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'Low-performing' Boots branches under review in cost-saving programme

Walgreens Boots Alliance: Market conditions in the UK remain weak and challenging

Boots’ parent company is to target “low-performing” pharmacies in the UK as part of its global cost-saving programme, it has announced.

Boots management has pledged "immediate action" to address financial results "much weaker than expected", its parent company Walgreens Boots Alliance said in its latest report, published yesterday (April 2).

The performance, which included a big profit downturn in the US retail pharmacy division, has led the company to start a review of its UK pharmacies, as well as increase its target for global cost savings over the next three years by 50%.

Store portfolio review underway

Speaking in more detail about the company’s plans for the UK, Walgreens Boots Alliance’s co-chief operating officer Alexander Gourlay said: “Our store portfolio review is underway, focusing on low-performing stores and opportunities for consolidation.

“In addition, we’ll look closely at our pharmacy business to further improve efficiency and effectiveness.

“We’re taking a balanced approach, with our actions focused on both boosting revenue growth and on creating a lean operating model,” Mr Gourlay added, referring to the multiple’s announcement in February that it would cut up to 350 head office roles, in a bid to reduce costs by 20%.

Chief financial officer James Kehoe said while Walgreens Boots Alliance is taking “decisive action in the UK”, market conditions remain “weak” and “challenging”.

Boots UK saw a 2.1% drop in its adjusted operating income for December to February, in comparison with the same period last year.

Sales in the company’s international division – pharmacies outside of the US – decreased 1.2%, “mainly due to a 1.3% decline in Boots UK”, Walgreens Boots Alliance added.

Pharmacy sales down

Pharmacy sales dropped 1.5% in the same period, primarily driven by “lower hospital revenues and revenue per item” in the UK, Mr Kehoe told analysts during a conference call after the results were published.

Retail sales in Boots branches also fell by 2.3%, but Mr Kehoe asserted the company had retained market share and added “we expect our store and brand investments to bear fruit as we exit 2019”.

Investments include the refitting of 24 beauty halls between now and May, with the introduction of more than 20 “on-trend” beauty brands in the next six months, according to Mr Gourlay.

The multiple is already piloting selling healthcare-related devices powered by Microsoft in a number of stores and in January, it acquired healthcare technology company Wiggly-Amps, which allows patients to order their prescriptions online by linking to their health records.

Wholesale sales rise

Meanwhile, Walgreens Boots Alliance’s wholesale division – which includes Alliance Healthcare in the UK – saw sales increase by 9.1% on a constant currency basis compared with the same period last year.

This was “mainly due to growth in emerging markets but also to a customer contract change in the UK, which contributed 2.1% of revenue growth”, said Mr Kehoe.

Overall sales for the quarter across Walgreens Boots Alliance increased 4.6%, to $34.5 billion (£26.4bn), compared with the same period last year. On a constant currency basis the increase was 6.7%.

The fall in UK income represented a slow in the decline compared to the previous quarter, which showed a 34.6% drop in its adjusted operating income in comparison with the same period the previous year.

16 Comments
Question: 
What do you make of Walgreens Boots Alliance's cost-saving programme?

Keith Jones, Locum pharmacist

More probable that the main cost to the branch is “head office “ 

Dean Hawkins, Secondary Care Nurse

It had to come- look at the absolute saturation point of Boots branches in London alone- there are branches even in the ancient backstreets of the square mile,it cannot be economic at all to staff,heat,light,rent and maintain all these stores.

Julie Friday, Accuracy checking technician

Totally agree it cannot be econominal to have that many branches. In the town where I live there are four Boots, Three of which are within 10 minutes walk of each other and the other one within 20 minutes walk of the other three.

Barry Pharmacist, Community pharmacist

This time, Spring 2019, will be the time that we will look back on what we call the "pharmacy network" to see that it was the moment that we saw the reality of what we face.

Firstly it is a "retail thing". Changing consumer demand, online competition.

Secondly it is a reflection of the new "healthcare economy pressures" which are being seen all over the world. Just google CVS share price.

And lastly it is a realisation that the costs of running a large retail unit at what used to be a prime location with rising overheads is just not sustainable as it used to be. The margins that there used to be in the NHS side of the business are not able to sustain a sandwich and cosmetics business.

So we better get used to this. It is not going away. There are huge new oppertunities out there and if you don't sense the change in the wind direction we will get blown away.

 

Martin MOLYNEUX, Community pharmacist

Well said Ben - couldn’t agree more. 

, Pharmaceutical Adviser

So... Boots won’t be addressing the gender pay gap by paying hard working professionals what they deserve ? 

