its store count by more than 8 percent annually since 1998, reaching peak growth of 12.2 percent in fiscal 2000, spokesman Michael Polzin said.

But in recent years, Walgreen and CVS have branched out into other areas to take advantage of rapidly rising spending on health care as the U.S. population ages.

For example, Walgreen has used acquisitions to develop a business in infusion services, providing intravenous drug treatments for cancer, pain management and a host of other uses. It also has been opening health clinics in stores and at job sites and long-term care facilities.

The cutback in store openings will let Walgreen focus more on expanding in those areas, while also providing financial flexibility for potential acquisitions, Polzin said. Those acquisitions could include stores or expansion of the company's other businesses, he added.

Polzin also said that as Walgreen grew, an expansion rate of 8 percent or more would require opening an ever-rising number of stores each year, which makes it hard to develop enough managers.

Walgreen, which currently operates 6,297 stores, said it was still on track to have more than 7,000 by 2010.

The company's shares were up $1.34, or 4.2 percent, at $33.43 in morning New York Stock Exchange trade.

(Reporting by Brad Dorfman; Editing by Gerald E. McCormick and Lisa Von Ahn)