DR deal, store redesign reflect fresh thinking
In an America still mired in recession and on the verge of a sweeping transformation of its healthcare system, Walgreens suddenly seems to be everywhere.
On the acquisitions front, the nation’s top drug chain is on the prowl, making deals to scoop up New York drug store powerhouse Duane Reade; Minnesota-based Snyder’s Drug Stores; USA Drug’s 17 Super D and Ike’s stores in Memphis, Tenn.; 12 Eaton Apothecary pharmacies in the Boston area; and three El Amal stores in Puerto Rico and the prescription files of 11 other El Amal pharmacies.
By far the biggest of those mergers has been the deal for Duane Reade. The purchase of the 257-store chain—which was finalized March 30—marks the largest acquisition in Walgreens’ 109-year history and thrusts it into a commanding lead in the nation’s top drug store market. It also enriches the chain with Duane Reade’s expertise in urban retailing, beauty merchandising and other areas.
Walgreens president and CEO Greg Wasson hinted that adding Duane Reade’s growing experience in high-end cosmetics and fragrances could spark a transformation at Walgreens’ beauty departments, too. “We all know department stores are challenged in this economy, like other retailers, and these prestige beauty [suppliers] are looking for ways to grow their business,” he told Drug Store News in a recent interview. “They’re reluctant to sell their goods to…the drug channel. But if we have an offering and shopping experience like the Look Boutique, then they may be more willing to do that. And Duane Reade has had some success with that; they already carry three prestige brands today.”
Walgreens is flexing its muscles on other fronts, as well. On the healthcare side, the company is forging alliances with such big employers as Caterpillar and Delta to provide direct pharmacycare services and prescription discounts to their health plan members. Having recently restructured its pharmacy and clinical health components to create a unified pharmacy, health-and-wellness solution, Walgreens also is rapidly expanding its worksite health centers and pharmacies on employer campuses—and broadening its reach in such areas as home health care, specialty pharmacy and professional pharmacy.
The changes don’t stop there. Walgreens also is driving full bore to rejuvenate and leverage its already powerful presence in the U.S. retail market, rolling out a new store format, rebranding campaign and a new, more streamlined and easier-to-shop merchandise mix. Company leaders predicted the effort will spur billions of dollars in additional sales as customers add more items to their shopping baskets.
Behind the store renewal campaign is a sweeping set of initiatives launched in fall 2008, as Walgreens set out to reinvent its retail and health mission. Among its ambitious goals: to cut its bloated cost and inventory structure, centralize time-consuming pharmacy dispensing tasks so pharmacists could concentrate on patient care and medication therapy management, revitalize customer demand at the front end, capture more pharmacy and front-end market share and pull together all 8,000 of its “points of care” in a bid to more effectively market itself to health plan payers as a full-service, fully integrated health-and-wellness solution.
Walgreens’ massive overhaul spawned sweeping changes in upper and middle management, particularly in merchandising, and a decentralization of the operations management team to put divisional VPs in closer touch with their own regions. The effort also gave rise to such big initiatives as Customer Centric Retailing, the Power project to centralize prescription filling functions and the “Rewiring for Growth” cost-reduction and efficiency campaign. Company leaders predicted the “Rewiring” program will save Walgreens roughly a half-billion dollars in fiscal 2010 and $1 billion next year as it cuts inventory and operating costs, and scales back on store construction.
Now well into its second year, CCR already has led to a massive reduction in store inventories of some 4,000 SKUs, a streamlined and easier-to-find assortment and a new, more open store design that features improved sight lines, product adjacencies, signage and more appealing graphics. “Shoppers are reacting positively to our CCR format,” Wasson told investment analysts March 23. “This is an ongoing process with many checkpoints along the way to allow us the opportunity to tweak and refine as needed. As we move into the next phase, we’ll continue to build sales, take work out of stores, lower inventory and, most importantly, improve our customers’ overall shopping experience.”
A prime CCR objective, he added, is to prompt customers to spend more in the store with each trip. “We’re really focused on gross profit per basket,” Wasson said.
