Report says more consumers choosing private labels to save cash
CHICAGO According to research coming out of Information Resources, Inc. Tuesday, financially-strapped consumers across all income levels, including those earning $100,000 or more, are turning to private label as part of a money-saving strategy.
“With budgets strained to the breaking point, shoppers are scrambling for ways to save money,” stated IRI consulting and innovation president Thom Blischok. “Shoppers are looking through a lens of affordability and have a re-invigorated interest in private label since the economic turmoil began. The need for affordable packaged goods solutions is high, and private label products are going a long way toward answering that need.”
Private label is performing well across channels, but drug retailers are leading the way in growth, IRI stated.
On average, private label products cost about 30 percent less than their name brand counterparts. That discount varies greatly, though, at the department level. For instance, the average private label fresh/perishable item costs only 3.5 percent less than its branded counterpart, but in the beauty/personal care department, consumers can save nearly 64 percent versus a branded product.
Though nearly everyone purchases some private label products at some point, a notable 33 percent of shoppers are considered heavy buyers of private label goods. While significant opportunity remains, this is a substantial increase versus last year when 28 percent of shoppers were considered heavy buyers.
“The evolution of the U.S. private label market has accelerated in the face of growing financial turmoil,” Blischok said. “As shoppers opt out of some products and stores, they will opt into others. It is critical for the ongoing success of CPG manufacturers and retailers to not only react to, but anticipate these trends and be ready with products, assortments and store layouts that meet the shopper’s changing needs.”
Walgreens overhaul seeks ‘More From the Core’
CHICAGO —For Walgreens, fundamental change is at hand.
In their first full meeting with Wall Street analysts in nearly a decade, Walgreens’ top executives laid out a broad series of big steps Oct. 30 to transform and rejuvenate the company’s flagging brand in the face of today’s economic maelstrom. Taken together, those steps represent a striking break from the past for a company that—until recently—earned the envy of Wall Street and chain drug retailing with its 34-year string of record sales and earnings.
Company officials are calling their strategy “More from the Core.” What that means, said newly elected interim chairman and chief executive officer Al McNally, is leveraging the company’s assets and exploiting untapped synergies to bring new solutions to a healthcare system “in crisis.”
Battered by a decline in consumer confidence, rising operating costs and slowing sales and profits, Walgreens has embarked on a dramatic shake-up of its entire business structure, McNally said. Henceforth, the chain will “create value for our shareholders by being part of the healthcare solution in America.”
The goal, McNally and other company leaders told analysts, is to unlock the massive potential within the company’s core businesses by leveraging and tying together its powerful and growing assets in drug store market penetration, ambulatory clinical care, specialty pharmacy, health services and on-site workplace pharmacy and health care. The plan involves a top-to-bottom analysis of how the 107-year-old retailer goes to market and reaches its customers—and a dramatic shift in its long-term strategy.
“Going forward, we intend to be quicker and more aggressive with our strategy,” McNally asserted. Equally important, he said, “our cost structure needs to be fundamentally reduced.”
Some of those changes already are under way. Among them: the rise of McNally himself to interim chief executive officer, following the abrupt retirement of former chairman and chief executive Jeff Rein Oct. 10. A search is underway for a successor, who could come from either inside or outside the company, McNally said.
Walgreens’ renewal will be based on a transformation of its long-held strategy. One key facet: a significant scaling back of its industry-leading growth strategy, from an average of 8 percent a year to roughly 5 percent.
“We opened 529 stores in the past year,” noted Mark Wagner, executive vice president of store operations. “By the year 2011, we will only open 365 stores at a 5 percent growth rate.”
Along with other cost-saving initiatives, the slowdown will shrink the company’s capital spending program to $1.8 billion from $2.2 billion in fiscal 2008.
“Walgreens’ 6,500 retail drug stores remain the centerpiece of our strategy for growth and value creation,” said president and chief operating officer Greg Wasson. “Our intent is to transform Walgreens into a more efficient and customer-focused company serving the needs of shoppers for consumer goods and services and for patients and payers seeking quality pharmacy, health-and-wellness services that are accessible and affordable.”
