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Walgreens, based in Deerfield, Ill., is the largest drug retailer in the United States. And once the company completes the second step of its transaction with
Walgreens’ Private Brands
• Walgreens – Health & Wellness/OTC
multinational health and beauty group Alliance Boots, it will become the largest drug retailer in the world.
But to call Walgreens simply a “drug retailer” is misleading in a retail landscape that continually reshapes itself, blurring previous rubrics of classification as firms jockey for the diversity of available retail dollars, spanning everything from general grocery, prepared foods, and foodservice to pharmacy, health and wellness, personal care, and beauty – all categories that Walgreens currently serves in various capacities through its private labels and stores, and most notably its destination-aspiring flagship stores.
“Retail is changing in two ways,” said Maurice “Moe” Alkemade, group vice president of retail brands and global sourcing for Walgreens. “There’s an area where some retailers are trying really hard to promote value, and the other side relates to promoting the experience. The trick is to be able to win at both.”
What started in 1901 as a single store run by Charles R. Walgreen, Sr. in Barrett’s Hotel, at the corner of Bowen and Cottage Grove on the South Side of Chicago, has expanded to a national chain of more than 8,000 units, located in all 50 states, as well as the District of Columbia and Puerto Rico.
Public acquisitions through the years have included MediMart (Stop & Shop), Happy Harry’s, and Duane Reade, as well as its strategic partnership with Alliance Boots. Company revenue for 2012 hit $72 billion.
Alkemade indicated that the path forward will come through promotion of both value and experience for customers – and this will come through the experience provided by the flagship and Well Experience stores, garnering a differentiation compared to the competition.
Flagship Walgreens stores have opened in New York, Boston, Las Vegas, Los Angeles, San Francisco, and Puerto Rico, in addition to two locations on the company’s home turf, Chicago. One of the Chicago flagship stores is located in Bucktown's newly restored, historic 1919 neo-classical-style Noel State Bank building (the old bank vault remains cleverly intact, now housing the store’s selection of vitamins and dietary supplements). Other flagship stores are in development in Miami and Philadelphia.
These flagships have, in many ways, been designed as “destination” stores.
The stores carry a diversity of unique offerings – fresh food, frozen yogurt bars, coffee bars, a high-quality beer and alcohol selection. But the time-honored real-estate idiom, “location, location, location,” is firmly at play in finding strategic sites for these flagship stores.
The selection of the locations for these flagship stores is critical. The stores cannot compete with other businesses in the area that might already provide the same product selections, which would dilute the destination idea. These stores provide products and services that go well beyond what customers might think of when they walk into a traditional Walgreens.
A Private Label Showcase
The new Walgreens flagship stores provide an ideal showcase for the retailer’s private labels.
“The stores’ design and principal concepts not only demonstrate to consumers that we’re in the market and provide variety and unique offerings,” Alkemade said, “but also lend the opportunity to highlight our quality private brands. These brands play a much greater role in flagships and in some instances, this environment serves as an incubator to try new ideas to see how they perform before launching them chain-wide.”
The flagship stores have, of late, helped spur solid front-end sales, with strong performance from private label.
“Private brand is on track to exceed targets,” Alkemade said, “so it has been very successful, and it’s contributing heavily to the success of front-end.”
Before joining Walgreens in 2009, Alkemade had a decade-and-a-half stint at Kraft Foods, and the brand-oriented, innovation-led focus he brings to Walgreens’ private labels clearly reflects that experience.
“What you’ve seen from us is a tremendous amount of innovation,” he said. “In both Nice! and Good & Delish, we have really expanded the innovation side of things, and we’re seeing that pay off.”
Walgreens recently added new ice cream products to the Good & Delish line to compete in the premium segment, some of which have ties to the chain’s promotional sponsorship of the reality TV show, “All-Star Celebrity Apprentice.” The final episodes, which aired earlier this year, were based on the premise of creating a new flavor for the Walgreens Good & Delish private brand, with Maple Macadamia Mash-Up (maple ice cream with macadamia nuts), created by country musician and actor Trace Adkins, eventually squaring off against Vanilla & Chocolate Magic Swirtle (vanilla ice cream with a sea salt chocolate swirl and fudge caramel candy pieces), created by illusionist and actor Penn Jillette. Sales of the flavors at Walgreens and Duane Reade stores contributed to selection of the show’s winner.
