Well Experience adds new facet to OTC biz
For the more than 100 years that Walgreens has been in operation, the company has been focused on helping its customers, communities and patients feel well. And now, it is poised to transform the traditional drug store into a health and daily living destination.
“The traditional drug store model is very much about treatment and about ‘how I feel right now,’” from a customer perspective, noted Robert Tompkins, Walgreens divisional VP and GMM health and wellness, front-end services and general merchandise. “What we’re trying to build is a health and daily living destination that also services the need of ‘how I take care of myself,’ … from a prevention and enhancement perspective. We’re offering a unique solution set to help people get, stay and live well.”
One new example of this evolving focus can be found in the Health Guide position at select Well Experience locations. “When you go into our new format stores, the Health Guides are stationed in front of the pharmacy but are proactively engaging customers throughout the healthcare space,” Tompkins said. The Walgreens Health Guide represents a way to help bridge patients between the various health and wellness services and solutions in the pharmacy, the Take Care Clinics and front-end products. The investment behind the Health Guide — getting the right person into that position and arming him or her with the right resources — is significant. “We’re getting beyond just product, and customer feedback has been very positive,” Tompkins said. “OTCs are some of the most difficult-to-shop categories in the front end and in all of retail — having somebody who can help navigate folks to the right products and solutions is very helpful. We’re seeing great results from that element of the Health Guide role.”
“The research that we’ve done is very clear. Patients and customers are looking for more than just a store; they’re looking for a trusted relationship,” Tompkins said.
Another way Walgreens is helping to form and strengthen meaningful relationships with its customers and patients is through another innovative feature at its new concept stores whereby the pharmacist is more accessible. “The way we’ve brought the pharmacist out from behind the counter in the Well Experience stores is a unique way to bring a highly trained medical professional from behind the counter to interact more directly with patients and customers.”
Factor in the nurse practitioners in those locations that feature a Take Care Clinic, and you have an entire team of healthcare professionals who are all readily accessible. “What is happening is that you have a team of healthcare professionals that know and trust each other … and that’s incredibly powerful. When our customers and patients see that there is a connected health team, the right services and the right products including prescriptions, OTCs, and immunizations, that’s a powerful combination!” Tompkins said.
And that commitment to being a healthcare resource extends throughout the store, Tompkins said. “Sometimes it can be something as simple as our ‘Answers at Walgreens,’ store signs and brochures on given disease states. And if [the customer] wants to go deeper, at her leisure she can go to Walgreens.com and access a more detailed level of information, including Pharmacist Chat. And of course, she has our pharmacist in her Walgreens store. We want to deliver the information, services and products our customers have come to trust us for when, where and how they want it.”
This creates unique opportunities for vendors to work with Walgreens on programs that go beyond the shelf to create more of an integrated experience for health and wellness. One example is a video endcap display in the company’s State and Randolph flagship location in Chicago. The display encourages walkers-by to quit smoking. The touchscreen monitors, which have been rolled out to Walgreens flagship stores through a partnership with GlaxoSmithKline, help set the store apart from traditional retail pharmacy experiences. The interactive display directs in-store patients to the retail pharmacy’s trademarked “Answers at Walgreens” feature on Facebook, boosting its potential touchpoints with customers through its expanding social media platform. That application was launched a year ago together with Sharecare, an expert question-and-answer online platform addressing health topics.
Tompkins also mentioned the healthier choices available to customers throughout the Well Experience store, such as fresh fruit in the consumables area, and all-natural beauty products in cosmetics. “We want to make sure we can support and encourage healthy daily choices.”
Healthcare reform, and where the market is going, is a critical driver to the Well Experience. “Patients, customers, employers and payers are more and more interested in preventive health,” Tompkins said. “As we see wellness really starting to evolve into something very tangible, we’re in a position where we will play an important role in the communities we serve.” Without a doubt, with its Well Experience stores, Walgreens has created a place for patients and customers to find the healthcare information, services and products they need to get, stay and live well.
Changing the game of drug store merchandising
"You’ve got to skate to where the puck is going, not to where it’s been.”
That’s how Bryan Pugh, who is Walgreens’ VP and chief merchandising officer, described how the merchandising department functions at Walgreens. It’s a fast-moving game. It’s got to be fluid. And if you lose focus for even one second, you stand the chance of being railroaded into the boards and becoming less of a force in the game.
