NYC teaches content relevance one store at a time
In a way, Walgreens has always been woven into the fabric of New York City culture — its Times Square location served as the backdrop for Life magazine’s iconic V-J Day photo in 1945. And while Walgreens hit snooze on The City That Never Sleeps for decades, nearly exiting the market in the 1970s, between its grand return to One Times Square in 2008 and its subsequent acquisition of New York’s top regional chain Duane Reade in 2010, it’s almost like it never really left at all.
Walgreens began its Manhattan revival in 2001, with its Empire State Building store opening. Today it operates more than 340 stores throughout the city, including 253 Duane Reade stores. But Walgreens bought a lot more than just a bunch of great stores and the No. 1 market share in one of the most important retail markets in the entire world. Not only did the transformation to the health and daily living store grow out of the Duane Reade acquisition, but Duane Reade also has helped inform how Walgreens merchandises its stores in urban markets across the country.
Today, as Walgreens pharmacy expertise is leveraged by Duane Reade, the influence of Duane Reade can be seen all across the Walgreens operation, from how it sources fresh locally — particularly in densely populated urban downtowns and residential neighborhoods — to how to elevate the private brand and how to create a more upscale shopping experience in beauty. It also has helped inform Walgreens’ “go-local” strategy that aims for content relevance on a store-by-store basis.
Really, in New York you don’t have much of a choice; the trade area can change from one block to the next, Walgreens’ market VP for New York Jeff Koziel told DSN. “Especially in New York, you have the tourist … you have your workers and you have people where they live. When you take those three into consideration, you have to figure out wherever that store location is, does it touch all three of those points? Two of those points? One of those points? And then you determine what makes sense in that particular store,” he said.
Getting the mix right requires a new way of managing local markets that aligns operators like Koziel with Walgreens’ merchandising teams.
More and more, Walgreens’ ability to be different and relevant in its local markets is driven by its 2009 decision to move its regional VPs of operations out of Deerfield, Ill., and into the markets they oversee. They are the boots on the ground, and the change is helping not only to shape its assortment from one store to the next, but also to forge more local partnerships, such as its official sponsorship of the New York Giants.
It’s proven to be more than just a marketing ploy, noted Koziel, who negotiated the deal on behalf of Walgreens. The relationship also has helped bring heightened awareness to key health issues, a core part of its mission to become the destination of choice for health and daily living. Last season several star players from the team made personal appearances in select Walgreens stores to help drive flu shots.
Koziel also has worked with city health officials on public health programs. Its response to the H1N1 flu outbreak in 2009 helped establish a strong relationship with the Department of Health. Thomas Farley, commissioner of the New York City Department of Health, recently received his flu shot at a local store, as did New York City mayor Michael Bloomberg, at a Duane Reade location in the Bronx. “[We’ve been] working with their team on different initiatives, and letting them know our capabilities and what we have out there with regard to health and wellness,” he said.
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.