The rise and fall of Walgreens: from $100B to bankruptcy

So today I'm here in front of a permanently closed down Walgreens in Massachusetts. And, uh, it's interesting because Walgreens was once like a fairy tale of American capitalism and business growth. It grew from just a tiny single pharmacy located in Chicago to just an absolute juggernaut in the world of healthcare. They grew to over 8,700 locations and they were a high flyer, total American dream kind of situation. But now things are totally changing for the chain. Uh, their stock is down 90% from recent highs. It's at the same value as it was 30 years ago. And they're closing thousands of stores, including this one. Uh, in the past few years, they've been closing a few hundred stores a year. And this year alone in 2025, they plan to close 500 more stores. So just an amazing story of what has gone right and then gone wrong with a chain like this. And this video is about what happened to Walgreens and what can we as business owners learn from, well, this, the whole story. So my name's Michael. If you're new here, uh, I make videos about things that happen in the world of business, and then I turn those into lessons that we can know and learn from as business owners and aspiring business owners, especially people that want to own businesses and not work in them. So if you like that kind of stuff, subscribe to my newsletter, give me a like and follow. It'll make me feel better about driving to Salem, Massachusetts to look at a closed up Walgreens. So Walgreens got big writing really two major trends in post-war America. The first one was the growth of a car centric culture, and you can see where I am today. I'm at the corner of a pretty busy intersection, uh, here in Massachusetts and Walgreens came in and in the case of this one, picked up real estate right at the corner, hugely accessible, really easy to get to, and they paid up for prime real estate and they did that across the United States and they did it at the perfect time because over the post-war years, we as a society in the United States decided to create a car centric development and what better kind of situation to come to than a convenient neighborhood pharmacy like this with a drive-through that was perfect for, you know, car loving America. And the second wave that Walgreens rode was the basic growth of the healthcare and pharmaceutical industry in the United States. We went from kind of having a healthy level of spend in the post-war years on medical kind of healthcare and stuff like that, to it becoming the most dominant industry in our entire country. And if you combine drugs and healthcare and home services and hospitalization, all that kind of stuff, we're spending a crap ton of money on that stuff of varying degrees of level of success. And if you're going to be spending a lot of money on drugs and healthcare and kind of all the stuff that goes with it, well, you're gonna need a place to buy a lot of those things and Walgreens, well, it made it really easy and accessible and rode that trend where we were just spending a ton more money. And the Walgreens strategy to do all this inside the stores was brilliant as well. You see, people had to go to a pharmacy to get drugs dispensed to them. And so Walgreens said, okay, well, if you're going to do that, we'll put the pharmacy in the back. And because we have a lot of these pharmacies, we'll be able to have pricing power and hopefully get better deals on buying the drugs from suppliers. And oh, by the way, when you're walking to the back of the store to try to get into a pharmacy and reach our pharmacy, you're going to walk past a bunch of other stuff that we'd love for you to buy. And a lot of it's going to be super high margin disposable stuff that you'll come back for again and again. And the story of Walgreens went really well, despite management's kind of best efforts to screw things up, including doing things like opening up a chain of food stores in the nineties called WAGS and investing in Theranos, the changes kept going, and this is just a sign of what can happen when you have just a juggernaut of a business model at the right time. And it was kind of impossible to screw up. And it's one of the things I think that entrepreneurs have to appreciate is when you find something that's magical with product market fit that works like Walgreens did over those decades, you just want to ride the hell out of that thing because it's just so rare and things went great for Walgreens for decades until, well, they didn't, it always seems to be this way. Things go super great. And then they turn just at the moment. It seems like they'll never end. And what first happened with Walgreens to screw things up was the rise of the health insurers and health insurers like Aetna, United Healthcare, Blue Cross Blue Shield, these are big corporations that started to enter the picture and they started to really disrupt what was going on with the healthcare system by putting themselves in between the healthcare providers, the suppliers, and the customers. And one of these suppliers is Walgreens. So these insurers, they act as middlemen for healthcare, but they're also part of the drug chain as well. And one of the things they wanted to do was get pharmaceutical costs under control for them, or more likely take all the profits from people buying drugs. And so enter a new class of companies that the healthcare companies brought into the picture, which these things called pharmacy benefit managers, so PBMs, and about three companies control over 80% of the pharmacy benefit manager, the PBM market. And what these guys do as PBMs is act as middlemen between Walgreens, the drug producers, and the healthcare providers, the insurers, and basically what they do is they're supposed to go in and negotiate prices with everybody involved in the whole thing and create more efficiency in the system. So in other words, they get to tell Walgreens and CBS and other folks like that, what they're going to get paid