Walgreens has been actively identifying possible category opportunities by store segment and testing those categories across a manageable sample set of stores. If appropriate, the company identifies how best to roll those new opportunities across its almost 8,000-strong store base.
Beth Stiller, Walgreens division VP for category strategy, innovation and space management, does a lot of the heavy lifting in optimizing the merchandising to the stores. “Good retailers always have someone reporting into the merchant that is a neutral entity,” Pugh said. “When we look at remodels or we look at new stores, her division [reviews] the data and then sits down with the [merchant] teams,” he said. From there, they match the best mix according to store location, projected volume, selling space and customer demographics.
Pugh added, “I am very thankful that we have a very solid merchandising team with solid leadership in the GMM roles: Shannon Curtin on beauty, personal needs and seasonal; Robert Tompkins on health and wellness; and Steve Broughton in food and convenience goods. Our category managers and category specialists are making tremendous progress over the last year, and we are looking forward to continuing to change the traditional drug store into a health and daily living destination.”
With two-thirds of Walgreens’ locations being suburban stores at great corners with a drive-through pharmacy, Pugh and his team help other locations stand out, Pugh said. “There is a grocer on the same corner. There is a dollar store down the street. The competitive set is very similar,” he said.
The remaining third of its store base is very different, Pugh said. “It’s Times Square. It’s the beach store. It’s the Arkansas marina store [that’s] down the street in a little town close to a lake, and during the summer months, you do incredible float business, offer coolers, cookout gear.” These stores trade very differently, Pugh said.
The drug store company currently has four flagship locations, including a Duane Reade at 40 Wall St. in New York, State and Randolph in Chicago, Harmon Street on the strip in Las Vegas and a location in Puerto Rico. Walgreens plans to announce approximately a dozen additional flagship stores over the next 18 months. “When it comes to these stores, Mike Defazio — who is our primary store designer for flagship locations — is a great talent to have here at Walgreens,” Pugh said. “He and his team have made great progress, and we’re excited to hear what our customers think.”
“If you truly want to unlock the opportunity — content relevancy — it comes down to location,” Pugh said. That means knowing the local environment on a store-by-store basis. It’s the right offers in the right doors, Pugh said. It’s knowing the neighborhood — residential, office or tourist area. And it’s about knowing what roles pharmacy and wellness can play in those locations. “It’s just not stamping out the same thing,” Pugh said. “It’s taking the content of the entire box, not just my section of the front-end, and saying, ‘Where do we play and what is the best way to leverage that box to [realize] the maximum return?’”
Fresh is a good example of how to best match the right offers to the right door. “[In each market,] we’ve got a sandwich manufacturer, we’ve got a salad manufacturer, and those goods come from a closer proximity [and] go into a [third-party] centralized distribution center,” Pugh said. Stores carrying that merchandise get shipments regularly during the week. “That’s what that model requires. … It brings a lot of complexity,” he said. “How do you get it there? What do you sell? How much space do you give it? That’s the organizational structure changes that we’ve been making.”
What’s written between the lines, of course, is that if one category is folded in, that usually means another category is losing linear feet of selling space. That’s part and parcel to knowing where the puck is at all times.
The recently launched loyalty program, Balance Rewards, will help Walgreens further hone its mix with right-sized offerings in the appropriate settings. The loyalty program will give Walgreens a deeper look into who’s shopping their stores and why, help identify who is cross-shopping pharmacy and front end and help delineate possible nontraditional category synergies.
“Loyalty helps you get to a better place to make real estate decisions because you actually know who’s traveling from where,” Pugh said. “We have stores that have 70,000 cars a day that pass them, because they happen to be on a commuter route either going home or going to work. Those types of stores will have a much bigger trade area than a store tucked away in a community that is [only] 15,000 cars per day, but they’ve got 8,000 people within a small trade area,” he said. “[Those stores] don’t survive on car traffic, but then you have a much tighter net; you know 90% of your sales will be coming from a much closer proximity.”
The consumer insights culled from loyalty also is expected to help improve Walgreens’ merchandising of its store brands. Private brands play a big role in the merchandising mix, Pugh acknowledged, and for good reason — it helps the retailer better compete for what has become a more post-recession, value-conscious consumer. Keeping abreast of how a particular category plays in-store is a big part of Walgreens’ private-brand strategy. “We’ve had a huge emphasis on private brand, whether it be Nice! [or] Delish. You can see a lot of the new Studio 35 beauty that’s just coming off the line right now,” Pugh said. “We’re also seeing more customers reaching for our PetShoppe products, which are giving our private brand a boost.”