This TV-based initiative clearly demonstrates changing retailer perspectives on investing in the promotion and merchandising of private label products – and other promotional connections are in the works for Walgreens. The company has joined forces with “The Biggest Loser” to create a web-based series that will highlight the chain’s “Way to Well Commitment” program, which focuses on improving health through prevention and early detection of leading diseases like heart disease, cancer, and diabetes.
The acquisition of New York drug retailer Duane Reade also provides an outlet for Walgreens private labels – and some sourcing synergies. Alkemade noted that the company has compared and contrasted the Walgreens private label portfolio with what Duane Reade offers to determine any redundancies, and to gain a better perspective on sourcing efficiencies.
One concept that has been trending forward is the commingled idea of “green” and “natural” products.
This desire for ingredient simplicity has begun migrating from niche to mainstream over the past several years, first in food and now in the personal care and household goods categories – and the new Walgreens Ology line is helping lead the way.
“The intent of Ology is to lead the market in a new line of products that are free of certain harmful chemicals,” Alkemade said.
The release of this private label line has caused quite a stir.
“A lot of national brands are now following us,” he said. “We launched about 20 items in September and October of last year. We just launched another 20 items in April. It has been very successful, and consumer response has been great.”
Ology includes products in baby care, personal care, and household products from detergent to light bulbs and plates. Some products are manufactured via 100 percent wind-generated energy, and several Ology paper products are made with renewable, sustainable bamboo and/or sugar-cane husk, and are biodegradable.
All packaging for the line is made with 100 percent post-consumer materials, and none of the products include animal testing as part of the formulation process.
Returning to Foodservice Roots
One immediate change consumers are likely to note upon entering a flagship Walgreens is the renewed emphasis on fresh food – and not just in the grocery displays. The foodservice and prepared-food aspects of these units are both an extension of, and a complement to, the chain’s private label efforts, Alkemade noted.
“Where it makes sense, and when something is not being offered by others in the area, we’re absolutely going to take advantage of it,” he said. “And I think it’s important that it falls under our brand, because it really helps build brand equity.”
Foodservice has found new degrees of depth in these flagship stores, and Walgreens has been widely publicizing that development. Before opening the Los Angeles flagship store (the 8,000th location for the chain), Walgreens brought select new foodservice options to the city’s streets via a food truck, dishing out samples of blended fruit and vegetable juices, frozen yogurt, smoothies, and coffee.
The flagship stores also can include prepared foods and foodservice options such as hand-rolled sushi and sashimi, pastries, sandwiches, wraps, salads, and the myriad permutations dispensed via in-store Coca-Cola Freestyle machines. Many items, including the convenience-positioned grab-and-go sandwiches, wraps, and salads, are made fresh daily. The coffee bar, dubbed Upmarket Café, features baristas preparing coffee and espresso drinks – along with iced and frozen coffee drinks in some stores.
In some of the alcoholic beverage sections, a Beverage Wizard kiosk offers suggested food and beverage pairings, matching the on-hand selection of fine wines and other adult options with the store’s artisan cheeses, chocolates, and specialty cured meats. Some locations even sport outdoor cafés.
At the Chicago flagship stores, the Upmarket Café serves private brand State and Randolph coffee, developed by Walgreens in collaboration with Chicago-based Metropolis Coffee Company. The State and Randolph store also offers malted milkshakes – a concoction famously popularized by Ivar “Pop” Coulson, a Walgreens soda fountain manager, back in 1922. His creation married malted milk (made with Horlick’s malt powder) with the milkshake, adding a generous portion of Walgreens private brand ice cream to the typical malted-milk mix of milk, chocolate syrup, and malt powder. Walgreens already had been manufacturing its own ice cream at its plant in Chicago, and in the wake of the overwhelmingly positive response to Pop’s malted milkshake, the company upped production.