for drugs for dispensing them. They're going to tell the pharmaceutical producers what they're going to get paid for drugs in the middle, they're going to take their cut. And this is a problem for a Walgreens because a PBM will come in and say, Hey, this is what you're going to get paid for the drugs that you're dispensing or what you're going to pay for drugs that you're dispensing. And that means Walgreens, well, they can't be as profitable as they once were because somebody else is telling them what their prices are on the buying side when they buy stuff from the pharmaceutical folks and Walgreens didn't like this. So in 2012, they went to one of the big pharmacy benefit managers, a company called Express Scripts, and they told Express Scripts, Hey, we're not going to pay these prices that you're telling us to pay. We don't like it. It's hurting our profits. So we're going to call your bluff and we want to negotiate with you. And Express Scripts said, yeah, cool, man. No problem. Express Scripts said, we'll just come pull all of our business from Walgreens while you figure out whether you're going to pay us what we want or not. And it basically screwed Walgreens. They took all their business out and said, Hey, we're not going to fulfill these prescriptions for these drugs anymore. And overnight Walgreens lost between 20 and 30% of the revenue just from Express Scripts calling their bluff. And Walgreens eventually had to capitulate. They basically said, okay, well, you have all the power Express Scripts will go with whatever you say, because they knew they couldn't survive with this type of expense they have with this much real estate and buildings and costs and all this kind of stuff, if 20 to 30% of their business walked out overnight. And what this did with Walgreens was signal the beginning of the end, because suddenly they're in a position now where the crown jewel of their business, the pharmacy itself, the thing that brought you there and was making money for them, it suddenly wasn't going to be very profitable anymore, if at all. And this is where management kind of made their first huge mistake. Their major rival CVS at the time saw this coming and saw that they were going to have an opportunity to basically vertically integrate, go and buy their PBM, go and buy healthcare providers and merge in and not just be like a generic box pharmacy, like Walgreens was going to be, they were going to be a dynamic full, like full cycle, a healthcare company that would have pricing power. Whereas Walgreens, well, they decided just to stick it out as a retailer. And just across the street from this Walgreens is a CVS. And in 2018, CVS was much smarter than Walgreens. They went in and they bought first a PBM. So pharmacy benefits manager in the case of Caremark. And then on the other end, they went and merged with healthcare insurer, Aetna, and suddenly they were vertically integrated, very good kind of business able to protect itself because they have pricing power at each stage. They controlled the insurer and had part of the insurance market. And they also had part of the pharmacy market as well. And suddenly they were in a much better position to negotiate than say a dumb box like Walgreens was. But wait, things got worse for Walgreens as well, because technology entered the picture. And technology in the form of Amazon had entered the picture and they decided to get into the drug and healthcare business as well, and they went and bought a startup called PillPack. Well, PillPack specialized in delivering your drugs to you in a way that you could just click online and you didn't have to drive over to a place like Walgreens, CVS, whatever, navigate the parking lot and go get your stuff. And so Amazon was coming for their business as well. And suddenly the idea and the moat of the real estate that they had that protected their business, well, it wasn't much of a moat anymore because Amazon famously doesn't compete on real estate. They don't have physical footprint like these places. They deliver it to your house. And this is a lesson for all of us that comes up a lot in this channel, which is technology is coming for your business and you can either anticipate it and try to get in front of it or realize that it's going to affect what's going on and be prepared. And Walgreens, well, they weren't. And after Walgreens missed the window to vertically integrate like CVS did, didn't anticipate technology. They did what management typically does, which they just start trying a lot of different stuff, which often includes doing more of the same stuff that wasn't working, just trying harder. And so they did that by buying and merging with a chain of U.K. pharmacies called Boots. Well, terrific. Now you're just a bigger chain with the same problems as the chain that you had before. And fast forward three years, Walgreens is still pretty much in the same position. They've been thrashing about hiring different managers. Their last CEO, a pretty highly regarded person from Starbucks, came in and tried to change things and turn them around, put a picture of them up here. Their name was Roz. And it's just kind of the same story we see in these chains that get themselves into a terminal position like Walgreens. You see huge amounts of management turnover and seemingly things not working. So today, Walgreens is closing stores. They're down from being valued at over a hundred billion dollars just a few years ago to under 10. They're on their third or fourth iteration of trying to turn around the business. And frankly, like, I don't know if they're going to be able to do it. The decisions that have led this chain to be in the current and I think pretty bleak position. Those decisions were made years ago when opportunities were missed. And yeah, lessons learned from this one for sure. All right. So let me know what you think about Walgreens. Can they survive? Give me your opinion in the comments below. Love to hear from you. And thanks for being here. Talk to you next time.