Walgreens to Open Clinics in Stores, Expand Primary-Care Pact

Walgreens Boots Alliance Inc. plans to open as many as 700 doctors’ offices in its drugstores over the next five years and invest $1 billion in primary-care provider VillageMD over the next three, the company said on Wednesday.

The pharmacy plans to start building the clinics later this year, said co-Chief Operating Officer Alex Gourlay, who oversees its U.S. drugstores. The VillageMD partnership began last year with five Village Medical clinics in Houston. Walgreens decided to expand that based on positive feedback and initial results, Gourlay said in a phone interview.

Drugstores are under pressure to reinvent themselves as e-commerce companies like Amazon.com Inc. gobble up sales of everyday items and digital pharmacies threaten the prescription drug business.

Walgreens to Open Clinics in Stores, Expand Primary-Care Pact

Adding doctors’ offices could help bring more people into stores. It also gives the pharmacy chain a stronger foothold in health care, a space its largest competitor has plunged into. CVS Health Corp. acquired insurer Aetna for $68 billion in 2018 and plans to open 1,500 HealthHUB stores by the end of 2021.

Walgreens, based in Deerfield, Illinois, intends to open between 500 and 700 Village Medical clinics over the next five years in more than 30 markets, with more than 50% of the sites located in areas designated as medically under-served. The size will vary, though most will occupy about 25% of the store’s footprint, Gourlay said.

Connecting Walgreens’ pharmacists with Village Medical’s primary care doctors has improved patient adherence to medications at the pilot locations, VillageMD Chief Executive Officer Tim Barry said on the phone interview with Gourlay.

Profit Puzzle

Clinics will be installed in stores where pharmacy sales tend to be strong and sales of products in the front of the store, such as toothpaste and candy, lag, Gourlay said. The five pilot locations have seen rising prescription and health-product purchases while sales of convenience items fell, he said.

Retailers for years have tried figuring out how to make clinics that treat minor ailments like ear infections profitable. Walgreens last October said it would shutter its money-losing retail clinics and focus on partnerships.

“I’m a pharmacist. We’re a team of pharmacists,” Gourlay said, adding that Walgreens wants to help create new models of care with doctors rather than trying to do it alone.Walgreens will invest $1 billion in equity and convertible debt in VillageMD over the next three years, including a $250 million equity investment it made earlier this week. Assuming the debt converts, Walgreens will hold a 30% stake in VillageMD, which will use 80% of the funds on building clinics and improving digital offerings.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.