Walgreen Says Goodbye to Express Scripts and Its Customers

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The country's largest drugstore chain, Walgreen (NYS: WAG) , is off to a troubled start this year. Walgreen's same-store sales slid 4.6% for the month of January, after the company failed to renew its contract with Express Scripts (NAS: ESRX) , which provides clients like Walgreen a range of pharmacy services such as patient care, home delivery, and benefit management services.

Express accounted for 12.5% of Walgreen prescriptions filled during January of last year. The company's decision to drop Express was a major hit for Walgreen, whose total pharmacy sales dropped 6% during January 2012. Take a look at the annual percentages and the loss seems even greater. Express pulled in about $5 billion in business for Walgreen each year.

Now that Walgreen stores will no longer fill prescriptions for these customers, patients in the Express network are forced into the arms of Walgreen competitors. Which could mean more pharmacy sales for CVS Caremark (NYS: CVS) and Rite Aid (NYS: RAD) . Both have launched advertising campaigns aggressively targeting ex-Walgreen customers. CVS tells potential customers: "Have you been notified that your pharmacy may stop accepting your Express Scripts insurance? We can help." Rite Aid offers a similar promotion.

Walgreen is attempting to keep these customers in its stores by signing them up for the company's new Prescription Savings Club. Walgreen said it had a record 125,000 customers sign up for the program in the first week of 2012. Still, I think this is only the beginning of what should be a difficult year for the company as it struggles to maintain customers and cut costs. Click here to use The Motley Fool's free Watchlist to track these drugstore stocks in the year ahead.

At the time this article was published Fool contributor Tamara Rutter does not own shares of any companies mentioned in this column. Follow her on Twitter, where she uses the handle: @TamaraRutter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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