Leon The Apothecary, Student

I'm not keen on an private retail company having access to my medical data.

Tony Schofield, Community pharmacist

The fall in U.K. income therefore is ON TOP of the 34% decline last year. We are all faced with this and it’s unsustainable 

Mark Boland, Pharmaceutical Adviser

It is not supposed to be sustainable. A Conservative government has decided, that in England at least, community pharmacy is not to be sustained.

This is within their ideology that the 'market' ought to decide most things because it is nearly always 'right'. They believe the market is signalling a wholesale replacement of people with robotics and software. This movement within community pharmacy has been made easy for them by those within the profession who supported the new contract in 2005 and who shouted down anybody who didnt believe the 'bright clinical future'. Those people, many now in their comfortable retirement or alternative careers, ought to be ashamed of themselves.

Paul Dishman, Pharmaceutical Adviser

I was accused by Sue Sharpe of being unnecessarily carping for my criticism of the new contract. She said we had no choice but to accept it

Chris Pharmacist, Community pharmacist

You mean you aren't happy with the progress made in 15 years? The pointless (and probably about to be scrapped ) MURs we do which practice pharmacists will soon be doing...NMS...flu vaccines and er, thats about it.

Blatantly obvious pharmacy closures are the tory aim to slash the pharmacy budget...instead of 4 pharmacies on the High Street or in local towns they want 1-2 at most with Rx's being sent out by mail order...P2U are still nominating the equivalent of a pharmacy a week (2000-3000 patients).

The only saving grace is it might take over 10 years for their aims to be achieved as some patients actually value the advice and service they receive in their local pharmacy.

Leon The Apothecary, Student

For the distribution of medicines it makes sense, from a purely logistical point of view, to automate and centralise process.

Thr complicated part is because it is medicine. If this was something mundane, like books, it'd be a no-brainer. Look at Amazon.

Paul Guest, Manager

I don't think that is correct at all. There is no appetite from patients to pay to have their medicines posted to them, meaning the cost of distribution will always exceed or be close to the reimbursement price, particularly if margins continue to be squeezed. 

The most practical and efficient method is the one we currently have: the local pharmacy dispenses the prescription and the patient either picks it up or it is delivered to them down the road. Jobs and access to pharmacist are secured. If it ain't broke, don't break it!

 

Ben Merriman, Community pharmacist

You're entirely correct; on paper, it should work. As Simon Stevens said, why spend £2.8bn on £9bn or so of medicines. The reason is that for that £2.8bn (less now), you get tonnes. In how many OTC sales does the pharmacy make a profit commensurate with the benefit to the patient (fears allayed, relief of symptoms) or NHS as a whole (triage, onward referral or not). Not many given how cheap most OTC medicines are.

Off the top of my head (very tough and from memory - feel free to correct me):

NHS111 call: £5
GP appt: £30
OOH appt: £80
A&E appt: £150

How much does the NHS pay for a mother to be told the rash on her child's body is nought but a sweat rash, not meningitis. On a Saturday afternoon, she'd be absolutely within her rights to go to A&E with her concern. Seeing a community pharmacist - £0 and 0p, assuming no OTC sale made. Clotrimazole cream - 75p profit? Paracetamol suspension - maybe £1? That's not going to pay for a pharmacy's overheads.

Each Rx dispensed at a pharmacy pays for it to be open for this sort of consultation, one that will happen countless times up and down the country. Remove dispensing, remove the free and accessible face to face advice. The government's plans are reckless, unplanned, unstructured and of the very bluntest kind.

Summary: community pharmacy is more than a data selling, dodgy advertising, misleading, faceless dispensing warehouse.

A.S. Singh, Community pharmacist

Yes you are absolutely correct. Centralisation dispensing works in the US where insurance companies and pharmacies get their cut but won't work here as the cost of logistics will outstrip the measly Single Activity fee.

 

The population of Germany is 1/4 more than the UK  but their drug budget is around £6bn which is nearly 3 times more than over here.

This shows how good a deal the NHS is getting with community pharmacy and Amazonisation won't be happening on those figures

Mark Boland, Pharmaceutical Adviser

'Amazonisation' is already happening. We are at the stage of normalisation in the minds of the public.

The government required the useful idiots within community pharmacy to work as a bridge towards an online future under the pretence of a move towards a 'bright clinical future'. Bricks and mortar pharmacies will not need to dissappear in order to bring an end to pharmacy as we knew it, they will just become few in number, a back-up to the limitations of the majority online service.

As the public move to the acceptance stage, some pharmacists still seem to be at the denial stage.

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