Moe Alkemade, VP retail brands and global sourcing, manages Walgreens’ private brand strategy, and he works with Pugh and Walgreens’ GMMs to develop forward-looking action plans for how private brand plays in each category. “How do we do more sales, grow topline, but at the same time grow profit dollars faster than sales dollars?” he asked. “You’ve got to do what’s right for the business and get the best return for the shareholders and offer the best value for the customers. Otherwise, that kind of renders you irrelevant to consumers.”
For noncore businesses like paper, which represents a convenience play, the strategy is to generate volume with the larger vendors in that space and position private brand as the value proposition rather than competing on a broader assortment against mass and supermarkets, which can move paper more efficiently — a learning from Customer Centric Retailing. In other categories? “Brands are more important, so you’ve got to be careful not to move too much. But there are some categories where you can really change the game,” Pugh said.
That’s what all of Walgreens’ merchandising efforts really boil down to — changing the game.
So with all of Walgreens’ ever-evolving market strategies — from CCR to a greater presence in fresh, the Well Experience stores, the flagship locations, Balance Rewards loyalty and even private brand — it all comes back to keeping your eye on the puck. “If you keep doing the same thing and the world is changing, you’re doing [something wrong],” Pugh said.
Re-imagining the great American drug store
How do you transform a drug store into something else? Something new. Something no one has ever seen before. And what would it look like?
To truly reinvent something, you have to be willing to let go of everything you’ve ever known or thought you knew about it; you need to erase all of the preconceptions and abandon the archetypes of what you think it is, what people told you it should be. You need to find the white space.
If you ask Joe Magnacca, Walgreens president of daily living products and solutions, that’s what the best retailers have done all over the world. The chance to be able to do that himself is what brought him to the United States, to Duane Reade and then Walgreens, after many years as one of Canada’s rising stars of merchandising, with an impressive track record at Loblaw’s and Shoppers Drug Mart.
“Drug, particularly in the United States, was an area that had seen very little advancement over the last several decades, both in the format and the content,” Magnacca told DSN in a candid and wide-ranging discussion on retailing and his vision for store and content development. “Even though at Walgreens, there had been some pretty major advancements, those had been primarily pharmacy-based.” Magnacca believed the front-end could “contribute at a much faster rate as part of that innovation.”
“What I saw when I was in Canada was an opportunity … to move away from being primarily a very specific, needs-driven reason to shop and become a place where people want to shop,” Magnacca said. “Here in the United States, and in Canada, we had become focused mainly on size and replicating the existing model — and doing a great job of it, getting the best corners in America. But even more importantly, it was basically a pharmacy-led model.”
Meanwhile, over in Europe, retailers like Boots in the United Kingdom — Walgreens’ brand-new corporate partner — were shaking up the box as if it were a giant Etch A Sketch, and creating a whole new take on the shopping experience. “We thought the European model had really progressed at a much faster rate,” he said. “What we thought they had done so effectively was just to release themselves from the traditional drug store format and become more focused on what we call the three pillars: health, beauty and convenience. They had become focused on reinventing themselves and not just living with the existing model.”
So, Magnacca and his team at the time at Duane Reade — empowered by former Duane Reade chief John Lederer, who brought Magnacca in to help create a new identity for what had become a tarnished brand with great real estate — set about on a long process of redefining the old Duane Reade, and really, the old drug store model. While that’s not exactly something you can just flip a switch on, Magnacca’s group moved fast. After decades of dusty window displays and cluttered stores, Duane Reade opened up the windows, lowered the shelves, widened the aisles, cut away at declining categories and “put more relevant content in the stores,” he explained, and rezoned the stores around three basic areas: “how I look,” “how I feel” and “what I need now.”
The results began to show up in the registers.
“Customers gave us significantly more credit across our store,” Magnacca said. “One of the things that was pretty clear was that when you began to expose the store to the street and you brought in the natural light, and even though you reduce the linear footage, you tended to get more credit from the customer for having more selection in the store.”
