CVS vs. Walgreens | Powerful Medicine | 1

0:07It's 2008 in a CVS pharmacy in Los Angeles. A pharmacist in a white coat narrows her eyes in suspicion at the man standing at the counter. He's wearing a tank top two sizes too big. His cheeks are sunken and his teeth stained. But it's his jitteriness that's the real giveaway. The way he keeps looking around as if someone's coming for him. This guy's definitely a meth addict. He scratches his chest and then glares at the pharmacist. Yo, you getting my cold medicine or what? The pharmacist crosses her arms. He wants a packet of CVS-brand pseudoephedrine. It's a cold and cough medicine. It's also a raw material for making methamphetamine.

0:53Law enforcement calls people like him smurfers. They spend their days buying cold and cough medicine for illegal meth labs that extract the pseudoephedrine to make meth. You don't seem like you have a cold. Maybe if you describe your symptoms, I could advise... You ain't no doctor. I said I had a cough. See? Irritation flashes on the man's face. Hmm. I need to check with our computer. Federal law says we can't sell you more than 3.6 grams of pseudoephedrine a day. And I'm pretty sure I saw you in here just a few hours ago. Nah, wasn't me. The pharmacist checks the man's details on the computer, but she already knows, we'll say, to sell him what he wants.

1:42And that's because CVS only tracks how much pseudoephedrine individuals buy in states where there's a monthly cap, and California's not one of them. But she's under orders from CVS head office to do what the computer says, and the Smurfers know it. Across Southern California, Smurfers are exploiting CVS's flawed controls to load up on the medicine being used to flood the streets with meth. The computer confirms it's okay to sell the man the medicine. The pharmacist slaps a packet of CVS pseudoephedrine on the counter. The guy smiles. Wait, I got a loyalty card. Hang on. Yeah, of course you do.

2:26But as they wait for the snaking receipt to print, they don't notice the undercover DEA agents pretending to be looking at the greeting cards. The agents certainly notice the Smurfer, but the one they're closing in on is CVS. And when they do, CVS will have to fix its computers and pay$77 million in fines and forfeited profits for its role in enabling meth trade. But in the multi-billion dollar drugstore war, 77 million is just loose change. That tally will grow exponentially along with the opioid crisis. And eventually, both will have to contend with their roles in it. These corporate giants began as small cramped stores selling cosmetics and medicine at modest profit margins.

3:18But now, decades later, they want nothing less than to become America's first stop for health care. And no competitor or a speed bump like meth is going to slow them down. Not for a second.

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5:42From Wondery, I'm David Brown and this is Business Wars.

6:10With more than 18 ,000 stores nationwide, CVS and Walgreens are an inescapable feature of the American landscape. And for 60 years, they've been locked in an unrelenting struggle for dominance. And to get there, they've cleared out competition by either buying them up or plowing them underfoot. Now, they're Goliaths of industry. Together, they make sales of$454 billion. That's right, billion dollars every year. They sit among the top 30 biggest companies in America. But on their way to the top, they've found themselves caught in the crosshairs of some of America's most challenging and divisive issues.

6:53from the meth trade and the Affordable Care Act to abortion, COVID vaccinations, and the opioid crisis. But neither CVS nor Walgreens is letting any of this deter them from their ultimate ambition to become the go-to destination for American health care. And if they succeed, the billions they make now will seem like peanuts. This is Episode 1, Powerful Medicine.

7:28On a bridge over the Chicago River, 20-year-old Charles Walgreen pushes back his country hat and stares into the murky water. It's 1895, and Chicago's growing fast and using the river as its sewer. Walgreen watches, deep in thought, as a steamboat slices through the fetid river on its way to Lake Michigan. He left his hometown of Dixon, Illinois for the big city two years ago. Since then, he's drifted in and out of drugstore clerk jobs. He sleeps on a mattress infested with bedbugs, skips work to indulge his love of baseball and gambles away his pay. But now he's out of work and feeling the consequences of his carefree ways.

8:14He digs into his pants pocket and retrieves all the money he has left. Two pennies. He stares at the grubby coins in his palm. Then he closes his fist and hurls them out over the river. The coins fly through the air, tumble into the water, and vanish without a trace. Then, Walgreen hears a voice. What'd you wish for? Confused, Walgreen turns to see a middle-aged man smiling at him. The man speaks again. I said, what'd you wish for when you threw them coins? Walgreen's confusion clears. Oh, uh, no, I didn't make no wish, sir. You didn't, huh? Then why are you throwing away money, son? Walgreen looks in the man's eyes.

