As the stalwart drug chain goes upscale, retailers ponder where wellness and convenience collide.
A Corner on Corners
As Davis of Stinker Stores says, Walgreens had a revelation during its evolution.
High-traffic, convenient corners would be an integral part of its new formula, so much so that the chain was willing to shutter profitable stores in favor of opening a new site at a nearby location with better traffic.
The overall effect, in some instances, was competitive bidding for prime real estate—not just from Walgreens but also the likes of CVS, major dollar-store chains and other retail formats.
Oddly enough, Thornbrugh of Quik- Trip says the recession actually slowed the bidding activity from cross-channel competitors. “We’ve had a similar philosophy that if a location is making money but not reaching our threshold, we cut our losses and move to a better spot,” he says. “But economic woes have slowed [our competitors’] aggressive approach and given us the opportunity to be aggressive.”
What’s also a factor is reinvestment in current stores, says Steve Montgomery, president of b2b Solutions, Lake Forest, Ill. “When you look at Walgreens’ network, you see a lot of new or nearly new stores,” he says. “Even when I’ve gone into an older location, it’s been redone, re-laid out or brought up to the extent that the physical size will allow the same things as in new stores.”
Can’t Touch This
Despite the financial might that a company such as Walgreens can put into its convenience efforts, c-stores still have an edge, according to Jim Fisher, president of IMST, a consultancy based in Houston.
Taking fuel out of the discussion to better compare, he says drug stores lack the convenience mindset needed to outpace c-stores. In addition to having inand- out parking, another benefit is that c-store employees prioritize a fast checkout. “[At drug stores] at certain times of the day, you won’t see any [employees],” he says. “They’re stocking, in the photo lab, cleaning or doing facings, but not behind the counter. When they see someone, then they position themselves.”
The pared-down number of SKUs at c-stores also makes the shopping experience quicker.
Fisher makes a huge point by asking, “And when was the last time you went to the restroom in a Walgreens?”
In newer ones, maybe you have, Fisher concedes.
But Walgreens certainly fails to “promote restrooms, and if they do exist, they’re not accessible.”
But don’t think Walgreens is blind to its weaknesses on the store floor. Part of its strategy for transformation is an “outstanding— even memorable—shopping experience.” In its 2011 annual report, the chain touts an initiative in “setting new standards, providing training and developing leadership skills” to strengthen employee “engagement” with customers. What people consider Walgreens a destination for “is totally different than a c-store,” Fisher says. “That being said, an older-generation c-store, one that does not reflect industry standards or has not stayed current or doesn’t have the most provocative product-and-service mix within the store, then yes, it’s [vulnerable]. But that’s self-created, not created by Walgreens.”
Despite competitive overlaps, Walgreens is still a pharmacy, and Neil Stern, senior partner in retail consultancy McMillan- Doolittle LLP, Chicago, advises competitors to see the forest for the trees.
“As much as we want to focus on the boxes and what they do in the front, they still are very driven by the pharmacy business. … The heart of Walgreens is and will continue to be a focus on the pharmacy business and health and wellness,” he says.
(Happening at the same time as the company’s recent enhancements is its battle with prescriptions manager Express Scripts. Walgreens announced last year it would end its contract with the company after the two were unable to reconcile a pricing dispute. The result could mean Walgreens may have to turn away billions of dollars in sales.) Where the pharmacy side hits c-stores is as a traffic builder. “The easiest way to build sales is sell more to the customers you already have,” Stern says. “If people go for prescriptions, the likelihood of them to buy something else [increases].”
As it rolls through 2012, Walgreens is seeking to transform the pharmacy from a simple transaction to an experience, what it calls the “Well Experience.”
On display at the Chicago flagship are some of the elements of the Well Experience, including greater access to pharmacists by bringing them out from behind the counter; the Take Care Clinic, for health-care services such as vaccinations, physicals and treatments for minor injuries and common illnesses; and greater integration between the pharmacies, clinic and retail categories to create a “community health corner” in stores.
On the retail end, the Well Experience also includes a miniature spa for getting a quick manicure, as well as more upscale beauty products and lifestyle brands.
The pilot program for Walgreens’ Well Experience included more than 20 locations in the Chicago area. In mid-January, the format was expanding to Indianapolis.
