<<

. 13
( 39 .)



>>



TLFeBOOK
74 america™s corner s tore

the walgreen creed

In 1922, the same year Pop Coulson came up with his earth-shattering
shake, Charles Walgreen Sr. did something far less splashy”but far more
lasting”when he finally published in the chain newsletter the company
creed he had composed when he started his first store.

We believe in the goods we merchandise, in ourselves and our ability
to render satisfaction. We believe that honest goods can be sold to
honest people by honest methods.
We believe in working, not waiting; in laughing, not weeping; in
boosting, not knocking; and in the pleasure of selling products. We
believe that we can get what we go after and that we are not down
and out until we have lost faith in ourselves.
We believe in today and the work we are doing, in tomorrow and
the work we hope to do, and in the sure reward the future holds. We
believe in courtesy, in kindness, in generosity, in cheer, in friendship,
and in honest competition.43

Decades before hollow “mission statements” became a national fad, this
simple, sincere declaration laid down the fundamental values that
Walgreens would follow to the present.
“Every dot-com starts out and says, ˜What™s our corporate culture?™ Well,
you don™t have one!” exclaimed Dan Jorndt, who served as a Walgreens
pharmacist, store manager, district manager, treasurer, and CEO in his 40-
year career. Jorndt continued:

You can™t just adopt one or manufacture one. This culture here is
real, and it goes back a long, long way. It™s something solid, some-
thing tangible.
The original Walgreen was an affable, able, effective, and honest
guy”how™s that for alliteration?”the kind of guy who knew what he
wanted his company to look like, the kind of guy you can build a




TLFeBOOK
the s tar t of something special 75

company on. He had the kind of values that last. You™ve probably
seen the Walgreen Creed, something he wrote years ago. Well, we
read it at our store managers™ meetings, and we get goose bumps. It™s
that good.”44



the knight repor t

Walgreen™s approach caught on with his people, who in turn captured his
customers. From 1920 to 1925, the chain expanded from 20 to 65 stores,
all but six of them in Chicago.
Such rapid growth, coupled with Walgreens™ noticeably consistent,
principled approach to customer service, naturally started drawing atten-
tion from professional observers of such things. The University of Chicago
(U-C) found itself surrounded by Walgreens™ South Side stores by mid-
decade, so it was only a matter of time before someone there decided to
take a closer look.
In 1925, a business professor named James O. McKinsey, who later
served as chairman of Marshall Field and Company, became increasingly
curious about the well-run company and suggested that one of his pro-
t©g©s, Robert Knight, make a formal study of the chain for his master™s the-
sis. What started as a casual office-hour chat became a report that would
help shape the company far beyond World War II.
Robert Greenwell Knight was born in England and raised in Canada,
where he starred in the classroom and on the debate team”two skills
that would serve him well throughout his life”at the University of
Manitoba in Winnipeg. He migrated to Chicago to study for his master™s
degree at U-C™s Department of Commerce and Administration (now
called the Graduate School of Business), where he met Professor
McKinsey.
Once McKinsey unleashed Knight on the Walgreens assignment, the
young graduate sunk his teeth into it like it was red meat, spending most of
1925 dissecting everything from individual window displays to corporate