9:02Because I need to stop dawdling. I was near broke before I threw those coins. Now I am broke, so I can't dawdle no more. And with that, Walgreen tips his hat to bid the man farewell and sets off toward the south side of the city. And under his arm, there's a copy of that day's newspaper. Inside it is a help-wanted ad from a drugstore. That afternoon, Walgreen gets a job as a clerk at William Valentine's Drugstore and gives it his all. His dedication impresses Valentine, who gives him a raise, and then encourages him to study pharmacy. Two years later, Walgreen qualifies as a pharmacist and starts saving to buy his own drugstore.

9:50Charles Walgreen steps back from the sidewalk and gazes at the drugstore in front of him. It's the summer of 1901, and six years since he threw his last pennies into the Chicago River. Now, this small drugstore on Chicago's south side is his. In its two windows are a jumble of perfumes, tonics, and jars filled with colored water. Between the windows, a man on a ladder positions a sign above the door. The gold letters on the sign read, C.R. Walgreen, R.P.H., Registered Pharmacist. Walgreen calls to the man on the ladder. Higher on the right. Yeah, stop. No, no, no, that's too much. Yeah, right there.

10:32Fix it right there. As the man nails the sign into place, Walgreen enters the store. Inside, it's cramped and dingy. It's lit by gaslight, and the customer aisle between its glass display counters is tight. There's also a soda fountain selling lemon, lime, orange, and other pop. At the back, behind the partition, is the pharmacy, where Walgreen compounds medicines for his customers. But Walgreen doesn't like it. He's worked in enough drugstores by now to know this place is a turnoff for customers. So he overhauls the place. He tidies the window display, widens the customer aisle, and switches to electric lights.

11:12He stocks fine perfumes, cigars, and chocolates. He adds Coca-Cola, soup, and sandwiches to the soda fountain menu. He also ensures customers get friendly service instead of the cool welcome most pharmacies offer. In 1909, he buys a second store and spends the next 20 years finding new ways to boost sales and grow the business. He installs payphones, offers photo finishing services, and introduces Walgreens' branded coffee, cigars, and medicine. By 1921, there are 25 Walgreens in Chicago. By 1925, Walgreens is spreading beyond its home city and ringing up annual sales of$1.2 million. But few of those dollars come from its pharmacies.

12:02Prescription drugs deliver just 2 % of Walgreens' profits. The real money's in tobacco, food, and beverages. The pharmacy's role is mainly to get people through the doors. In 1939, Charles Walgreens dies at the age of 66. By then, his drugstore chain is the biggest in America, with 470 stores spread across 39 states. and his 33-year-old son and successor, Chuck Walgreen, has plans to pump up business.

12:41Chuck Walgreen and his team step out of their rental car into the Los Angeles sunshine. It's November 1949, and Chuck spent the past decade steering Walgreens through the challenges of World War II. Now, the bald 43-year-old's out to supersize the family business. He and his executives are in L.A. to buy the drugstore chain Thrifty for$6.6 million. The deal will add another 200 stores to Walgreens Empire. But today, Chuck and his executives are taking a break from the negotiations to check out the local drugstore scene. One executive spots the store they're looking for. Over there! Chuck turns and sees the Savon drugstore.

13:24There are only five Savons, but word is they're doing something special. The team heads inside and gasps. It's a drugstore, but not as they know it. And that's because it's self-service. Displays full of merchandise stretch out before them. And in every aisle, shoppers are helping themselves to the products before heading to the checkouts. One executive looks at Chuck. I don't get it. Our tests prove self-service doesn't work for drugstores, but this place is... Chuck nods. Thriving. Exactly. The Walgreens crew are puzzled. They tried self-service at three stores and sales died. They concluded that self-service works in grocery stores because shoppers don't need help to buy bread while people do need advice when buying medicine.