The Well Experience is aptly named. It promises something consumers increasingly expect: an experience.
And it’s only natural for Walgreens to build its experience around health and wellness. It starts from what customers identify with and expands it to the “pursuit of a higher quality of life, as well as spiritual and emotional wellness,” according to the company.
For c-stores, where the rubber meets the road is how the Well Experience will affect competitive categories, namely foodservice.
“There is likely significant opportunity for Walgreens to exploit the intersection between the health-and-wellness side of the drug store retailing (prescription drugs, OTCs) and foods and beverages,” says David Wright, senior associate at research consultancy The Hartman Group, Bellevue, Wash.
Will drug stores become a “third place” akin to Starbucks? While The Hartman Group has found that from the consumer perspective, drug stores have indeed evolved into something more than a source for medicine, “most drug stores are not exactly ‘fun’ places to hang out in,” Wright concedes.
In the end it comes down to occasion, and Stern of McMillanDoolittle believes the drug channel might be the wrong tree to bark up. “Based on what I think of the occasions c-stores have, I might be more worried about Starbucks, McDonald’s and Dunkin’ Donuts than I would be worried about Walgreens,” he says.
In assessing what drug stores such as Walgreens offer over c-stores, Fisher of IMST advises retailers to stay upbeat. “There’s never a shortage of doomsayers— everyone wants to go out and find what might be a problem rather than what is a problem,” he says.
“Ninety-eight percent of all competition is self-created. If all retailer facilities were doing everything correctly—staying current, positive and having the ultimate customer experience—would we be saying, ‘Are drug stores moving in?’ Absolutely not.”
What Women Want
In the battle for market share, drug chains have one forte: attracting the female shopper. Females are increasingly what Susan Morris calls “chief purchasing officers.” They make up 51% of the population and 50% of the workforce, and they are the main purchasing decision maker in a household that’s increasingly made up of three generations.
“I don’t think any of us have woken up to just how powerful women are for pretty much every product out there,” says Morris, owner of retail consultancy New Height Group, West Boothbay Harbor, Maine.
Appealing to the female shopper, says Morris, means being intuitive, speedy, authentic and trustworthy. “There is no downside in an organization focusing on females. If you focus on doing it right for the female consumer, the guys will be happy,” Morris says. Nonetheless, Morris doesn’t see Walgreens as a particularly innovative company. She looks more to brands such as Dunkin’ Donuts, Starbucks and Caribou Coffee as competition—and aspiration. “No c-store has become the Caribou coffee of the industry, of the local, third place. … The good/ bad news is, no one has gotten it right,” she says.
Tackling Foodservice Distribution
Channel blurring is probably most apparent further up the supply chain, with manufacturers and distributors having clients in multiple segments. Dan Elrod, vice president of sales for mass markets for McLane, Temple, Texas, says the company currently meets the convenience-related needs of retailers in the mass, drug, club and supermarket channels.
What’s at stake is its share in the growing demand for convenience items, especially foodservice. To meet future demand, McLane had to make a sizable commitment in equipment and technology.
“For the past 15-20 years, [c-store] retailers knew they needed an effective foodservice strategy. But few were willing to make it happen” often because margin pressures and spoilage rates are a difficult balance, he says. “Market leaders in many channels have taken the plunge and are ‘all in’ with fresh food. ... The consumer demand for food choices and the subsequent store traffic it drives means the commitment level is high. They’re making it work.” The larger trend is one of accessibility, Elrod says. Whether from a downtown office worker who can now go downstairs for a sandwich or someone in a rural town who no longer has to drive 2 miles for one, cross-channel competitors are discovering what for them is new demand. For food-drug-mass retailers, that successful formula may differ drastically from c-stores. “For some retailers, if they can grow store traffic and break even on food, they’re way ahead,” Elrod says.
By the Numbers
75% Percentage of U.S. consumers who live within 5 miles of a Walgreens store
1.4% Percentage drug store traffic is up—and c-store traffic is down
6.7% Increase in frequency within the drug channel in the year ending June 2011, compared to a 1.3% decrease for c-stores
79% Percentage of households that shop drug stores
35% Percentage of households that shop convenience stores
Sources: SymphonyIRI Group, The NPD Group