More than just market share, DR an ‘accelerant’
When Walgreens snapped up Manhattan-based retailer Duane Reade back in 2010, it was a significant move for the Deerfield, Ill.-based pharmacy giant as it gave Walgreens — essentially overnight — a leading presence in New York City.
Under Walgreens’ organic growth model, it would have taken many years to achieve that type of footprint in New York City. But this was a new Walgreens. A transformative Walgreens.
Indeed, top Walgreens executives regard the Duane Reade acquisition — and more recently the Walgreens-Alliance Boots transaction in June — as an accelerant of its five core strategic initiatives. Duane Reade was attractive not only because of its strong foothold in New York, but also because the retailer already was on a transformational journey of its own that involved a revamping of the store design, re-examining the product mix to weed out slower-moving items and a rebranding of the 253-store chain.
While Duane Reade had done a great job securing real estate over the years, its older stores and service levels had earned the chain more than its share of detractors. It has been reported that at the time former chairman and CEO John Lederer joined the company in 2008, the top result on Google Search for the company was a blog called “I hate Duane Reade.” That the blog today has been quiet for almost a year now is a reflection of just how far Duane Reade has come in its own transformation.
Fast-forward to today, and Duane Reade’s evolution — now under the watch of Walgreens’ management — continues to impress and undoubtedly to revamp the landscape of the U.S. drug store industry.
“For some time now, we’ve been fine-tuning our product mix and making it very relevant for the neighborhoods in which we operate, ultimately giving our customers exactly what they are looking for,” said Paul Tiberio, Walgreens divisional VP regional procurement and inventory strategy.
For Duane Reade, content relevance is a moving target as the neighborhoods, and the customers who shop in those trading areas, can change radically from one block to the next.
For example, the impressive flagship store at 40 Wall St. caters to a mix of financial market traders and nearby residents, and features an in-store sushi chef, a juice/smoothie bar, food from local New York gourmet retailers and eateries like Zabar’s and the Carnegie Deli, and self-serve coffee. It also plays host to a full-scale LOOK Boutique, where it has been testing higher-end beauty services, such as its Essie Nail Salon, a Ramy Brow Bar and a PhytoNation blow-out bar, which has begun recently to offer men’s haircuts.
Just 100 yards away, at 100 Broadway, Duane Reade’s new store, which opened in July, caters to a slightly different mix of cus- tomers. Its clientele includes local office workers whose tastes tend to run a bit less posh from the Wall Streeters around the corner at 40 Wall St., and a very steady stream of tourists on lower Broadway, the stretch known as New York’s “Canyon of Heroes.” This Duane Reade location doesn’t have the full LOOK Boutique, but it does feature some important variations that can’t be found in 40 Wall St., such as a chopped-salad bar, self-serve soup, a barista bar and a full-serve bakery.
“We feel we have that ability and need to tailor our offers, especially when it’s a store across or down the street from another. Grab-n-go foods and consumable goods are where you typically see varying offers from one store to the next,” Tiberio said.
Then there’s the pharmacy. Today, all 253 Duane Reade pharmacies are “Powered by Walgreens Pharmacy Network,” linking the Duane Reade stores to Walgreens’ pharmacy system so New Yorkers, out-of-state residents and visitors can have their Walgreens pharmacy information available at a Duane Reade location for a seamless patient experience. The new look of the pharmacy departments and the addition of Walgreens’ back-end technology are helping Duane Reade capture more pharmacy business. Most important, the transformation of Duane Reade didn’t just produce a fleet of pretty stores — the investment and all the hard work are producing real results.
“We solved the commuter’s morning needs with coffee and Danish along with their lunch needs — all areas of which we did not have a lot of play in before,” Tiberio said. “So, we have in fact taken our average order size up and ultimately increased our customer count. We started bringing more people in more often.”
Out-localizing nationals; out-nationalizing locals
The power of local times 8,000. That’s perhaps one of the most significant transformative tools possessed by Walgreens, which over the past three years has moved to empower its local operators to leverage corporate assets in a single mission to win in each of the markets it serves. It is helping transform the front-end of its stores through regionalized product assortments and full-court press around “fresh.” It also is helping expand the role of community pharmacy through unique collaborations with local healthcare systems, schools and employers that target individualized healthcare solutions, from vaccinations to smoking-cessation programs. “It’s what I call out-localizing the nationals and out-nationalizing the locals,” explained Mark Wagner, Walgreens president of operations and community management. “That’s our strength.”
The transformation toward local first began in 2009, when Wagner, a 35-year Walgreens veteran, then EVP operations, led the decentralization of Walgreens’ field management team that was marked by the company’s market VPs being relocated to their respective territories, which now number 30.
To help better identify that structure all the way to the top, Walgreens recently rebranded its corporate campus with new signs that read “Community Support Center.” “That’s what this whole [headquarters] here represents,” he said — a resource that can help support market needs from employee relations and HR capability to merchandising and marketing.
Each Walgreens market VP now is tasked with developing a “Plan to Win,” a local market playbook that helps identify nearby vendors and partners who will help drive health-and-wellness initiatives.
“What we have now is people out there. They live in the markets, they breathe the markets, they’re on the boards of organizations in a lot of these markets, whether it’s with the Rotary or business associations or whether it’s healthcare systems,” Wagner told DSN. By building stronger relationships within the community, market VPs are better able to keep a finger on the pulse of the communities they serve. “That’s all about winning in that space because everything [is local]. Politics is local, health care is local and merchandise is local,” Wagner said. And that means just about everything about retail pharmacy needs to resonate locally, too.
