Walgreens Boots Alliance is a holding company with headquarters in Deerfield, Illinois with several companies managed by it in the pharmaceutical manufacturing, distribution, and wholesale industry. The company was formed in 2014 after an alliance with Alliance Boots. The company serves worldwide through its pharmaceutical products. In the US, it goes by the name of Walgreen and runs its pharmacies under this name as well. The last recorded revenue of the company was $136.9 billion and had more than 440000 employees worldwide (US SECP, 2019). The company also operates a number of subsidiaries in different nations.
Following is a detailed Porter Five Forces Model Analysis of Walgreens Boots Alliance:
Competitive Rivalry – High
The competitors of Walgreen include Rite-Aid, CVS Health, Walmart, and many others in the US and other nations it operates in. The industry is growing at a slow pace and those already in business have established themselves. The fixed costs of establishing a pharmaceutical business are high in terms of manufacturing units, distribution, and establishing pharmacies across the nation. The products that each pharmaceutical company sells are also differentiated through proprietary formulas. Customers would incur no cost if they switch to another pharmacy for their medicines. Walgreen holds the largest market share currently. Each pharmacy has established itself as a brand and works hard to maintain its market share and repute.
The Threat of New Entrants – Medium
The existing firms in the industry have developed cost and performance efficiencies. Their products are proprietary developed after extensive research. The existing market share holders have established themselves as brand and customers recognize the quality products they provide. The switching cost is low. The capital needed to establish a complete pharmaceutical business is huge. This includes establishing a production unit, developing a distribution network, and creating a chain of outlets. Marketing costs are also incurred. Experience allows existing firms to further reduce their production costs and improve performance. Licenses are also required by the FDA. However, a new entrant can simply establish a few outlets in an area and start competing against Walgreen. It can attract market share as well (FFU, 2018). This makes the threat of new entrants moderate.
Bargaining Power of Suppliers – Low
The suppliers provide Walgreen with raw material, equipment, and other services. The company provides these suppliers with an extensive business that helps them survive. The inputs needed are standardized and not unique. Suppliers have contracts. If a supplier wants to end the contract, the company can easily switch to another supplier once the contract expires. Numerous suppliers would be happy to get business from Walgreen. A new supplier is likely to face a tough time in getting contracts as established relationships play an important role in the industry. They would face a tough time gaining market share. There are numerous suppliers as well and those who are in contracts give value to their clients. This makes the bargaining power of the suppliers low.
Bargaining Power of Buyers – High
Walgreens operates in a highly competitive environment. The buyers have a number of options when it comes to purchasing their required drugs. Although the number of buyers is large, the switching cost for a buyer is low. The purchases each buyer makes are small. Also, since the drugs are prescribed by physicians, the buyers do not need any additional information (Bells, 2016). The customers cannot manufacture their own drugs as it requires extensive machinery and research to compose the formula. The formulas or chemicals used in drugs are generic. Some of the products are differentiated and offered only by some sellers. However, in any case, if Walgreens attempts to influence buyers by increasing price, the buyers can switch to another seller.
The Threat of Substitutes – High
Various pharmaceutical products can be substituted. Homeopathic and herbal medicines can replace Walgreen medicines. Also, the various generic products it sells, such as supplements and vitamins, can be substituted with a healthy diet and nutritional planning. The substitutes perform the same job with the same level of efficiency and performance. The switching costs are also low. However, for certain medications, there may be no substitutes. In many cases, buyers would also be willing to substitute if they are provided the right guidance. They can learn alternate ways and switch the substitutes. Thus, the threat of substitution does exist for Walgreens.
References
Bells, S., 2016. Porter’s Five Forces Analysis of the US Drugstore Industry. [Online] Available at: https://marketrealist.com/2016/01/porters-five-forces-analysis-us-drugstore-industry-using/2016 [Accessed 05 Dec. 2019].
FFU, 2018. Walgreens Boots Alliance, Inc. Porter Five Forces Analysis. [Online] Available at: http://fernfortuniversity.com/term-papers/porter5/analysis/3263-walgreens-boots-alliance–inc-.php [Accessed 05 Dec. 2019].
US SECP, 2019. FORM 10-K. [Online] Available at: https://sec.report/Document/0001618921-19-000069/ [Accessed 05 Dec. 2019].