A Strategic Lesson in a Tale of Two Drugstores

November 29th, 2011
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Have you noticed the very different strategic paths taken here of late by Walgreens and CVS, the national drugstore chains? What’s happened so far is a lesson in strategy and the importance of considering unintended consequences and long-term implications. For me, this drugstore case study evokes the old adage, “Be careful what you wish for.”
A recent article in Forbes magazine compares the stock performance of CVS and Walgreens, in an attempt to measure how each chain’s strategic decision around its pharmacy benefit managers (PBMs) program affected both how well each could negotiate terms and prices with insurers as well as its overall pharmacy sales. PBMs are designed to help a drugstore chain win a price advantage over competing chains.

While CVS kept its PBM, Walgreens sold its PBM in March, which meant Walgreens negotiated contracts on its own, or had to rely on other company’s PBMs. The author of the Forbes article questions Walgreens’ strategy, citing declining pharmacy sales and earnings as well as its decreased stock price. CVS, meanwhile, enjoyed increasing sales and earnings, reflected in a stock price increase.
Short-term fluctuations in stock price don’t always correlate with strategic decisions (or sales volume). But the case couldn’t be more black and white here; two similar companies, both faced with similar decisions. One chose one path, and one chose the other.
Which chain made the right decision? It’s too soon to say. Our team at Popper and Company has extensive multidisciplinary experience, but we don’t have a crystal ball. We do spend a lot of time with our life science clients, drawing on the right sets of experience and capabilities to help formulate recommendations about our clients’ strategic alternatives. We pride ourselves in taking the time to think through what all the consequences might be – particularly the unintended type – and to create various scenarios that ultimately lead to our recommended strategy.
Share your thoughts with us. How has your business been helped or harmed by unforeseen consequences of a business decision? Is the PBM story over on CVS and Walgreens? Can your organization create its best of times, even in the worst of times? We look forward to hearing from you.

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About the Author:

I co-founded Popper and Company more than ten years ago to help life science companies at all stages of development and of all sizes address inefficiencies in health care. Along with my team members, I focus on helping clients develop and implement strategies that enable the application of technology and processes to improve health care in novel ways, often through the establishment of relationships with industry partners. Click to send me an email.