But what does local really mean? It means identifying unique opportunities with local healthcare practitioners on ways to help the community get, stay and live well. “I was in Appalachia, [Tenn.], and I met with the COO of the Wellmont Health System — we have an on-site pharmacy at one of their hospitals — about what we can do to leverage our pharmacy on-site,” said Wagner, who, in his role, frequently gets out into the markets to meet with local health systems, employers and other stakeholders to explore new opportunities with organizations that help reduce costs and increase access to care. “The interesting thing is it’s always the same — they want that local involvement.”
As another example of local, a Walgreens community leader recently sold an immunization program to a local summer camp operator that was affiliated with eight other camps. “So for the camps this past year, they gave out 8,000 vaccinations,” Wagner said. “In the world of retail today, the operator has to possess different talents and a different skill set in order to go in the direction this company is going in,” he said. “[And that’s] in terms of winning overall, first in health and wellness, and outright owning the strategic territory of well. … It’s got to permeate all the way down to 8,000 store managers, 1,200 community leaders, 220 district managers and 30 market VPs.”
To be sure, a key focus of Walgreens’ localization efforts is in fresh — from sourcing fresh fruit and vegetables to working with local vendors to fulfill its grab-and-go programs, and even identifying brands that resonate with local shoppers. “If you do it right, you’re adding more customers into that store. They’re buying more products,” Wagner said. “We’ve rolled out fresh in more than just Well Experience markets. It’s worked out great.”
With support from its Merchant Group, they are assisting in making the right local product selection for Walgreens stores.
As part of Walgreens’ recent restructure, the chain created an inventory strategy and localization team that works with its local operators to ensure best-in-class local products are shipped to the stores at the best price. It’s a concept Walgreens calls “Mass Customization,” and the retailer aims to use its boots-on-the-ground operating structure to better leverage local opportunity. This activity is critically informing Walgreens’ merchandising decisions and ensuring that each of its stores strikes the right balance of content relevance. “Common where possible and customize where it counts,” added Wagner.
Establishing a strong local pedigree that best serves a community is more than just good business sense. With the Internet serving as the great equalizer, trading on price or convenience is becoming less and less relevant. Retailers of the future will need to trade on experience, Wagner said. “We’ve got to get off the transactional relationship inside our stores, whether it’s in pharmacy, Take Care or the front end,” he said. “You can’t compete by just lowering your prices. Convenience is only going to get you so far. … You’ve got to evolve and change that experience.”
A major part of Walgreens’ end-game strategy is to become the first choice for health and daily living in America. It wants each of its customers to see their local store not as a Walgreens but as “My Walgreens.” The only way to get there is to go local.
CCR cleans canvas for elevated store experience
You could say that many of the front-of-store experiences that Walgreens is helping to transform today — photo and memorabilia, beauty, fresh, OTC, even pharmacy — all evolved from Walgreens Customer Centric Retailing project, which began back in 2009. “There were several benefits that we gained from CCR that helped fuel this transformation,” noted Rachel Bishop, Walgreens VP daily living strategy and business development.
First and foremost, CCR helped create a clean canvas that concentrated on delivering a better shopping experience. “It also helped us as a company really learn what it means to transform a network of stores,” Bishop added. “Before, our focus had been around new store openings. The idea of going back in and really fundamentally looking at everything that you’ve had in one place for a long time and then reconceptualizing and thinking about it differently, that was new to us,” Bishop said.
Bishop has a strong pedigree in doing just that — fundamentally breaking a business sector down and developing long-term macroeconomic perspectives. It’s what she did at McKinsey & Co., prior to joining Walgreens.
And it’s out of that experience that Bishop, and many others, helped move Walgreens’ culture down the road of change.
Bishop joined Walgreens as the CCR initiative was getting into full swing, and now her team helps inform many of the operational pieces of Walgreens’ front-of-store business: pricing and promotion, capability development, as well as overall daily living strategy and business development. “At a top level, my responsibility is to bring together our merchandising and marketing strategy across the front-of-store retail business and position us for the future, for where we aspire to be in the long term, but also lay the groundwork for us to get there,” she said. “[That] goal is to really own the strategic territory of well, to help people get, stay and live well. … As the country is really transforming what health care means to all of us, we feel that the combination of retail and health care is our place to own.”
But Walgreens has a more-than-a-century-long history of innovating in the retail pharmacy space. The company’s latest 30-second spot — titled “1901,” produced by GSD&M and debuted in August — helps encapsulate that long history of retail pharmacy innovation. “Charles Walgreen had a mission — to help people be happy and healthy,” the voiceover starts.
Walgreens has long been credited with creating the first chocolate malt (happy), but how many knew that Walgreens pioneered the use of child safety caps (healthy)?
“We can’t talk about our future and the change that we aspire to — or the change that we aspire to lead — in a context that isn’t true to our heritage and our history,” Bishop said. “What that [ad campaign] does is really help tie together our history and our heritage to where we’re going and make it a seamless story to the customer.”
And Walgreens similarly has a strong heritage of allowing its customers to serve as the lodestone that points to true north. “The reality is, our shopper shops us across multiple channels and for multiple purposes,” Bishop said. “Our customer sees us as Walgreens — not Walgreens pharmacy or Walgreens retail — and so if we discipline ourselves in that same approach … we are able to bring it all together in a seamless offer that makes sense to her.”
Based on that consumer insight, Walgreens’ current programs are built around three pillars: enabling their customers to get, stay and live well. “Those pillars really live in every part of our store and in every channel that we play in,” Bishop said. “So getting well, staying well and living well … may include doing research and shopping SkinStore.com or some of our online channels. Or it may mean coming into the store and picking up something [for an immediate] need,” she said.