Expanding Into the German
Market
A Report for the Executive Board of
Walgreens
Development Planning Consultants
Iyad Elaydi
Jonathan Emens
Philip DeGroat
Jose Esparza
Adama Coulibaly
Points of Focus
Profile of Germany
Overview of the Drugstore Industry
The Walgreens Company
Why Germany?
Why Franchise?
Business Plan
Conclusion/Recommendation
Profile of Germany
Profile of Germany - Background
Europe’s largest
economy and most
populous nation
The Cold War created
two German States
Unification occurred in
1990
Western Germany is
more technologically
advanced
Considerable efforts
have been made to
bring productivity and
wages up to Western
standards
Joined with other EU
countries to introduce a
common trading
currency, the Euro
Fifth largest economy in
the world
Profile of Germany - At a Glance
Area - 221,842 square miles (slightly
smaller than Montana)
Population - 82,424,609 (2004 est.)
Growth Rate - .02%
GDP per Capita - $27,600 (2003 est.)
Unemployment - 10.5% (2003 est.)
Inflation Rate - 1.1%
Profile of Germany - Production
Leading industries - iron, steel, coal,
cement, chemicals, machinery,
automobiles, machine tools,
electronics, textiles
Agriculture - potatoes, wheat, barley,
sugar, beets, fruit, cabbage
German Economy
Currently, the German economy is going through a period of
development. The traditional dominance of domestic banking
groups is decreasing as large foreign investment management
groups enter the German investment market
Growth rates have been slow over the past several years mainly
due to weaker exports
Recent high oil prices and a strong euro have made it difficult to
emerge from period of stagnation
The government is starting long-needed structural reforms
designed to revitalize the country's economy
Corporate restructuring and growing capital markets are setting
the foundations that could allow Germany to meet the longterm economic challenges
Profile of Germany - Major
Companies
BASF
BAYER AG
BOSCH
BLAUPUNKT
BMW
DHL
GRUNDIG
HENKEL
LUFTHANSA
SAP
SIEMENS AG
THYSSENKRUPP AG
VOLKSWAGEN
Overview of the Drugstore
Industry
Industry Profile - Drugstores in
Germany (as of 2002)
Company
No. of Stores
Change in %
Schlecker
10,150
7
Dm
617
12
Muller
353
9
Ihr Platz
885
-11.4
Rossmann
670
10
Competition
The competitive landscape
Schlecker is the biggest competitor but lacks
quality of service
The main reason people shop at Schlecker is
because they have a large number of stores
Large number of “mom & pop” owned stores
Drugstores in Germany
Germany is the world’s third biggest drug
market behind U.S. and Japan
Profit Margin - Drugstores make 18 cents
of every Euro spent on medicine
German population is aging, causing
greater demand for medicine
Laws currently prohibit importing drugs via
mail or internet
Characteristics of German
Businesses
High product quality
and high service
quality
Price is not
necessarily the
competing factor
High premium on
customer
satisfaction
Competition is based
on excellence of
product and service
Cooperation and
coordination with
government is very
strong
Litigation is not as
prevalent as in the
US
The Walgreens Company
Company History
In 1893 Charles R.
Walgreen, Sr. arrived in
Chicago, IL curiously
interested in the
drugstore industry
More than 1,500
drugstores competed for
business at that time in
Chicago
Walgreen worked for one
of these and followed
several others
Walgreen constantly
found three things missing
in Chicago drugstores:
Customer service
Convenience
Value
In 1901, the first
Walgreen’s was founded
Today, 425 stores are
opening each year with
7,000 planned by 2010
The Walgreens Company
Our Strategy
Enter new markets
“Dense up” existing
markets
Relocate
Remodel
Invest heavily in high
tech innovations
which drive service
up and costs down
Why Have We Been Successful?
Nobody Waits at Walgreens
In Your Aisle, Gets a Smile
It’s No Problem
The Phone’s for YOU!
Company’s Coming
See You Soon
Surprise!
Changes in U.S. Drugstore Industry
International expansion is attractive
because:
Over-the-counter switches (Claritin)
Higher co-pays
Canadian mail order and Internet filling
Uncertainty about Medicare reimbursement
Intense competition in the US
Walgreens’ Strengths
Store growth is strongest in industry
Listed among Fortune’s most admired
corporations for 11th straight year
1st in food and drugstores
29 consecutive years of record sales!
Paid a dividend every quarter since
1933
Why Germany?
Why Germany ?