Long-term, added Wade Miquelon, Walgreens’ new senior vice president and chief financial officer, “We are targeting $1 billion in annual cost reductions.” To accomplish those savings, he said, Walgreens is focusing on labor-saving initiatives like POWERx, a new workload balancing system that will offload more prescription dispensing activities to centralized fill sites.
But cost-cutting is only part of the picture. One of the company’s primary areas of focus will be rejuvenating store demand with new merchandising techniques aimed at boosting per-customer transactions and making the shopping experience easier—an effort that will lead eventually to a completely redesigned store prototype, company officials indicated.
Indeed, said Miquelon, improving the customer shopping experience will yield more in gross profit dollar growth than any of the other levers Walgreens can work to build value.
“Just one more item per basket will add $1 in…growth,” he told analysts.
Walgreens already has taken some steps to improve its performance. Its recently introduced prescription savings card program has signed up more than 1 million customers. Its work site pharmacy and healthcare initiatives are growing rapidly through the Take Care Health division. And, Walgreens is building up a national presence in such fast-growing areas as specialty pharmacy and home infusion.
Now, company executives said, it’s time to tie all those capabilities together—6,479 drug stores, its specialty pharmacies and health services and more than 600 in-store clinics and its work site clinics into a comprehensive, national system of “points of care.”
“It’s all about surrounding the patients and the payers with cost-effective, convenient, coordinated care,” said Stan Blaylock, president of Walgreens Health Services.
Some analysts who attended remain skeptical that Walgreens can quickly turn itself around. “Since we see Walgreens playing ‘catch-up’ with other retailers in certain areas, programs like strategic sourcing should be easy to execute,” noted Meredith Adler, now of Barclays Capital. “Yet stemming the loss of market share will be more challenging in our view, even with the help of fresh ideas from experienced marketers and merchants”
One analyst taking a more positive view was Mark Miller of William Blair & Co. “With half of the top executives new to the company in the last two years, Walgreens has strengthened its organization. Certainly, from a financial standpoint, we see greater urgency…to improve profitability.”
The “largest positive surprise,” he added, “was the identification of an additional $1 billion of cost savings targeted from the current $14.6 billion SG&A base.”
The good news, Miller noted, is that “management has been testing SKU rationalization” and is working to pare non-essential items and gain more insights from its vendors. He also expressed encouragement that Walgreens is working to better communicate its “relevance in the marketplace” under its new chief marketing officer, Kim Feil.
“Over the past 10 years, the number of items in Walgreens’ basic assortment grew by 19 percent, while the average basket size only increased by 2 percent,” Miuller said. “Not only has this SKU proliferation failed to entice consumers to buy more items, but it likely has had a negative impact on the company’s expense rate, working capital and return on invested capital.”
Understanding what your mentor really meant
A couple of years ago I started to write this column. I think I am just starting to grasp what it was I thought I knew so well that day. And that was really the point.
I wrote then about the important role that our mentors play in our lives. I have been lucky enough to have had more than just a few in my lifetime.
At the time, I was writing mostly about one person—Brian Moroney, a former teacher of mine at Xavier High School. I won’t bore you here with too many details about Brian or Xavier, except to say that Moroney was more than just the guy who introduced me to Shakespeare and Hemingway, and Xavier was more than just the place I went to high school.
I know they both had a lot to do with why I became a writer, so I guess I have those guys to blame. I like to remind Xavier of that when they call my house looking for alumni donations every year. “Why don’t you call one of those rich guys you made into a lawyer?” I tell them. It never works. They still call me.
But this time, it’s not about Brian Moroney or Xavier. This time it’s about Jay Forbes. As you no doubt have heard by now, 2008 marks the victory lap for Jay, as he closes the book on a 45-year career built on serving the needs of our readers and advertisers at Drug Store News and some of the other titles published by our parent company Lebhar-Friedman. And doing it the whole time with that signature smile that, at times, seemed bigger than his entire head, and a glide in his stride that told you—if you didn’t already know it—that no matter what he was doing at the time, he would much rather be dancing. Unless he was talking to you, in which case, if you were a friend of his, there was no place on Earth that Jay Forbes would rather be at that moment.