14:15But this place suggests they reached the wrong conclusion. Chuck wanders the aisles trying to figure out what Savon knows that Walgreens doesn't. At first, he's stunned by the sheer range of merchandise on offer. Then he spots something else. The prices. He stops by the aspirin. Savon's selling 100 tablets for 11 cents. Walgreens charges 43 cents. Chuck stares in disbelief. He realizes that he was too quick to dismiss self-service. Savon customers are happy to lose the service because they get rewarded with more choice and lower prices. When Walgreens tried self-service, its shoppers got the same prices without the service.

15:02And while Savon makes less profit per item, its lower prices and choice attract a lot more shoppers and deliver higher sales overall. After half an hour of investigating the store, Chuck leads his team out of the store and back to their car. But before his team can get into the car, he makes an announcement. We're cancelling the Thrifty deal. What? What Savon's doing is the future, and we don't need 200 more counter service stores slowing us down. Go tell Thrifty we're no longer interested. That evening, Chuck and his team fly home with a new plan. But transforming more than 400 stores to self-service is no overnight task.

15:47It needs to move stores to bigger locations, build new supply chains to handle the extra merchandise, and retrain thousands of employees. It takes Walgreens more than a decade to complete the transition. At the same time, Walgreens embraces another retail trend, the shopping mall. As it follows Americans from downtown to suburban malls, it also ditches its soda fountains. In downtowns, the lunchtime trade made soda fountains hugely profitable, but in malls, they just take up valuable retail space. Sales rocket as Walgreens transforms itself into a self-service mall retailer. In 1966, Walgreens sales smash through the$500 million barrier.

16:36Flush with cash, the company branches out into fast food and discount stores. But while Walgreens' empire expands, a new challenger is rising.

16:53It's 1969, and in a Manhattan office block, a Citibank analyst stares at the man who's sitting across from him, puffing a cigar. A drugstore? You want to buy a drugstore? The man with the cigar is Francis Rooney. He's middle-aged with short, neat, black hair, and five years ago, he became the CEO of Melville Corporation. Back then, Melville was the sleepy business behind the Tom McCann shoe store chain. Now, it's a hot stock that operates more than 1 ,300 shoe and apparel stores nationwide, and Rooney wants to add another brand to its portfolio. Yes, a drugstore. Consumer value stores. CVS. Never heard of them.

17:39They're based out of Rhode Island, and they operate around New England. So? The drugstore trades full of much bigger, more established regional players. You know, people's Walgreens. What's so special about CVS? Rooney takes a puff of his cigar. They opened their first store six years ago. They now have 50. They know what they're doing. You been in a Walgreens lately? I can't say that I have. They're cluttered. I sell you everything you can think of, and then some. CVS doesn't. It's a drugstore that specializes in health and beauty products. And that means it fits with our strategy of opening specialty stores and shopping malls.

18:17The analyst sits back in his chair. Okay, okay, I see the attraction. But I don't think Melville's experience in selling shoes will help it run drugstores, huh? Rooney squints at the lid end of his cigar. So, you're going to advise against our supporting the CVS acquisition? The analyst laughs. No. Sure, I got doubts. But, Francis, you've beaten the market's expectations time after time, so I'm backing you. In October 1969, Melville buys CVS for$12 million. It's still a featherweight facing heavyweight competition from Walgreens. But with one of America's most successful retailers behind it, it's now a contender.

19:04One that Walgreens won't see coming.

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20:53Cork Walgreen walks through the polished lobby of Walgreen's Art Deco headquarters in Chicago and climbs the stairs to the second floor. It's 1971, and Cork's a shy 35-year-old with fashionably thick sideburns that extend down to his jawline. For the past few years, he's served as Walgreen's president, but today he's due to replace his 65-year-old father as its CEO. Cork heads along the second floor corridor to his father's office. The woman, who will soon be his secretary, greets him. Good morning, Mr. Walgreen. He's waiting for you. Cork nods and knocks on the door. He hears his father's shout.

21:34Enter. Cork enters the corner office. The shelves have already been cleared of personal effects and Chuck Walgreen standing by his desk wearing a fishing hat and vest. He spent 32 years running Walgreens, and he's making it very clear he's more than ready to retire. Hello, son. Well, this is your desk now, and those are your keys. So, yeah, that's about it. I'm going fishing. With that, Chuck picks up his fishing rod and leaves. It's an unceremonial handover. Less sad, the better. Cork knows he's inheriting a company that's grown old and flabby. Its drugstores are dated, rivals are gaining market share, and most of the company's cash is being spent on opening discount stores, fast food joints, and medieval-themed restaurants.

