Q&A Reade it and reap

In an interview following Walgreens’ deal to acquire Duane Reade, company president and CEO Greg Wasson discussed the merger’s implications with Drug Store News. Following are excerpts from that conversation:

Drug Store News: Remodeled Duane Reade stores are showing same-store sales running as much as 15% ahead. What’s driving that growth?

Greg Wasson: Their latest prototype is a dramatic departure from anything they’ve done in the past. They’ve taken some bold steps: widened the aisles in those urban stores, lowered the profiles, taken the gondolas away from the windows…and added a good private-brand program.

Coming out of [supermarket and pharmacy chain] Loblaw’s in Canada, [Duane Reade chairman and CEO] John Lederer is probably one of the leading private-brand guys out there. He pretty much wrote a different chapter for Duane Reade. Their fresh food offering also shows the knowledge he brought from his food days at Loblaw’s. Their loyalty program also was very appealing to us, since we’ve made a decision to go that way.

Finally, I really like what they’re doing in beauty. They’ve got a couple of different designs with their “Look Boutique.” That store-within-a-store concept is kind of what I had in mind for Walgreens, and where we could take our beauty offering in a percentage of our stores. I think they’ve got it, or at least a version of it.

So besides giving us a leading presence in New York City, and the ability to get there quickly versus growing organically, which might have taken 10 years or more, we like the fact that they’ve begun this journey, this transformation, in 30 stores.

I’m looking forward to helping them complete that journey. But I’m also looking at the potential we have for pulling some of the value from the initiatives they have in place, to the rest of our store network. That’s what’s really appealing.

DSN: Looking at synergies, will you try to apply to Duane Reade some of the learnings Walgreens already has gained from the Customer Centric Retailing initiative?

Wasson: I think this will complement our CCR initiatives, and that’s why we want to keep this transformation at Duane Reade under their brand. I see us supporting John Lederer’s team as they continue the transformation of their urban stores, while we continue our CCR initiatives. And there may be opportunities down the road for us to pull through some of what they’re doing into our urban markets as we begin to roll into them with CCR. Over time, certainly we’ll be able to draw some of the positives we get with CCR to leverage their transformation, as well.

I think John Lederer made a great statement when he said that this is an opportunity for two great brands…to come together and create a unique urban drug store proposition.

DSN: Has John Lederer made any commitment for how long he stays with the company through a transition period?

Wasson: We have retention programs built in, of varying months, for their whole management team. I feel good with where we ended up with the entire team, including John. I’m not going to disclose the length of time, but I think we’ve got the key players on his team locked down for a good period of time.

DSN: Bearing in mind that this is very early in the process, but will most of the Duane Reade stores be kept open?

Wasson: The good thing is that their footprint is very complementary to ours. Secondly, in most urban markets you can have competing drug stores on opposite corners, and they can both do well. We’ll know more down the road.

DSN: Assuming the deal goes through, will new stores in Manhattan be opened under the Duane Reade or Walgreens brand?

Wasson: That’s a good question, and something we have to work through. But I will say that in Manhattan, we do intend to continue the Duane Reade brand. Now, what we do with our handful of 13 stores in Manhattan…it’s far too early to say. I think both brands frankly could stay in the market, but obviously we’re not going to need to organically open a lot more stores in Manhattan. We’re going to commit to the Duane Reade brand for a period of time.

It’s an easier decision outside of Manhattan, where we have the bulk of our 70 stores [in metro New York]. In Manhattan, I think we can get by with a co-branded strategy until we figure out which way we want to go.

DSN: Walgreens enters this deal with something like $3 billion in cash. After the Duane Reade purchase, is there enough to pursue other deals?

Wasson: We’ll still have quite a bit of cash on hand, and we’ll stay focused on a strong balance sheet. I want to continue to invest in our core strategies like CCR, because we think there’s still a lot of value creation there yet. But I do want to make sure we’re flexible enough to look at other opportunities as they arise. If they do, we’ll run them through our filter—do they make sense strategically, give an adequate return and so on. We’re still going to run a rigorous process.