Resilient Kroger readies for recovery
In retailing, it’s a given that a long-term, severe recession will cut through the ranks of food, drug and general merchandise retailers like a scythe through wheat, pushing weaker players out of the market as consumer spending dries up and Darwinian realities winnow the field. But it’s also true that the strongest merchants can emerge not only intact, but also with even brighter prospects if they innovate, invest and retain the loyalty of their customers.
Clearly, Kroger belongs in the latter category. The Cincinnati-based supermarket and combo-store behemoth weathered a tough 2010 with a 2.8% increase in same-store sales across its multifaceted retail empire and net earnings of more than $1.1 billion. The company also increased share of grocery sales by 80 basis points, according to Nielsen research, and in the final months of the fiscal year ended Jan. 29, 2011, appeared to regain momentum in drug and non-food sales.
“Kroger’s business proved resilient in 2010, weathering a challenging environment that continued to affect many of our customers,” said chairman and CEO David Dillon in March. “We were particularly pleased to see solid growth in our drug/general merchandise department where sales had softened during the recession as customers scaled back discretionary purchases.”
Sadly, the start of Kroger’s new fiscal year also witnessed the loss of one of its top pharmacy and non-food executives, EVP Don Becker, a 42-year company veteran who died unexpectedly in February at 62 years old. Becker oversaw drug, grocery and general merchandise buying, marketing and merchandising, and also was responsible for The Little Clinic operations.
Dillon called Becker a “dear friend and extraordinary leader” who “leaves a legacy of enthusiasm and passion for doing what’s right.”
Despite that major setback, Kroger appears to be laying a solid foundation for continued success. The company operates 1,950 in-store pharmacies that filled nearly 140 million prescriptions in 2010.
Besides a strong presence in the flagship Kroger combo stores, that pharmacy network sprawls across a complex web of such regional chains as King Soopers in Colorado, Ralphs in California, Smith’s Food & Drug Centers in Utah, Fry’s Food & Drug in Arizona and Fred Meyer in Oregon.
In 2010, Kroger also purchased its erstwhile partner in walk-in patient-care centers, The Little Clinic. The buyout gave it control of one of the nation’s largest operators of retail-based clinics, with 77 professional centers in select Kroger, Fry’s and King Soopers stores in Ohio, Kentucky, Tennessee, Arizona and Colorado. The company also provides management for 40 branded clinics in Florida and Georgia.
In the midst of a tough economy, Kroger also invested a total of roughly $2 billion last year in store remodeling, the Little Clinic purchase, new technology and other improvements. Steady investments in automation have helped transform the pharmacy, where pharmacists in any of its stores and operating companies can see into any customer’s patient profile and prescription record via its nationally integrated pharmacy automation platform. That system, called the EasyFill Pharmacy Retail Network, allows pharmacists “a single view of the patient across Kroger,” according to Chris Hjelm, SVP and CIO. The system also tracks all pharmacy transactions in real time, he said, so “we know when a prescription is sold, not just filled.”
Kroger’s pharmacy team also continues to expand pharmacy and clinic-based services, including a variety of immunizations and biometric screenings for such conditions as diabetes, hyperlipidemia and obesity. Some Kroger pharmacists also now participate in long-term programs for diabetes management, education and coaching, in coordination with registered dietitians and certified diabetes educators.
Kroger also continues to wield one of retailing’s most effective loyalty card programs. The company reported that more than 90% of its customer transactions now involve the use of the Kroger card.
Safeway rebounds with sharper focus
After being hemmed in by recession, cash flow problems and costs, a venerable lion of West Coast food and drug retailing is roaring again.
Safeway shed a few more unprofitable stores in 2010 and early 2011, but emerged with sales and earnings results that help affirm its long-term strategy. The chain generated sales of $41.05 billion in the fiscal year ended Jan. 1, 2011, up less than half a percent from the previous year. But with a smaller, more productive store base and other improvements came a return to profitability; net income for fiscal 2010 was $589.8 million, compared with a net loss for 2009 of $1.1 billion.
Chairman, president and CEO Steve Burd cited “price reductions, reinvigorated private-label brands and targeted marketing” for the upturn, as well as new curbs on shrink and operating costs.
In the midst of a still difficult economy in 2010, Safeway also opened or remodeled another 74 stores in line with its Lifestyle prototype, which offers customers “wood-like flooring, relaxing earth-toned decor and subdued lighting with spotlights on featured products … [for] a warm, inviting ambience,” according to the company.
“Our … store renovations are almost complete, with 85% of our 1,694 locations now transformed into Lifestyle stores,” Burd reported Feb. 28.
Pleasanton, Calif.-based Safeway remains one of the nation’s top pharmacy retailers. Pharmacies operate in nearly 80% of its 1,694 supermarkets, giving it some 1,320 in-store pharmacies across a broad swath of the western and southwestern United States and in the Philadelphia market. That healthcare prowess is tied to a reputation as one of America’s top supermarket sources for organic and healthier-choice foods.
In April, Safeway took a big step to regaining full power in its pharmacy division with the hiring of pharmaceutical industry veteran Darren Singer as its new SVP pharmacy, health and wellness. The appointment fills a long-running management void that opened a full year earlier, when Dave Fong, Safeway’s top pharmacy executive, left the company as SVP pharmacy and family health. Fong’s position had been filled on an interim basis by Gary Rocheleau, but no permanent replacement had been named since Fong’s quiet departure in April 2010.