22:26But Cork's determined to get things back on track. He starts by forming a strategy committee that'll figure out where the company should be headed. Then he revamps the accounting system to free up cash to modernize the company's 555 drugstores. He also approves an expensive plan to create a computer network called Intercom that will connect all its pharmacies. But this ambitious tech plan soon hits trouble.

23:00It's 1976, and in a Walgreens in St. Louis, the pharmacist gives the customer in front of him an awkward smile and glances again at the screen of his intercom terminal. Sorry, this thing's a little temperamental. The customer checks her watch. The pharmacist hits the return key again, but nothing happens on the screen. The pharmacist rubs the back of his neck. The line behind the woman at the counter is now four people deep, and the lunchtime rush is just minutes away. Head office made big promises about intercom. They said it would make filling prescriptions a breeze, eliminate paperwork worn of problematic drug combinations, and advise when customers could buy cheaper generic drugs, all of which would be fantastic if the damn thing actually worked.

23:49The woman at the front of the line folds her arms. Uh, how much longer will this take? The pharmacist reaches for the paper forms that Intercom was supposed to make redundant. You know what? Forget this heap of junk. Let's do it the old-fashioned way. Within days, Walgreens removes the Intercom terminals from its test stores. The system's just too slow and buggy to put it in the field. But instead of killing the project, Quark sticks with it. Initially, Walgreens thought it could fix Intercom in a few months. Instead, it takes years. But quirk never wavers. And in 1979, Intercom finally creeps back into stores for another test.

24:32And this time, it works. Soon, Walgreens is installing Intercom terminals in all its stores and hyping its arrival on TV. In every Walgreens pharmacy, there's an Intercom that saves you time. So no matter where you travel, your current prescription records are as close as the nearest Walgreens. And Intercom saves you money by reminding you of generic savings. Walgreens Intercom may even help protect you from an allergic reaction. Isn't it nice that Walgreens may buy? Intercom is a game changer. Now Walgreens can fill prescriptions faster than the competition and let customers get refills at any Walgreens store, not just the store they're registered with.

25:15But going online is only part of Quirk's master plan. And as the 80s get going, he takes Walgreens back to its drugstore roots. He offloads the company's restaurants, adds grocery departments to the stores, and accelerates the opening of new stores. He buys a bunch of small drugstore chains to cement Walgreens' status as the Midwest's top druggist. And then, in 1986, he pounces on an opportunity to break into New England. CBS's turn.

25:52It's fall 1986, and in Beverly, Massachusetts, Kathy parks her station wagon in the parking lot of her local Medimart. She's used the pharmacy at this drugstore to get her arthritis drugs for years. Even when CBS opened a drugstore closer to her home, she remained loyal. In fact, she never even considered switching. And that's because Medimart has something CVS doesn't. Paula, the pharmacist she knows and trusts. But as Kathy approaches the store entrance, she stops in her tracks. The signs changed. This is no longer a Medimart. It's a Walgreens. She heads inside and finds everything's different.

26:36The faint aroma of fresh paint hangs in the air. The shelves are less cluttered and larger signs hang above the aisles. She immediately thinks of Paula and rushes toward the pharmacy counter. There's no one out front. Then a door behind the counter opens, and Paula steps out wearing a white coat. Hey, Kathy. Paula, oh, thank goodness. I'm so glad you're still here. What happened to this place? Well, we're at Walgreens now. They bought Medimart a few months back but only converted this store the other week. Kathy looks around. It's so different. I think I preferred it as it was. You'll get used to it.

27:17Also, we got this now. Paula pats the intercom terminal next to the cash register. And I think with its help, we could lower the cost of your medication. What do you say? Kathy smiles. Sign me up. Walgreens paid$160 million for Metamart's 64 stores, giving it an instant presence in several New England states. But now that it's pushing into the Northeast, Walgreens is on a collision course with the region's drugstore Don, CVS. Since it got bought by shoe store giant Melville Corporation in 1969, CVS has grown fast. It now has 600 stores in the Northeast, enough to make it as entrenched there as Walgreens is back in the Midwest.