Re-imagining the great American drug store

Joe Magnacca, Walgreens president of 
daily living products and solutions

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 into the LOOK Boutique. “State and Randolph is a good example of that, where you can kiosk the 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.

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