Moving to America has been difficult, Scotland native Alex Gourlay admits, but coming to Walgreens was “quite easy.”
CHICAGO — Walgreens, one of the oldest and most famous names in Chicago business, is undergoing a European makeover. Some would call it a takeover.
Scotland native Alex Gourlay, 55, is in charge of the drugstore chain’s nearly 8,300 stores across the country. The president of Walgreens is part of a new management team in the suburb of Deerfield, the company’s longtime headquarters, integrating the biggest acquisition in Walgreen’s 114-year history, Switzerland-based retailer Alliance Boots.
Under Gourlay, Walgreens plans to aggressively reduce costs in its U.S. pharmacy business by closing stores and removing layers of management, pay more attention to shopping patterns using data collected from its loyalty card and sell more beauty products. The changes are designed with one goal in mind, he says.
First job: At 16, he was a part-time clerk at Boots, the equivalent of Walgreens in the United Kingdom. “I used to do the stockroom, mop floors, clean up after the drunks.”
Background: A pharmacist by training, he was previously chief executive of the health & beauty division at Alliance Boots.
Compensation: Salary of $940,350; bonus of $1.1 million and other benefits of $555,000 for fiscal 2014; pension contribution equal to 40 percent of salary
Chicago Tribune, Walgreens
“Our desire is to be America’s most loved pharmacy,” Gourlay said in a thick Scottish accent.
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It’s a telling comment that reflects a hard reality. Walgreens is no longer No. 1 in pharmacy volume and hasn’t been since 2011.
Recapturing the former glory will be no easy task, company observers say. Walgreens faces tough competition in both its pharmacy and retail operations in the front of stores. But it has a lot of strengths, including a trusted brand, thousands of convenient locations and international scale.
Gourlay hails from Glasgow, an industrial city which, according to one travel guide, is the world’s friendliest. Indeed Gourlay seems like the kind of man you would enjoying sharing a beer with at the pub.
He tells the bittersweet story of his wife shopping for the family’s first Thanksgiving in America shortly after he moved here in 2013. She bought the turkey but wasn’t familiar with all the side dishes that accompany the big meal.
“My wife went shopping and came back completely empty-handed,” he said chuckling at the memory. “She didn’t know what else to buy.”
Moving to America has been difficult, Gourlay admits, but coming to Walgreens was “quite easy.”
Gourlay is a pharmacist by training, just like former Chief Executive Officer Greg Wasson.
Walgreens’ story in recent years has been disappointing for investors, or as Gourlay likes to say in his polite way, “Walgreens had lost a bit of its spark, a bit of its self-confidence.”
Previous senior management led by Wasson made a series of costly mistakes. For example, the company in 2012 picked a fight over reimbursement rates with pharmacy-benefits manager Express Scripts that caused a big decline in prescription volume. Then last year, Walgreens surprised investors with a warning that rising drug prices would hurt its results much worse than it had anticipated.
Wasson engineered the deal with Alliance Boots, which became controversial last year when some activist investors and others pushed Walgreens to move its headquarters to Europe to cut its tax bill.
Wasson ended up rejecting the tax maneuver but he’s not around to lead the combined company, Walgreens Boots Alliance. The company announced his departure just before the merger closed at the end of December. Stefano Pessina, the former head of Alliance Boots, is acting CEO and also the company’s largest shareholder.
In addition to Pessina, six other former Alliance Boots executives, including Gourlay, are on the 11-member senior management. The leadership suggests an Alliance Boots takeover of Walgreens, not the other way around, said Michael Pryce-Jones, director of corporate governance at CtW Investment Group, which represents union pension funds that own about 2.5 million shares of Walgreens. CtW opposed the merger.
“It’s hard to remember an acquisition where so many members of the management team turned over to the acquired company,” said Pryce-Jones. “It begs the questions of why Walgreens paid a premium for Alliance Boots. That’s a very expensive way to replace your management team.”
Wall Street, however, appears to be giving Pessina and his team the benefit of the doubt. At the time of writing, Walgreens’ stock price had increased 13.5 percent so far in 2015, well before the S&P 500’s return of 3.1 percent.
But Gourlay has his work cut out for him and he’s honest about it.
“In Europe people are a bit more conservative, a bit more I would say pointing at the problems,” he said. “In Walgreens culture and American culture there’s a lot more talking up things and not always recognizing the reality of the situation.”
The reality of the situation at Walgreens, Gourlay said, is that the company has a bloated cost structure compared to CVS and other peers.
Gourlay is looking at the pharmacy and front-end business as complementary rather than separate. That has resulted in a streamlined structure with one district manager overseeing both because the customers are the same. District managers also focus on fewer stores, from 40 to 15, Gourlay said.
He also repeatedly mentioned that Walgreens operates with supply-chain computer systems that are 25 years old.
“We’ve been investing in old technology,” Gourlay said. “It costs too much money, doesn’t work as well and is not as agile and fast.”
The pharmacy counter isn’t the only part of the store Gourlay seeks to improve. But first he’s taken a crash course on the American consumer.
“Convenience is quite different in America,” he said. “People are used to things being really quick. For example, drive-thrus in America is such a behavioral thing but in the U.K. there’s very few drive-thrus.”
Despite Walgreens’ focus on health, the company has no plans to stop selling cigarettes as CVS decided to do last year, Gourlay said. He sounds like a tobacco executive in explaining the rationale: “I believe customers should be in charge of their own health. I don’t think there’s anyone in the USA that doesn’t know smoking is not good for them.”
Gourlay also is targeting what he calls “Look good, feel good” consumers, who he said make up 20 percent of Walgreens shoppers. These shoppers come to Walgreens to fill prescriptions and buy medicine and also are interested in beauty products. But he said Walgreens isn’t “inspiring them to buy beauty.”
During his long tenure at Boots, the chain made a name for itself in beauty. But the same approach may not work in the U.S., analysts caution.