TLFeBOOK
76 america™s corner s tore

accounting practices; interviewing clerks, soda jerks, and executives; and
producing 127 pages of transcripts and statistics, observations and sugges-
tions”the first comprehensive analysis of the chain by an outsider, and
still one of the few ever conducted.
Knight opened his report by addressing the issue of chain stores, a hot
topic at the time because chains had only recently begun to challenge the
mom-and-pop operations that still claimed the vast majority of retail busi-
ness. (Chain restaurants and hotels”the first thing we think of today
when we consider chain operations”would not be seen for decades.) All
things considered, Knight wrote, the chain store was “the most effective
medium for supplying consumer wants at fair prices.” (The debate would
not end there, as we™ll see, but Knight™s conclusion was obviously shared by
most consumers of the day.)45
Having taken care of the chain issue for the time being, Knight then
went on to address Walgreens in particular, dividing his study between the
microeconomics of the operation of the typical Walgreens store and the
macroeconomics of operating the entire chain.
On the micro side, Knight gave Walgreens very high marks. Unlike
most chain retailers, Knight observed, which stressed the importance of
adhering to centrally determined procedures at the expense of the indi-
vidual judgment of its store employees, “The Walgreen Company believes
in the exact reverse and refuses to put into practice many of the methods of
close central control.”46
Despite the premium Walgreens placed on autonomy, however, there
were plenty of points of consistency across the chain, including excellent
customer service (“Strongly believed and rigidly enforced”) and a com-
mitment to a professional pharmacy department in each store (“whether it
pays or does not pay”a policy which is by no means universal with chain
drugstore organizations”). Knight reasoned that such measures contributed
to “the development of the drugstore from the old fashioned chemist™s em-
porium to the modern convenience goods department store.”47
Although Knight described the company™s store operations procedures
as “few and informal,” he felt the chain could get away with it because




TLFeBOOK
the s tar t of something special 77

communication between the central office and the outlets was constant.
One way Walgreens negotiated this tricky balance between its desire to
keep motivated, largely autonomous store managers while maintaining
consistent presentation across the chain was to send Harry Goldstine™s two
“traveling agents” to the stores every day to see how they were doing, to
collect their best practices, and to share those of other stores with them.
The traveling duo also served as talent scouts, just as Walgreens travel-
ing zone and district managers do today. When they visited a store facing
a particular problem, the company reps helped fix it. If the problem proved
intractable or if the employees were genuinely incompetent or “uncoach-
able,” the agents had the power to recommend closing a store or
firing a staff member, though Knight noted such drastic steps were too rare
to impinge on the spirit of friendly cooperation that existed between the
stores and the central office. The approach was visit, share, and monitor,
but avoid dictating”much like Walgreens™ approach today.
The central office reached out to the stores in other ways, too. At the
time of Knight™s report, the company produced a daily, one-page Pepper
Pod for its employees, containing all manner of marketing advice, price
notices, and managerial tips”plus an occasional motivational pep talk”
every word written or reviewed by Charles and printed on a single mimeo-
graphed sheet by Walgreen™s secretary, Florence Lynch. (Current
employees might recognize this as a forerunner to retired CEO Dan
Jorndt™s weekly “Jorndt™s Jolts,” which were so good that the company had
them collected into a volume. They have been succeeded by current CEO
Dave Bernauer™s “Dose of Dave.”)
Knight gave other aspects of the macroeconomic side of the organiza-
tion mixed reviews”strong on central marketing and purchasing, ineffi-
cient in accounting practices.
Knight confirmed what everyone already knew”that marketing was
one of the company™s greatest strengths, from the beginning”but he shed
some light on why: the remarkable dedication Walgreens had to present-
ing a good store image and promoting it.
Always a firm believer in advertising”a legacy of the patent medicine




TLFeBOOK
78 america™s corner s tore

business, the first American industry to fully exploit the tactic”Walgreen
once told an interviewer, “No business can prosper without letting the
public know of its existence and the values it offers.”48
He put the company™s money where his mouth was and consistently
spent 2 percent to 3 percent of his revenues on newspaper ads. It might not
sound like much, but that figure represented the profit margin for many
stores and, in real dollars, adds up fast: $54,887 in 1922, up to $245,788
just two years later, thanks to the increase in both the number of stores and
the revenues per store.
On November 16, 1922, Walgreens took a bold step when it bought its
first full-page ad in the Chicago Tribune to announce “Chicago™s Leading
Drug Sale” for that Thursday, Friday, and Saturday, the most popular shop-
ping days, Walgreens had learned. Among the attractions offered that a
modern reader might recognize were Listerine for 67 cents a bottle,
Pepsodent at 31 cents a tube, and Ivory soap for 7 cents a bar. Walgreens
also peddled a few items not commonly found on its shelves today, includ-
ing Enoz moth spray, Norwegian Cod Liver Oil, and Fairyfoot, which
“stops bunion pain” for just 89 cents. The campaign was such a big hit that
Walgreens did it again a month later, in another three-day stretch a week
before Christmas. Almost always, Charles™s faith in advertising paid off
handsomely.
Of course, getting people to visit your stores won™t count for much if
they don™t like what they see when they get there. While other drugstores,
chains or otherwise, were often careless with their window displays,
Walgreens had established a veritable army of 25 men whose sole job was
to create the most appealing and effective window displays possible. They
accomplished this by making posters, drawing up sketches, trying different
angles on the easels that held up their signs, and experimenting with vari-
ous looks until they hit on a winner. Then they sent the recipe on to their
stores, which were expected to improvise the centralized design but not
dismiss it.
If all this seems like overkill for a 10-by-20-foot window space, well, you
just have to see what they came up with back then, something more akin




