How Walgreens Boots Alliance Makes Money

The company also earns significant fee revenue from its loyalty program, myWalgreens, which had enrolled more than 100 million members as of recent reporting periods. Unlike Walgreens in the United States, Boots has successfully cultivated a strong own-brand portfolio — the No7 skincare line being the most notable example — that commands premium pricing and fierce customer loyalty. The company recognized billions in goodwill impairment charges related to VillageMD in fiscal 2023 and 2024, contributing directly to the company's reported net losses. The company's ability to generate free cash flow has been severely constrained by capital expenditures related to the healthcare services buildout, debt service costs, and the restructuring charges associated with store closures and VillageMD wind-down activities. Amazon's RxPass subscription, launched in early 2023, allows Prime members to access more than 50 generic medications for a flat six-dollar monthly fee — a pricing model so aggressive it directly attacks the economics of generic prescription fills at physical pharmacies. The company reported a net loss attributable to WBA of approximately 8.6 billion dollars in fiscal 2024, driven primarily by multi-billion dollar goodwill impairment charges related to the U.S. Healthcare segment — principally VillageMD — and opioid litigation settlement accruals. This dynamic has been accelerating as PBMs consolidate — the three largest PBMs (CVS Caremark, Express Scripts, and OptumRx) now control an estimated 80 percent of prescription volume — giving them extraordinary pricing power over pharmacy networks. He observed what he liked about the drugstores of the era — their role as neighborhood gathering places — and what he found frustrating — their tendency toward dusty, cluttered merchandise, inconsistent service, and a clinical severity that made them feel unwelcoming to ordinary customers. Walgreens stores were licensed to sell medicinal whiskey — one of the few legal forms of alcohol distribution during Prohibition — and the demand for this product was, to put it diplomatically, extraordinary.

The most ambitious gamble was a roughly 5.2 billion dollar investment in VillageMD, a primary care clinic operator that Walgreens hoped to install inside thousands of its pharmacies, creating a one-stop-shop for prescription filling, preventive care, and chronic disease management. VillageMD burned through capital at a rate that the parent company could not sustain, and by 2023 and 2024 Walgreens was forced to write down billions in goodwill, shutter hundreds of clinics, and acknowledge that the healthcare services strategy had not delivered the returns necessary to justify the investment. Today, under CEO Tim Wentworth, who took the helm in late 2023, Walgreens is attempting a fundamental reset — closing hundreds of underperforming U.S. Stores, divesting non-core assets, renegotiating supplier contracts, and refocusing the company on its core pharmacy mission. The company is also navigating a potential take-private transaction, with private equity firm Sycamore Partners reportedly in advanced discussions as of early 2025 to acquire Walgreens in a deal that would represent one of the largest leveraged buyouts in retail history. The company has faced severe financial pressure from pharmacy reimbursement compression, the failed VillageMD primary care investment, and declining front-of-store retail traffic. Loyalty program data enables more targeted promotional marketing and creates a direct communication channel with customers that has modest but real monetization potential through partnerships and co-branded financial products, including the Walgreens Cash credit card issued in partnership with Synchrony Financial. Walgreens established a separate U.S. Healthcare segment in fiscal 2022 to house its investments in healthcare services companies, most prominently VillageMD (primary care clinics), Shields Health Solutions (specialty pharmacy services for health systems), and CareCentrix (home care services). By mid-2024, Walgreens had announced plans to close the majority of its VillageMD co-located clinics, writing off much of the capital invested in the strategy. When CVS acquired Aetna in 2018 for 69 billion dollars, it was not simply buying an insurance company — it was acquiring the ability to align incentives across the entire patient journey, from coverage design to prescription fulfillment to clinical care delivery. CVS Health's MinuteClinic urgent care model, with more than 1,100 locations, has also proven more financially sustainable than Walgreens' VillageMD experiment, partly because it focuses on acute episodic care rather than the more capital-intensive model of ongoing primary care practice management. Faced with these converging competitive pressures, Walgreens' competitive strategy under Tim Wentworth has shifted from offense to defense and rationalization. Selling, general, and administrative expenses have grown as a percentage of revenues, partly due to healthcare services buildout costs, further squeezing operating margins. The potential Sycamore Partners acquisition, if completed, would likely value the company at a significant premium to its recent trading price but well below the company's historical market capitalization, crystallizing the destruction of shareholder value that has accumulated since 2015. Years of aggressive acquisition spending — most notably the 4.2 billion dollar acquisition of Rite Aid stores in 2017, the multi-billion dollar investment in VillageMD, and the 6.5 billion dollar acquisition of Alliance Healthcare in 2021 — have left WBA carrying a debt load that is difficult to service given current earnings levels. Approximately 78 percent of Americans live within five miles of a Walgreens pharmacy — a statistic that reflects decades of deliberate real estate strategy. During the COVID-19 pandemic, Walgreens administered more than 60 million COVID-19 vaccine doses, establishing the company as a trusted public health partner with governments at the federal, state, and local levels. Walgreens Boots Alliance's growth strategy under CEO Tim Wentworth has deliberately narrowed from the expansive healthcare transformation agenda of his predecessors to a more focused operational stabilization program with selective growth investments. The first pillar of current strategy is portfolio rationalization — closing the 1,200 underperforming U.S. Stores announced in fiscal 2024, with a target of completing the majority of closures by fiscal 2027. The second pillar is pharmacy network optimization — renegotiating PBM network contracts to improve per-prescription economics, directing prescription volume to higher-margin specialty and adherence programs, and reducing the cost to dispense through automation investments including robotic prescription filling systems being deployed across the pharmacy network. The third pillar is international value creation — exploring strategic options for the Boots UK business, including a potential IPO or sale, that would generate proceeds to reduce debt and fund domestic reinvestment. The most immediate determinant is whether the reported acquisition discussions with Sycamore Partners result in a completed transaction and at what price. If Sycamore Partners completes an acquisition, the private equity playbook would likely involve aggressive cost reduction — potentially closing additional store locations beyond the 1,200 already announced — divesting the Boots UK business and potentially the Alliance Healthcare wholesale operations as separate assets, and focusing the remaining entity on the core U.S. Pharmacy business where scale and pharmacist relationships provide the most defensible competitive position. Private ownership would remove the quarterly earnings pressure that has constrained management's ability to make long-horizon strategic investments. By 1909, Charles Walgreen had opened four stores and hired a professional manager to oversee operations, freeing himself to focus on expansion planning and supplier relationships. The Prohibition era of the 1920s created an unexpected growth catalyst. Whether Charles Walgreen's stores played any role beyond purely medicinal dispensing was a question that contemporaries found amusing, but the financial impact was real: the company expanded from approximately 20 stores in 1920 to more than 525 stores by 1929, a growth rate that made Walgreens one of the fastest-growing retail chains in American history during the 1920s. The company's decision to follow American consumers into the suburbs as they moved away from urban centers in the 1950s and 1960s — building stores in shopping centers and strip malls rather than insisting on urban street corners — proved prescient.