Walgreens’ CEO also revealed that CCR already has led to a significant reduction in redundant store items at the front end. “The further we get through the SKU reduction—and we’re about 85% done now—the easier it will be to roll this out going forward,” he said.
The ultimate objective, said EVP and CFO Wade Miquelon, is “to understand how to better serve our customers and what they want.” If successful, he added, CCR will unleash “a virtuous cycle” by creating “a better experience” for customers, which in turn will lead to higher sales, faster turns, lower inventories and lower costs. “That equals increased cash flow and profit…as long as we’re in that virtuous cycle of business,” Miquelon said.
There’s still plenty of room for improvement, Walgreens’ CFO added. In 2009, he noted, the average Walgreens shopper bought just 1.3 items at the front end. Creating “a better and more relevant shopping experience” could significantly boost that average and add billions of dollars to the top line, he said. “Clearly, with the more than 7,100 phenomenal corners we occupy…getting more items in the basket is the best thing we can do,” Miquelon recently said.
CCR also has triggered a broader store redesign, yielding an open, less cluttered front end, softer colors, lowered fixtures and improved sight lines, new signage and easier-to-find categories and products. Walgreens began rolling the new design into its Texas stores in March.
The CCR initiative continues to progress, the company reported, and is now featured in some 700 of the company’s 7,180 drug stores. The company said it remains on track to have the new format in 2,500 to 3,000 stores by the end of fall 2010.
Headquarters: Deerfield, Ill.2009 sales: $63.3 billion*% change vs. 2008: 7.3%No. of stores: 6,997*No. of stores with Rx: 6,997*Avg. store size: 14,700 sq. ft.Rx sales: $41.2 billion% of sales from Rx: 65%Sales per store: $9.05 million
* Reflects fiscal year 2009, ended Aug. 31, 2009; 7,180 stores as of Feb. 28, 2010—excludes results from 257 Duane Reade stores ($1.8 billion; $858 million pharmacy) acquired in February 2010Source: Company reports
Wasson also reported progress on other fronts as Walgreens continues its massive overhaul. Early last month, the company completed restructuring its healthcare divisions to support its integrated “Pharmacy, Health and Wellness Solutions” offering to employers, managed care organizations, pharmacy benefit managers and government clients.
“In the past several years, we’ve developed a broad set of quality, affordable and accessible pharmacy, health and wellness services unmatched in our industry,” Wasson said. “We are integrating Walgreens’ 70,000 healthcare providers, on the front lines of health care across the organization, with a unified sales team offering these services to payers as a single, seamless integrated solution.”
Schnucks’ O’Brien to serve on Department of Agriculture advisory committee
ST. LOUIS An executive from Schnuck Markets will serve on an advisory committee of the Department of Agriculture, Schnucks said this week.
Agriculture secretary Tom Vilsack announced that Schnucks VP produce and floral Mike O’Brien would be one of 25 people appointed to a two-year term on the USDA’s Fruit and Vegetable Industry Advisory Committee. O’Brien is also vice chairman of the Produce Marketing Association.
“I am honred to represent Schnuck Markets and the retail produce industry as a member of this committee,” O’Brien said. “I am looking forward to the opportunity to contribute and to make a difference for families across the nation.”
The committee, originally chartered in 2001, advises the secretary of agriculture on industry issues related to fruits and vegetables.
Gilead commences phase 3 trial for single-tablet HIV treatment
FOSTER CITY, Calif. Gilead Sciences has started a late-stage clinical trial of an investigational 4-in-1 treatment for HIV, the drug maker said.
Gilead announced the initiation of a phase 3 trial of its “Quad” HIV drug, a single-tablet treatment that combines elvitegravir, cobicistat, emtricitabine and tenofovir disoproxil fumarate. The study will compare the Quad regimen with the standard of care among adults with HIV-1 who have not taken antiretroviral treatments. The company is also investigating cobicistat as a standalone boosting agent for antiretroviral drugs.
“We are pleased to announce that the Quad phase 3 clinical program is underway,” Gilead EVP research and development and chief scientific officer Norbert Bischofberger said. “Efficacy and safety results from the phase 2 study suggest that the Quad may represent an important new option for patients with HIV.”