It was the birth of the health and daily living store — call it version 1.0. And it was a big part of why Walgreens wanted to buy Duane Reade. Besides the fact that the deal made it the market leader in one of the most important markets in America, it also spring-boarded two of Walgreens key strategic goals: to transform the drug store and elevate the customer experience.
There is no denying the influence of those early learnings in the evolution of version 2.0, Walgreens’ new Well Experience store format, which the company began to roll out slowly last year, completing its first market, Indianapolis, in late 2011. Well Experience marries the best of what Duane Reade had been doing in the front end, with the considerable work Walgreens had been doing over the past several years to reinvent community pharmacy and advance the profession beyond just dispensing.
One of the key things that the Duane Reade deal brought to Walgreens was a much more localized approach to merchandising. It’s something of a necessity in a market like New York, where the trade area and the people shopping in it literally change from one block to the next. But as a chain of 8,000 stores, to be able to move away from the one-size-fits-all approach that had defined U.S. pharmacy retailing for decades, and achieve that level of content relevance in markets all across the country, would be a decided advantage.
“Each market is about making choices,” Magnacca explained. “What we want to focus on with our merchants is: We think we can sell anything in our stores — with our traffic count and 6 million customers in our stores, you probably could sell anything. But one of the key disciplines we put on ourselves is, what’s the right product to sell in the right store, and what products do we just not want to enter at all? The toughest thing to do is to decide what not to sell as opposed to what to sell. It’s saying no to certain categories and making some very tough adjustments.”
In the Well Experience stores, it means some very tough choices in categories that were once destinations for drug stores — some are easy, like VHS tapes and film; some are harder, like batteries and greeting cards. “Those categories are less relevant today than they were years ago,” Magnacca described. “Yet our footages in these categories really didn’t change. … So now part of what we do is making sure we have the right footage in the right stores to get the right productivity — we’re very focused on productivity per SKU per store.”
That basic mindset ties in very neatly with the Customer Centric Retailing work Walgreens had already been doing prior to the Duane Reade acquisition. It’s about understanding how different categories play in different stores. Take its Chicago locations at the intersection of State and Randolph streets, and 75th and State streets, for example. “Both stores are about equal in size … only a few miles apart, but they’re very different in terms of content,” he said. Both stores feature expanded food offerings, but how that plays out in each store is dramatically different.
The store at 75th and State serves a community faced with limited access to healthy food options and medical care. In a sense, the location serves both as the local supermarket for the community, and the Take Care Clinic in it is an entry point for the many people in the area with no medical home. It is a strong example of the role Walgreens believes it can play to help fight America’s massive healthcare crisis, and provider shortage, from a total health and wellness perspective.
Meanwhile, down the road, the store at State and Randolph — one of Walgreens’ souped-up flagship locations — plays to a downtown professional. “It has expanded food,” Magnacca explained, “but it’s a very different mix; it’s got fresh sushi and a very high-end wine and spirits play. And of course, it has our high-end [LOOK Boutique].”
It’s no longer just a matter of rolling out one store concept and making local modifications along the way. It is a key reason that Walgreens will proceed so slowly with the rollout of Well Experience. The new stores represent a major investment to try to engage customers in health and wellness, from the new pharmacy design that puts its more than 27,000 pharmacists in the center of the action, to the addition of a Take Care Clinic in many stores, to the iPad-armed Health Guides who will help customers navigate it all. It all creates a need for the front end of its business to ensure that it models Well Experience on a market-by-market basis, Magnacca explained, at a pace that enables it to drive better top-line results. It’s about making choices, and whatever it puts into the box means something else has to come out to make room.
Guiding those choices is a rather sophisticated, multidisciplinary approach to regional buying it calls “mass localization.” Coordinating that effort is a group created out of the restructuring of Walgreens’ merchandising and marketing teams in late 2011, the inventory strategy and localization team. “We had become a very good retailer in terms of localizing, but a lot of that was happening at the store level — we believed we needed to make that a core competency of our corporate office,” he explained. “The team works with our local operators to make sure we get the best products in our stores at the best price.”
A good example would be in the wine category. “We would say that a percentage of the wine that we carry in our stores should be locally sourced,” he said. “In markets where [they’re known for wine production], such as California or in the Northwest in Washington state, we would argue that there needs to be a higher percentage of [locally sourced wines] in those stores versus other markets like New York or Chicago.” Another example would be in natural health categories in West Coast-based stores, where those types of items tend to hit the market first.