And although some might posit that the expanded foodservice options ushered in with today’s flagship Walgreens stores is a new tack, the idea dates back to the early days of the chain. To take advantage of store soda fountain counters year-round, when warm weather turned the corner to winter and cold sodas and frosty malted milkshakes were no longer in favor, store counters were seasonally converted over to foodservice, offering home-cooked breakfast, lunch, and dinner.
In fact, foodservice was a regular aspect of Walgreens stores through the 1980s until Walgreens cut back on those options while the company briefly tried its hand at running a separate casual, family-style restaurant chain called Wag’s. Today, foodservice at Walgreens is alive and well, seeing newfound vitality in the chain’s urban flagships.
The flagship stores are a subset of the Walgreens “Well Experience” concept, which strives to transform the customer experience. It represents Walgreens’ focus on the total customer experience, in the front of the store and the pharmacy.
The Well Experience stores integrate a new approach to the pharmacy, designed to foster enhanced interaction between pharmacists and patients, bringing the pharmacist out from behind the counter to more effectively, and more personally, counsel patients, offer clinical services, and answer questions. The new approach also can include an “Ask Your Pharmacist” desk, a Take Care Clinic offering various health-care services, consultation rooms, iPads to aid in navigating the various Well Experience offerings, and an Express Rx kiosk for faster checkout.
The Well Experience also is an opportunity to highlight new private labels.
“We just launched a new brand called Well Beginnings, a baby brand,” Alkemade said. “We’ve had Walgreens brand in that area, but we felt that we could do a much better job by creating a new brand.”
The name for the line is a clear nod to the Well at Walgreens initiative.
“We really wanted to differentiate it, because it’s a baby category – it’s more emotional, more connected to mothers, more about catering to babies,” he said.
The overall Well Experience initiative dramatically changes the feel of the pharmacy at Walgreens — and the store overall. It changes the environment. It changes expectations.
The flagship stores also feature Look Boutique beauty departments with available brow-shaping and other beautification services, including “virtual makeover” kiosks. All stores are staffed with “beauty advisors” available for on-the-spot consultation.
The addition of the Boots No7 products in the wake of the eventual Alliance Boots merger brings depth and diversity to the Walgreens beauty department, and helps transition in a new private label to the Walgreens family of brands.
Setting the Bar High
Acquisitions, mergers, and creation of new lines all provide viable routes to expanding and diversifying the Walgreens family of private brands.
Quality, too, has come under the microscope. The innovation-rich environment at Walgreens of late has resulted in a new approach to R&D benchmark testing. Although retailers always will benchmark private label products against national brands, that’s not the end of the process at Walgreens.
“What we’ve done, is we’ve also created our own specifications,” Alkemade said. “So whether the item is similar to a national brand or not, we’ve gone the extra step and created our own specs, and use third-party auditors to measure against them. It’s not that we don’t necessarily still compare ourselves against national brands. But it’s really important that we specify ourselves on what we believe the performance and quality need to be.
“In many instances, we want to be better than national brands. And that’s the beauty of what we’re trying to develop – better than, but at a value to, national brands. That’s why it’s important that we don’t just benchmark ourselves to national brands.”
This is the common thread running through the private labels and various in-store services offered at today and tomorrow’s Walgreens flagship locations – from grocery and foodservice to pharmacy and beauty: increased value and service at everyday prices. They offer high quality, but at a more-attractive price point than national brands, or when compared with similar services found at beauty salons or department stores.
Another aspect of Walgreens’ path to differentiation is its new approach of treating private label lines as brands, not just isolated products. This tactic tracks consistently from innovation through R&D and product development, packaging, marketing, and merchandising.
“Whether it’s flagship stores, whether it’s Well Experience, whether it’s private brands, it’s really about differentiating ourselves,” Alkemade said. “And those retailers who are able to do that are the ones who will be successful in the end.”