TLFeBOOK
the s tar t of something special 79

to a jeweler™s display than a drugstore window. Before the era of advertising
bombardment on television, radio, and the Internet, people walked down-
town to do their shopping, making window displays one of the sole means
for stores to market themselves”and arguably the most important.
The purchasing department, Knight stated, was also at the cutting
edge.49 Jim Ward”who had joined the company as a boy and who, you
will recall, almost died before Walgreen brought in a specialist from
Northwestern to save him”received high marks for his running of the di-
vision that bought all but 10 percent of the merchandise sold in the stores,
most of it nationally advertised products like Coca-Cola, Kodak, and
Procter & Gamble (when such national brands were a new phenomenon)
because Ward found they sold much more briskly than smaller, lesser-
known brands.
“The company buys goods only from high-grade vendors,” Knight wrote,
“produces only quality goods in its factories, and never purchases ˜seconds™
upon any terms.” Knight was surprised to discover Ward was in the habit of
purchasing most products in small quantities, which seemed to squander
one of the advantages of being a chain. But Knight discovered that what-
ever economies of scale Walgreens would have realized by making larger
purchases would often be quickly lost”and then some”if the company
ended up stuck with outdated stock, too much capital tied up in inventory,
or overburdened warehouses, which were already feeling the growing pains
of Walgreens™ expansion. Ward™s methods reduced the need for clearance
sales, which were “regarded with disfavor,” Knight wrote. “And the word it-
self”clearance”is an admission of bad merchandising methods.”50
Ward was way ahead of his time, practicing an early version of the “just-
in-time” delivery practices Japanese companies popularized in the 1980s
and 1990s, and reaping many of the same rewards.
Knight discovered, however, that some of Walgreens™ strengths were
also the source of its weaknesses. Although Knight praised the uncommon
autonomy given Walgreens store managers, “standing on their own feet,”
as he wrote, in an attempt to “keep centralization and formal methods to
the barest minimum consistent with efficiency,” he also felt the policy, car-




TLFeBOOK
80 america™s corner s tore

ried as far as Walgreens did, led to wasteful duplication of tasks, since sys-
tems designed for small companies “are not necessarily good ones for much
larger enterprises.”51
Knight suggested, for example, that the CEO name a general manager to
take over many of the CEO™s administrative duties, giving him more time
to devote to larger concerns. Knight wrote that if that was not possible”
accurately predicting Walgreen™s refusal, on the grounds that such a move
would risk the loss of “family feeling,” as Knight described it”the company
could at least consolidate the dozen or so divisions into just three or four
umbrella departments, reducing layers of bureaucracy and saving the CEO
time by consulting only with 3 or 4 people each day, not 10 or 12.52
For example, Knight offered, merchandising, soda fountain service,
window displays, marketing, and personnel could all be placed together
under “Store Administration,” with a single executive responsible for
them all. Likewise, Knight wrote, accounting, insurance, taxation, leasing,
and the treasury could all be overseen by a single comptroller.
Reengineering the corporation, Knight believed, would create greater effi-
ciency throughout the company.53 For example, instead of the CEO hav-
ing to read the balance sheets of every store every morning (each store
kept its own accounting books, as if operating independently), Walgreen
would merely have to read a single report outlining the sales of all the
stores, with especially hot or cold ones flagged for his attention.
On the whole, however, Knight couldn™t help but commend the com-
pany he had spent a full year studying. The final proof of the wisdom of the

<<

. 13
( 39 .)



>>