All of these decisions come back to one key mission: to be customers’ first choice for health and daily living. It’s about being different from everything else out there in the market; it’s about giving customers every imaginable option for how they could shop your brand, and then imagining a few more; it’s about making customers rethink how they shop the drug store and what they shop it for.
That is a key role of Walgreens’ growing stable of flagship stores. The stores serve as test labs for new concepts in categories throughout the store, but particularly, in fresh and beauty. Walgreens now operates flagship stores in New York, Las Vegas, Puerto Rico and Chicago, with plans to add more, including a new one in Los Angeles coming in November and Boston next spring.
Of the many new concepts Walgreens is testing in the flagship stores, which does Magnacca think offers the most promise? Some elements you’re already starting to see reflected in the stores, he said: “For example, taking nail from a traditional in-line category and putting it out in the front of the store in a unique fixture is now a standard in our new format stores.”
One new program Magnacca believes has legs in multiple stores brings a new dimension to its multichannel strategy through the integration of Beauty.com into the LOOK Boutique. “State and Randolph is a good example of that, where you can kiosk the Beauty.com business,” he said. “We think that has tremendous horsepower in terms of differentiating ourselves.”
Another of the beauty businesses it believes has potential in fashion-forward markets like Puerto Rico — which indexes particularly high in beauty relative to Walgreens’ other markets — is its OPI-Essie Nail Salon concept. The Ramy Brow Bar is another element that fits in many of its markets and is currently being rolled into select Look Boutiques. The company also is testing a blowout bar concept by PhytoNation at its 40 Wall St. store, where it also recently began offering men’s haircuts.
The other major opportunity to test new concepts is in convenience food and fresh. As Walgreens continues to experiment here, it is finding that what once may have seemed like pretty far-out ideas have much broader application across a good number of stores in a variety of markets. “Although we won’t put sushi bars in all of our locations, [it’s] something we feel we can offer without having to have a sushi bar in a particular store.”
And again, a lot of it is already starting to show up in the Well Experience stores, according to Magnacca. “In the Indianapolis market, you’ll see that all 70 stores have a big fresh component to them; you’ll see that, too, in our Chicagoland stores, where several dozen locations have gone to the Well Experience format. They all have various elements of fresh, whether it’s fresh fruit and vegetables, fresh sandwiches [or] expanded fresh grocery. … Those elements have already started to be applied into our model,” Magnacca said.
What’s next? Currently, the chain is testing frozen yogurt, freezie machines, high-end barista-staffed coffee and pastry bars, and most recently, it introduced a new made-to-order salad bar it calls Chop in the new 100 Broadway store, as well as a self-service soup bar.
All of it creates new reasons for its customers to shop its stores, new ways for customers to relate to the experience of shopping a drug store and what to expect. All of a sudden, the drug store is a place you go for your coffee in the morning. It’s the place you pick up a salad or some sushi for lunch. It’s the place you go to grab a bag of groceries to make for dinner — not just something in a box you can microwave, but a fresh meal that matches the health and wellness mission happening in the rest of the store. It’s not just a place you go to buy a bottle of nail polish or a lipstick; it’s the place you go to get your nails done, or to go talk to one of 26,000 beauty advisers about which high-end prestige brand works for your skin type. It’s not just the place you go to get a prescription or pick up a package of cold remedies; it’s the place you go to get your flu shot or a physical. It’s the place you go to get well and stay well.
That’s a massive transformation. It’s about moving beyond an item, a price and your weekly flier program to drive people into the store. It’s about selling an experience as much as the items in your store — because anybody can sell an item, and just about everybody does. “Years ago it was channel-blurring with mass,” Magnacca said. “Today, it’s everybody from Amazon to Sephora … that is going after your business. We need to continue to create theater in our stores.”
And that’s a constant process. As much as the transformation begins before the vision — in the white space that sparks the vision — the vision is constantly evolving. You’re really always in a state of transformation.
“If I told you before we started doing it, that we’d be doing fresh sushi at 40 Wall St., before we opened that store, you would have said, ‘No way,’” Magnacca said. “But as part of an overall strategy to make a commitment to the consumer, and getting that halo effect around fresh, it makes all kinds of sense.”
That’s how you transform a drug store into something no one has ever imagined. That’s how you make a health and daily living destination.