Walmart Annual Report 2011 - Drug Store News

Walmart Annual Report 2011 - Drug Store News

Walmart Annual Report 2011

Higher healthcare calling motivates


Senior Walmart executives regularly invoke

the name of Sam Walton when it serves to reinforce

a point regarding the company’s business

model or the cultural principles on which

Walton is said to have founded the company.

Dr. John Agwunobi, president of health and

wellness for Walmart U.S., took the practice a

step further recently when he participated in a

panel presentation with other top executives at

a conference put on by the Center for Retailing

Excellence at the University of Arkansas’ Sam

M. Walton College of Business.

When it was Agwunobi’s turn to address

an audience comprised primarily of Walmart

suppliers, he shared a grainy video of Walton

speaking at one of the company’s Saturday

morning meetings. It was early 1992, and Walton

was seated next to then president and CEO

David Glass. He was bemoaning the healthcare

system, the markup charged for various tests

he was receiving and a general lack of price

transparency. “I wasn’t there,” Agwunobi said,

“but he used that opportunity to deliver a very

personal message that Walmart has a purpose.”

That purpose, embodied by the company’s

“save money, live better” value proposition,

has become a more powerful force, motivating

Walmart’s health-and-wellness strategies. “We

want to lower the cost of health care so more

people can have access to it,” Agwunobi said.

“Every employer in this environment is facing

amazing increases in the price of health care, and

we think we might have a way to help them.”

He believes the concept of the productivity

loop the company applies to other aspects

of its business can work just as well in health

care. By lowering prices so more people can

buy products and services, the cost can be lowered

to increase access so even more people

can buy and prices can be lowered more and

access improved further in a sort of virtuous

cycle, according to Agwunobi.

Accordingly, he said Walmart is visiting

with benefit managers and offering lower

prices on pharmaceuticals, healthcare services,

products and even grocery items, and is asking

in return that the firms it works with incent

their employees to come to Walmart and

become customers.

Agwunobi’s example demonstrates how

much more broadly Walmart is thinking about

its potential role in an evolving healthcare delivery

system, where cost promises to be the

dominant consideration for decades to come

and nutrition will play a great role. Just five

years ago, Walmart took a much narrower

view of the healthcare industry, and its focus



Walmart Annual Report 2011

Healthcare calling


was primarily on pharmacy. Now it is apparent the company

is intent on extending its reach more broadly, even if the extent

of its reach still is being defined, as was evident from a recent

request for information the company distributed.

Walmart intends to build

a national, integrated, lowcost

primary care healthcare

platform that will provide

[preventive] and chronic

care services that are currently

out of reach for millions

of Americans,” the request

for information stated.

Walmart intends to do this

in an affordable and accessible

way while maintaining or

improving quality outcomes.

Walmart seeks partners who

have a care model or ity that can help dramatically


Walmart is thinking more broadly about its role

in an evolving healthcare delivery system.

drive down the cost of care,

while maintaining or improving quality on a national level.”

Not long after the 14-page request became public, its objective

was disputed, as Agwunobi issued a statement that said, “The RFI

statement of intent is overwritten and incorrect. We are not building

a national, integrated, low-cost primary care healthcare platform.”

While the release of the request and Agwunobi’s denial

muddies the waters somewhat regarding near-term health

initiatives, it shouldn’t come as a surprise that Walmart sees

opportunity in occupying a more prominent position in the

delivery of healthcare goods and services. That philosophy

also extends to food, where Walmart has embarked on a

plan to reformulate products so they have reduced sugar,

salt and trans fats, while also increasing access to perishables

in neighborhoods known as food deserts.

“We want to make shopping for healthy groceries easier.

We will always be a house of choice and a place where customers

can come to find all of the options, but we will help

[them] understand which is which,” Agwunobi said.

Meanwhile, the company hasn’t neglected its prescription

business, which now numbers nearly 3,800 pharmacies in the

United States. As the company noted during the third quarter,

the health-and-wellness business continued to perform

well and produce a low-single digit same-store sales increase

thanks to improved in-stock on nonprescription products and

an ongoing partnership with Humana on a Medicare Part D

program. The Humana program, now in its second year with a

monthly premium of only $15.10 and low co-pays, has signed up

more than 1 million people since it was launched in 2010.

Screenings drive awareness


Sam’s Club has been on a roll the past few years, and an emphasis on

health-and-wellness categories has figured prominently into the warehouse

club operator’s improved performance.