Actually, Jay will tell you this isn’t the end of the book by any stretch of the imagination—just the end of a very long chapter. And, again, if you know Jay at all, you know that is absolutely true. He is a man of boundless energy and intense passion for his work and the people in his life, and it is impossible to imagine Jay ever really slowing down any more than you could imagine the earth could ever stop revolving on its axis.
Still, it is equally hard for me to imagine Jay not being a part of my life every day. Many of you in this industry have known Jay for much longer. But over the last dozen years I have had the pleasure to work very closely with Jay, and I would be completely remiss if I didn’t acknowledge the enormous impact he has had on me both as a a friend and a mentor.
Anybody who has spent any meaningful time in this industry has a story about Jay; about how crazy he is, about how funny he is, about how big his heart his, about how big his mind is; about how much he has meant to them in their lives and careers. This issue contains several pages of just those types of memories of Jay. I have many—some of which I really won’t get into here because Lebhar-Friedman is, after all, a family publication. Again, anyone who knows Jay knows what I am talking about.
But there is one story about Jay that I will share with you, and that’s because it strikes right at the very heart of who Jay is and what his friendship and counsel have meant to me through the years.
Like so many Jay stories you will hear, it was at my first NACDS Annual Meeting at The Breakers. Having been raised on the Upper West Side of Manhattan between Central Park and Lincoln Center, it wasn’t like a I grew up any stranger to culture. Still, that first time at The Breakers, I was a little bit out of my element, to be sure, and attending meetings with presidents and chief executive officers from some of the biggest companies in a strange, new industry I knew very little about. It was one of those few times in my life that I was at a loss for words.
As we left an appointment with one retailer, Jay asked me why I didn’t say anything during the entire meeting. I told him I was new at this and really didn’t know what to say.
Completely incredulous, Jay looked at me and said, “What do you mean you don’t know what to say? Say anything. Watch this.”
Jay turned to the first person we bumped into—let’s call him Joe—and said, “Hey Joe; how you doing? When did you get in?”
Joe looked at Jay and said, “I got in yesterday. When did you get in?”
“I got in Friday morning,” Jay said. “When are you leaving?”
“I’m leaving Wednesday,” Joe answered. “When are you leaving?”
“I’m also leaving Wednesday,” Jay said. “Are you doing the fun-walk this year?”
“No, I think I am going to go fishing this time,” Joe said.
“No golf?” Jay asked.
“No, we played golf yesterday morning; our first meeting wasn’t until 2 p.m. so we squeezed in a quick round.”
“Will we see you at the L’Oreal party?” Jay asked, as the two began to move in opposite directions.
“Maybe we’ll catch you at the 3M party, Jay; we have a dinner reservation at 7:30 with the guys at [insert supplier’s name here],” Joe said.
We walked two or three more steps, before Jay turned to me and said, “You see? What do you need to know about? He and I just had an entire conversation about absolutely nothing.”
That night I watched Jay dance with what seemed like every woman who was staying at The Breakers, and at least a few more who worked there. That’s when I realized one of Jay’s greatest strengths is that he always seems comfortable in his own skin, and he wants you to be comfortable in yours, too. It also is the single-most valuable thing Jay ever taught me.
I mention Brian Moroney and Jay Forbes together here because they are related in a couple of very significant ways for me. You see, Moroney is one of a handful of teachers and mentors that, as a writer, helped me find my voice; Jay is one of a handful of people that taught me not to be afraid to use it.
And to be sure, they are both crazy.
I imagine that one thing that will change is that I probably will get a few less calls from Jay critiquing the most recent issue of Drug Store News. For years, every time he would call, just like the kids who work the Xavier “phone-a-thons” each year, I would ask him, “Why don’t you call one of those rich guys you helped make into a salesman and bug him?” It never worked. He still kept calling.
For the record, I hope he never stops calling me. Because I know that tomorrow I will understand much better the things I swore I knew so well today. And that really is the point. A mentor is more than someone who tells you stuff. A mentor is the guy who helps you understand what it all means. I have been lucky enough to have more than a few so far in my life. Jay Forbes is one of them.
So, thanks for everything you have done for me, Jay. I will miss you terribly.