Growing trend: In 1992
there was 370 franchisors
with 16,430 franchisees in
Germany. In 2002 there was
658 franchisors with 35,800
franchisees
Franchising might be one of
the best options to enter the
German market and compete
with Schlecker
The German drugstore
sector is undergoing a major
comprehensive structural
change that can benefit our
company
Highly advanced logistics
(transportation, distribution,
etc.)
Ease of starting new
businesses
Government programs to
help stimulate foreign
investment
Germany is the world’s third
biggest drug market behind
U.S. and Japan
Provides a base from which
to expand into the rest of
Europe
Why Franchise?
Franchising - Attractive for the
Investor
Lower Risk
Established Product
Line
Name Recognition
Management
Assistance
Start-up Assistance
Marketing Assistance
Proven System of
Operation
Group Purchasing
Power
Proven Business Plan
Financing Assistance
Operating Efficiency
Experience of
Franchisor
Franchising - Attractive for the
Parent
Faster Market
Penetration
Reduced Staff
Cost Savings
Broader Advertising
Obtain Royalties
Increase Knowledge
Cultural Familiarity
Management
Effectiveness
Benefits of franchising
Ability to enter a new market without large outlays of
resources
Homogenous goods can be offered in a large quantity
under the same brand name
Franchising is a more modern marketing system
than the traditional distribution system
Large number of distributors are using a common
name, symbol, or trademark
Franchising Trends
It is estimated that about
85% of U.S franchise
businesses in Europe,
originated in England or
Germany
This is mainly due to
cultural similarities
between those countries
but also because of
positive American culture
perception
U.S market trends have
spread throughout the world
even more so in such
countries as Germany,
England, Japan etc.
Approximately 300 of about
2000 U.S companies have
international franchises
according to the IFA
Building of brand outside the
U.S is also a reason for
franchising
It is estimated that about
80% of new business fail
whereas only 20% of new
franchised business fail
Challenges in Franchising
Operational structure isn’t always easy
to define
Restricts the ability of a firm to take full
advantage of market potential
Can result in conflict between
franchisee and franchisor
Reduced control over the quality of
service
Costs
Payment of franchise fee
On-going royalty fees
Conformity to standard operating procedures
Inability to make changes readily
Underfinanced, inexperienced, weak
franchisor
Duration of relationship
Dependent on franchisor's success
Business Plan
Product Definition
We will market a drugstore that
provides high quality products and
service in a friendly atmosphere while
offering the benefit of convenience
through extended hours, short lines,
and large product selection
Our Customers
Elderly who need medical supplies
Customers who like the convenience of
having a broad selection of food, household,
and medical products in the same place
Individuals who have busy schedules (Our
stores have extended hours, some 24/7)
Consumers who appreciate better service
Business Plan
Partner with German
manufactures to supply
products and/or
produce products under
the Walgreens name
Build distribution center
in Frankfurt to supply all
other stores
Open two stores initially
in Frankfurt and Munich
as models
Once the stores are
settled and distribution
channels are running,
expand corporate
owned stores to 20 in
largest markets
Begin offering franchise
stores to highly
qualified investors
Provide training to
managers and
employees
Schedule
3 year schedule highlights
Goal
Increase our number of corporately owned
stores and franchised locations
Open two stores
Establish distribution center
Open additional stores
Begin franchising
Marketing
Direct marketing
Direct mailing of flyers,
sales ads etc. to our
target market
Provide free first aid
supplies to schools and
other businesses to
promote name
recognition
Third-party marketing
Co-marketing
arrangements with other
companies and local
associations
Media
Newspapers
Radio
Television
Billboards
Publications
Magazines
Medical Journals
Sponsorships
Sports teams
Distribution
Distribution strategy of a centralized
warehouse providing products to all
stores
Channels of distribution
Capitalize on existing infrastructure
Build new channels where needed
Conclusions
Germany’s aging population will provide a
large customer base for drugstores
Franchising methodology has continued to
take hold in Germany
Walgreens model of drugstore, household
goods, and convenience store products under
one roof has had success in the US
Only a few competitors in this industry. One
large dominant force to contend with
Conclusions
Solid infrastructure, centralized in Europe, state
of the art transportation, and advanced logistics
are all favorable characteristics of Germany
Ease of inventory distribution throughout
Germany and the rest of Europe
While the economy has been stalled over the last
few years, new government actions could help
turn things around
German laws favor new businesses. Multiple
programs to assist owners in getting started
Recommendation
The consultants unanimously agree to
proceed with the implementation of the
previously illustrated 3-year business plan