Sam’s recently reported a 5.7% same-store sales increase for the third

quarter, which represented its seventh consecutive quarter of sequential

comps growth. Membership renewal and upgrade activity was said to

be at a 10-year high. Inflation, predominantly in food categories, provided

a solid tailwind and accounted for a little more than half of the

comps increase, while comps in the health-and-wellness area were in

the low-single digits led by pharmacy and optical.

“Pharmacy growth was led by our focused effort on driving script

increases and building awareness of the great value and superior service

provided by our pharmacists,” said Sam’s Club president and CEO

Brian Cornell. “Our investment in hearing centers continues to pay dividends

as members have responded to this unique service in our clubs.”

Members have responded by visiting clubs more often and spending

more on each visit as the pharmacy, optical department and expanded

health-and-wellness product offerings consistently are exposed to members

with major health screening events. Since August alone, Sam’s has

held major screening events for digestive health, women’s health and

eye care. At last count, Sam’s Club had conducted more than 285,000

free health screenings in clubs, and the trend is set to continue in January

2012 with a “New Year, New You!” screening initiative focused on

cholesterol, glucose, body mass index and blood pressure.

Sam’s Club’s members consistently are exposed to expanded health-and-wellness product

offerings with major health screening events (above). At last count, Sam’s Club had conducted

more than 285,000 free health screenings in clubs, and the trend is set to continue in 2012.


Walmart Annual Report 2011

Small formats promise easy access


Walmart’s first small-format Express stores have only been open about

six months, but strong initial consumer acceptance, coupled with increasingly

flexible real estate, points to the near certainty of an eventual rollout.

The stores range between 10,000 and 15,000 sq. ft., offer about 13,000

products and were developed so Walmart could tap potential growth opportunities

in rural and urban markets. Walmart expects to end its current

fiscal year in late January 2012 with 11 Walmart Express stores following

the opening of the first units in northwest Arkansas.

“We are testing a lot of things in this box,” Pam Kohn, Walmart EVP

merchandise services, told attendees recently at a Center for Retailing Excellence

conference on the campus of the University of Arkansas in Fayetteville,

Ark. “Some have pharmacies and some don’t, and some have

gas and some don’t. We are really playing with this format. But our customer

reaction initially is very, very positive, and we are excited about

what this experiment is going to show us.”

Walmart’s small-format development initiatives, including Neighborhood

Market, are under Kohn, who is in a relatively new role where she

is responsible for centralizing merchandising shared service functions of

merchandising execution, store layout, format, and space productivity

and replenishment. She joined Walmart nearly a decade ago

and early on, as SVP operations, she was responsible for Neighborhood

Market before she was elevated to a series of operations

and merchandising roles. Now it appears expansion of Walmart

Express could happen on her watch.

“We are definitely in the pilot phase,” Kohn reminded attendees

at the retail conference, before adding, “our next step will be to test

a density pilot so we get more stores in a concentrated area so we

can really understand the dynamics.” And those dynamics will be

considerably different, as Walmart’s distribution network was built

to serve really big stores where the sales velocities were such that

they could accommodate large pack sizes and full pallets of goods.

“As we experiment with Walmart Express, and grow and expand more quickly

with our Neighborhood Market, it poses a supply chain challenge that we don’t

have a ton of experience with yet,” Kohn said. “Now we have to figure out how

to do stuff a lot quicker, smaller and more frequently.”

While much of the retail industry is fixated on Walmart’s smallest prototype, of

which between 15 and 20 additional units are slated to open in 2012, the more immediate

opportunity rests with the medium-sized Neighborhood Market, where

financial returns are said to be near those achieved by supercenters. In development

for more than 13 years, Walmart in October finally allocated a larger percentage

of its $6 billion to $6.5 billion U.S. capital budget to accelerate expansion

of Neighborhood Market stores. “We’ve had five consecutive quarters of compstore

sales and traffic growth [with Neighborhood Market], and we are competing

very, very well with our grocery competition,” Kohn said.

There currently are about 160 Neighborhood Market stores, but that figure

could increase by as much as 50% next year as the plans call for between 65 and

80 of the approximately 40,000-sq.-ft. stores, according to Kohn.

Walmart Express stores,

which range in size between

10,000 and 15,000 sq. ft.,

offer about 13,000 products

and were developed so

Walmart could tap potential

growth opportunities in rural

and urban markets.


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