Singer, a 25-year veteran of GlaxoSmithKline, will regulate retail pharmacy operations, specialty care, pharmacy services, compliance, benefit management and managed care. He will report to merchandising president Kelly Griffith.
Singer, who among other roles at GSK was VP marketing for OTC wellness, could bolster Safeway’s ongoing efforts to marry pharmacy with health and nutrition. “His … proven track record in running some of the most visible and valuable brands in the pharmacy and wellness industry are well-suited to his leadership role,” Griffith said.
Safeway calls its pharmacists “experienced health consultants” who provide immunizations for whooping cough, tetanus and other conditions, along with the flu. Increasingly, the company is taking such health services as immunizations and health screenings outside the stores and into local businesses, schools, senior centers and other settings.
Safeway also is aligning those pharmacy care programs with a broader message designed to appeal to the total health-and-wellness needs of consumers. In mid-February, those efforts got another boost with the launch of SimpleNutrition, a shelf tag system designed to make it easier for shoppers to find better nutrition choices. Safeway called the new green tags “a first step in helping customers modify the selection of products that support a healthier lifestyle,” and said the tags point out one or more of 22 different nutrition and ingredient benefits for tagged items — e.g., organic, gluten-free or low-sodium products. Barbara Walker, group VP consumer communications and brand marketing, called it “a quick snapshot of the nutrition and ingredient benefits” of many foods.
Safeway also has broadened its nutritional message appeal with another branded line of healthier foods. Launched in late January, Open Nature is a new line of more than 100 naturally raised and unadulterated foods, beginning with products sold in the meat departments. The brand — which joins Safeway’s other healthy- alternative brands, O Organics and Eating Right — will expand to other food categories throughout 2011, the company reported.
Fast, nimble Walgreens aims to own ‘well’
Walgreens, the kaleidoscopic company that wants to “own well,” is shuffling management and realigning operations as it works to knock down its remaining internal silos and create a seamless, broad-based retail health-and- wellness dynamo.
Any snapshot of Walgreens can only present a blurred portrait. At 110 years old, the company is moving so fast on so many fronts that Wall Street analysts and business journalists — not to mention drug, supermarket and mass merchandise competitors on all sides — constantly are trying to draw a complete picture of a shifting and multifaceted retail entity. Whatever picture emerges is likely to be outdated before you can say “8,000 points of care.”
Consider Walgreens’ strategic moves just since the start of this year. In the first four months of 2011, Walgreens has:
Moved to acquire online retailer Drugstore.com for about $409 million. The acquisition will add about 60,000 products to Walgreens’ online offering and “significantly accelerates our online strategy to leverage the best community store network in America,” asserted president and CEO Greg Wasson;
Agreed to sell its managed care division, Walgreens Health Initiatives, to Catalyst Health Solutions for $525 million in cash. Behind the decision to get out of the pharmacy benefit management business, Wasson said, was the need to focus on “delivering … high-quality pharmacy, health and wellness solutions … to become America’s first choice for health and daily living needs.” As part of the deal, Catalyst will provide PBM services for Walgreens’ employee and retiree drug plans, as well as other Walgreens programs, such as the Walgreens Prescription Savings Club. More to the point, Walgreens said it would retain and continue growing its specialty pharmacy and mail-service businesses in support of Walgreens, WHI and Catalyst patients. “Our specialty, infusion and mail pharmacy services are an important extension of our drug stores, retail clinics, worksite health centers and medical facility pharmacies,” Wasson said;
Restructured its health-and-wellness division in line with the retirement in April of health-and-wellness president Hal Rosenbluth, a cofounder of Take Care Health Systems, which Walgreens acquired in 2007. Wasson credited Rosenbluth with a big role in the expansion of “pharmacy, health and wellness services through our Take Care retail clinics and worksite health centers.” Henceforth, the Take Care retail and worksite division under Peter Hotz will report to Mark Wagner, president of a new community management division, while health-and-wellness sales and clinical services, led respectively by chief client officer Joe Terrion and chief medical officer Cheryl Pegus, will become part of the Walgreens pharmacy, health-and-wellness services and solutions division led by division president Kermit Crawford;
Piloted its first loyalty card program as it applies the expertise it acquired with its purchase of New York’s 258-store Duane Reade chain, a loyalty card innovator;
Unveiled, in early April, the first of a planned 18 rapid car-charging stations it said will open at Walgreens drug stores in the Dallas/Fort Worth market. Launched in partnership with NRG Energy, the eVgo Freedom Stations will comprise the nation’s first privately funded large-scale electric vehicle charging network;
Named Loblaw and Duane Reade veteran Joseph Magnacca president of daily living products and solutions, in charge of integrating and raising the profile of many front-end merchandising efforts; and
Launched a new ad campaign in early March to highlight its new Refill by Scan technology, which enables smartphone users to scan prescription label bar codes with their camera phones to order refills — and to obtain text alerts, browse Walgreens’ product selection and process photos.
Walgreens’ underlying goal, Wasson said, is to be the nation’s premier destination for retail health-and-wellness needs across a broad spectrum of American life, including the retail arena, the workplace, the home for patients with serious conditions in need of specialty medications and infusion, and the hospital and clinic setting. Increasingly, the 7,700-store retail and health giant also is staking out cyberspace with new online services and smartphone applications designed to reach customers and patients anywhere they happen to be.