Walgreen's Adventures in 'C-Space'

Blog explores "retail pharmaceutical" brand's incursion into convenience

Published in CSP Daily News

DEERFIELD, Ill. -- The Walgreen Co. "has emerged a leader in the convenience store category," said Jane Genova of The Motley Fool Blog Network. But she asks, can it incorporate convenience into its traditional retail pharmaceutical branding or will it become a retailer with a confusing identity?

If the drug store chain can incorporate convenience, "then it could be the kind of game-changer in the c-space that Wal-Mart had been in general retail. There's even the possibility it could create a new model of the old General Store which housed everything, including gossip. That would make it a Third Place, along with Starbucks, Panera and Whole Foods."

Genova cites a CSP Daily News Poll showing that 63% of responders indicated that the drugstore chain had become more of a threat to c-stores.

Click here for previous CSP Daily News coverage of Walgreen's history of channel blurring. And click here to view a CSPTV tour of Walgreen's new concept store combining "wellness and convenience." Also click here to check out CSP magazine's March 2012 cover feature on the drug store chain.

"That convenience positioning seems part of the platform for how it is navigating this era glutted with retail, ranging from Wal-Mart to Kroger, which fills prescriptions. ... Given that healthcare reform is in play, this retail segment is filled with uncertainty. ...

"For Walgreen, that "convenience" umbrella covers a continuum of on-the-run food and beverage items, healthcare services such as in-store flu shots, and, of course, no-hassle filling of prescriptions. Can this kind of integration work under one roof? The jury should still be out and it seems to be.

Like most of retail, Walgreen is in transition. Part of the competition remains the traditional drugstore chains like Rite Aid Corp. and CVS Caremark. Since so many of the three are clustered in the same locations, it's a dog fight. As yet, there is no distinct differentiation among the three, at least in the consumer's eyes. Perhaps Walgreen is attempting to accomplish that unique positioning through dominance in convenience. ...

"The other part of the competitive landscape for Walgreen is any retail entity, brick or click, which provides what Walgreen refers to as a convenient affordable solution to the whatevers of "daily living." In that it aims to be the consumer's first choice. That means it is taking on the 7-Eleven ... Chevron's mashups of gas and snacks, urban bodegas and the mom-and-pops which have survived amidst the chains.

"In the c-space, Walgreen is succeeding. The NPD Group reports that while c-store traffic was down 1.4%, Walgreen was up by the same percentage. There it's not alone, though. The drugstore channel also siphoned off market share from discount clubs and mass merchandisers. The sweet spot is one-stop shopping in a small-sized store, geared for in-and-out purchasing. This especially appeals to busy females. Also, in sort of a Norman Rockwell manner, drugstores have or had an aura of trust. Main Street was and is still used to talking with neighorhood pharmacists about sensitive medical issues. It also depends on them to pick up possible dangerous interactions among medications.

"Will that trust erode now that we can walk into a Walgreen, some open 24/7, and purchase alcohol, tobacco, sushi, flowers, postage stamps, hot coffee and much more? This summer we can get our electric car charged at some of its stores. This seems to be Walgreen's version of the gas stations which are part of the convenience store formula.

For this, it does have a location edge. That comes from its ability as a deep pocket corporation to afford to pay for high traffic areas. In selecting them, it makes it its business to be within 5 miles of where 75% of consumers live. That creates the neighborhood store feel, where many can even walk and if they drive not use much gas. ...

"Walgreen enhances these incentives with coupons and special pricing. It's big on private label and a Nielsen study found that 75% of its shoppers purchase those store brands. It is consolidating its existing store labels into one single brand: Nice! They retail at about 30% less than national brands. Managed right, the Walgreen private-label niche could become a major business in itself, analogous to Wal-Mart's Sam's Club. It is along the innovative retailers which have taken out-of-the-box steps to keep consumer interest in private label even as the economy improves."

Click here to read the complete blog entry.

As the nation's largest drugstore chain with fiscal 2011 sales of $72 billion, Deerfield, Ill.-based Walgreen operates 7,847 drugstores in all 50 states, the District of Columbia and Puerto Rico.