Tim Wentworth
Chief Executive Officer at Walgreens Boots Alliance
Thanks, Manmohan. Let me now turn to our strategic review. Since launching our strategic and operational review at the beginning of the calendar year, we have been clear eyed on what we're trying to achieve and everything has been on the table. We have a deep understanding of the opportunities and complexities and we have come to a number of important conclusions. Some will take more time to execute as we maximize optionality, but all of them are aligned around three principles to drive long-term shareholder value: First, to simplify and focus our business; Second, to use our core foundation, our relationship with our customers, to grow and expand in capital efficient ways into adjacent areas; And third, to continue to identify opportunities to deliver profitable growth, generate meaningful cash flow, and strengthen our strategically relevant businesses today and long term.
Before unpacking the details, I want to reinforce the most important conclusion from our review. The retail pharmacy experience will be more important to the healthcare industry in the years ahead, but it will evolve. With widespread demand for convenient healthcare solutions, including chronic diseases and nation-wide labor shortages, the pharmacy and pharmacists have never been more important. Our retail pharmacy business is uniquely positioned to expand the role we play in the lives of our patients who have come to expect and need retail pharmacy at the center of their care.
So let me begin this discussion around our strategic decisions with our core business, U.S. Retail Pharmacy. The success of the business hinges on an efficient, highly-relevant customer experience, and we've launched a multifaceted action plan for improvement. As the convenient destination for millions of customers and driving $27 billion of retail sales, the store and its digital channels are central to our strategy and consumer experience. But the customers evolved, demographics and preferences have shifted and we need to reposition and operate our stores accordingly.
Currently, 75% of our U.S. stores contribute roughly 100% of segment AOI. For the remaining 25% of the stores in our network, which are not currently contributing to our long-term strategy, changes are imminent. To start, we are finalizing a multi-factor store footprint optimization program, which we expect will include the closure of a significant portion of these underperforming stores over the next three years. Plans to finalize this number are in motion and we will update you in due course.
For the remaining portion of this cohort, we are taking action to return them to profitability and deliver an improved customer experience. We will contemplate additional closures if performance does not improve, which includes external factors such as reimbursement rates. While it is not an easy decision to close the store, we will work to minimize customer disruptions. And importantly, as we have done in the past, we intend to redeploy the vast majority of the workforce in those stores that we close.
In addition to these closures, we are taking a series of actions and making investments to enhance the customer and patient experience across several key areas. First, we are reevaluating our assortment to ensure its relevancy, leveraging select partners and our own brands. This means we will work with fewer partners who are helping us win. For example, in the last quarter alone, we've removed eight national brands and redeployed those SKUs toward owned brands and preferred partners within health and wellness categories.
We are sharpening our focus as a destination for areas we are uniquely positioned to lead, such as health and beauty and women's health. We are accelerating our digital and omnichannel offerings to meet our customers when, where and how they want to engage. We continue to deliver approximately 80% of same-day delivery orders within one hour and we see upside for improvement. As the ultra convenient option for our over 120 million myWalgreens loyalty members, we have plans to meaningfully build our loyalty program.
We are doubling down on our efforts to define the future of pharmacy in this country. As I mentioned earlier, this starts with changing the dialogue with payers and PBMs to ensure we are paid fairly for the value we provide. We are also investing in the industry's best talent. For example, as we focus on leading in the development and elevation of the pharmacy industry profession, we are partnering with critical stakeholders such as our Deans Advisory Council to help advance our work environment and make WBA the practice setting destination of choice for pharmacy talent.
Just two weeks ago, we spent two full days with 14 deans of pharmacy across our country engaging in productive discussions to reinvigorate the community pharmacy labor supply chain. And we are enhancing our pharmacy services, like immunizations, to attract more patients through an improved experience and enhanced digital solutions. We've significantly decreased the average wait time per customer in the highest volume stores, and this is a result of several initiatives underway to improve the patient experience and increase retention.
Finally, with a mindset for driving continuous improvement throughout the organization, we are committed to operating with excellence and identifying further efficiencies in both our headquarters and our retail operations. We are restructuring our organization around these conclusions to streamline and ensure efficient development and deployment of services to go to market as one Walgreens with more impact for our industry partners and to help close critical gaps in delivery of healthcare.
In that regard, Mary Langowski, our President of U.S. Healthcare, will assume responsibility for operations of specialty pharmacy, pharma and manufacturer relations and contracting, supply chain, and all services development and deployment. With these operations now under one team, we will be better aligned to go where the market is moving, sharpen our contracting, operate more efficiently and achieve better economic outcomes. And Rick Gates, our Chief Pharmacy Officer, will take on an even greater role in defining the future of pharmacy from a strategic, operational and labor force perspective.
Turning to our broader portfolio, we have evaluated every non-retail pharmacy asset, prioritizing strategic fit, profit growth potential and cash flow generation. With that in mind, we have already stopped or will stop initiatives that distract from our focus and will grow in areas that create longer-term shareholder value.
Let me touch on several of our larger assets. Our review of Boots UK showed that we have attractive options to unlock value in this business. While we believe there is significant interest in Boots at the right time, its growth, strategic strength and cash flow remain key contributors to the company. We are committed to continuing to invest in Boots UK and find innovative ways for this business to fulfill its potential.
Moving next to VillageMD, which currently includes three distinct assets in VillageMD, Summit Health and CityMD, we believe in the future of these businesses and intend to remain an investor and partner. But as part of our persistent focus on value creation for WBA, we are collaborating with leadership toward an endpoint to rapidly unlock liquidity, enhance optionality and position them for additional growth.
As it relates to Shields, its performance, growth and leadership team remain best in class and serve as a complement to our core specialty business in the market. We are not taking action at this time. We are committed to executing on all these decisions in a timely manner that maximizes shareholder value while creating optionality, and I look forward to providing more details as we progress.
Before opening the call up for Q&A, let me leave you with four thoughts. First, our core retail pharmacy business is relevant but will be different. Second, we have the right team and the right strategy to enhance our focus, strengthen our own execution and ultimately turn around the business performance. Third, there is a clear market need for our services, but our economics are not currently structured in a way that is sensible for our shareholders. We have a firm grasp of the issues and are working to address these challenges in our business model. Fourth, while it may take time and there's a great deal of work underway, I am confident we are executing on the conclusions from our strategic review thoughtfully and urgently to deliver the Walgreens that our country needs.
With that, let's begin Q&A. Operator?
