Segmentation strategies add up
The 19th century British writer William Hickson may have written, “If at first you don’t succeed, try, try, try again,” but he only had half the story. By all means, try again, but don’t do the same thing over and over and expect different results.
For the past couple of years, Rite Aid has made that a fundamental element of the way it does business with its store-segmentation efforts. The 4,700-store chain has abandoned the cookie-cutter model that chain retailers have long used and created innovative new formats designed to turn the requisite trip to the drug store into a more convenient and rewarding experience.
Last September, the chain inked a deal with Supervalu’s Save-A-Lot Food Stores chain of discount supermarkets to create co-branded Save-A-Lot/Rite Aid stores in South Carolina. The segmentation effort started as a 10-store test, whereby existing Rite Aid stores would be converted to combine Rite Aid’s pharmacy and its usual mix of front-end products with fresh meats and produce.
Rite Aid president and CEO John Standley said during Rite Aid’s first quarter 2012 conference call with investors on June 23, front-end sales at the stores were up 68% year-over-year, while sales at the chain’s small-format Value stores were up 140 basis points.
More importantly, despite being confined to a small area of the country, the stores have allowed Rite Aid to latch on to the growing trend of retail pharmacies offering fresh foods to customers. “We believe this new co-branded concept meets the needs of today’s consumers, who continue to search for value, quality and convenience, and we’re excited about the chance to offer our customers high-quality grocery products, including fresh meats and farm-fresh produce at great prices,” COO Ken Martindale said when the Save-A-Lot/Rite Aid deal was announced.
But the new wellness store format offers a glimpse of the Rite Aid of the future. The company opened six remodeled stores in New Jersey and Pennsylvania earlier this year, followed by additional stores in Newport Beach, Calif., and Harrisburg, Pa. The stores offer an airier interior with lower shelves, brighter lighting and wider aisles, as well as new products like all-natural and organic foods, a special men’s grooming section and a staff of iPad-wielding Wellness Ambassadors to assist customers, in addition to long-standing features like the GNC LiveWell store-within-a-store, which dates back to 1999. As of June 23, the stores were trending about 100 to 200 basis points better than the rest of the chain, Standley said.
But the lower shelf heights aren’t just to make things look nice; they also help increase visibility for the stores’ most important element: the pharmacy. “I’m a big fan of the clean-store policy,” Rite Aid group VP category management Bill Bergin said at Drug Store News’ 11th Industry Issues Summit in November 2010. “It never really made sense to me to have … toys stacked within 6 in. of the ceiling so when a woman comes into the store, she can’t see the pharmacy and can’t see the aisle markers to navigate her way around.”
“This is positioning us for future opportunities down the road,” Martindale told Drug Store News during a tour of a wellness store in Harrisburg on June 21. Indeed, as CFO Frank Vitrano said during the conference call two days later, the company plans to renovate 500 stores this year with components of various new formats, including the wellness, Save-A-Lot/Rite Aid and Value stores.
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Future Shop: DR’s new flagship is major leap for drug store retailing
It’s like stepping into a time machine and jumping ahead a decade or more. Housed in a historic 1930s property that once was the tallest building in the world, Duane Reade’s newest flagship store at 40 Wall St. in New York — the first co-branded Duane Reade/Walgreens store — offers a glimpse of how retailers will use technology and develop new in-store services to create a much more interactive shopping experience.
“We are taking the best of Walgreens and the best of Duane Reade and bringing them together, and this store really exemplifies that,” Joe Magnacca, president of Duane Reade and president of daily living products and solutions for Walgreens, told Drug Store News. “And it takes a lot of innovation that we have been working on at Duane Reade and gives it a real chance. This becomes an incubator for new ideas and new concepts … and whatever works here, we have a chance to apply that to other locations both in Duane Reade and Walgreens.”
There’s no doubt that the shopping experience within this 22,000-sq.-ft. Duane Reade location, which officially opened on July 6, is like no other.
“I think what they’ve brought to the U.S. market … is obviously a lot of work and a lot of research and diligence on global best practices,” said Ken Nisch, chairman of JGA, a retail design and brand strategy firm. “I always think of a drug store as a bit of a kit of things if you’re not feeling well, if you’re having a tough day, having a minor home disaster relative to bits of do-it-yourself products — and I think they’ve totally transcended that. They created a store that’s about looking your best, feeling great and eating well … in a very upscale, fresh sort of way.”
This co-branded store marks the first time that Duane Reade has introduced to its consumers the “Powered by Walgreens Pharmacy Network” concept, which links the system to the Walgreens pharmacy system. This enables out-of-state residents and visitors to have their Walgreens pharmacy information available at this Duane Reade store. By mid-October, all Duane Reade locations will be “Powered by Walgreens.”
However, is the seamless connection of pharmacy data on the back-end just the beginning? While Duane Reade has made no such announcement, it isn’t so far-fetched to imagine the industry at large leveraging such technology in the future.
Duane Reade partnered with Lawrence, a Tensator Group Co., to employ at 40 Wall St. the industry’s first Virtual Assistant. Using the latest in holographic imaging and audio-visual technology, the Virtual Assistant creates the illusion of a real person who greets customers when they enter the store.
Virtual Assistants already are in place in the United Kingdom at London Luton and Birmingham airports, conveying to travelers pre-screening information. At 40 Wall St., the Virtual Assistant provides guidance on everything store-related, including making suggestions and recommendations on products available to shoppers. The reality, however, is that these Virtual Assistants are fully customizable, and the functionality could go well beyond simply greeting shoppers.
“This thing is fully customized. The reiteration of a HIPAA-compliant virtual assistant, I could visualize her sitting behind a ‘desk’ so it would almost be like a … virtual pharmacist sitting behind a desk,” said Keith Carpentier, senior business development manager for Lawrence. “You could approach it and hypothetically [if] you engaged your [loyalty card] or prescription, it could then speak to whatever personal health information the enterprise needed to convey. The fact that the enterprise can control the message is huge.”
The Virtual Assistant also could feature a menu of frequently asked questions and/or an embedded barcode scanner so customers could scan a product or a prescription to receive, for example, drug information or pricing. Have trouble understanding English? No problem. The Virtual Assistant also could be embedded with an unlimited number of languages to further assist non-English speaking customers. Have a loyalty card? Scan your card and she will greet you by name.
And then there’s the food. In recent months, several pharmacy retailers have made a much greater push into “fresh,” but this store completely redefines what it means to sell food in a drug store. The overall food selection balances national brands with local, well-known vendors. There are in-store sushi chefs, a juice/smoothie bar and partnerships with local New York gourmet retailers and such eateries as Zabar’s and the Carnegie Deli. It also features a Coca-Cola “Freestyle” machine, dispensing 130 combinations of Coca Cola-owned fountain drinks.
“We have really pushed the envelope hard on food,” Magnacca said. “A lot of the inspiration comes from Europe, where we’ve seen people push the envelope, to be quite honest.”
Europe also served as the inspiration for beauty within this location, which has an expanded Look Boutique with several European beauty brands that are newcomers to Duane Reade.
Technology and an increased focus on customer service also make a play in beauty. There’s an automatic fragrance sampler so shoppers can try more than 40 different scents on their wrists, as well as a virtual makeover tool so beauty mavens can “try on” makeup before they buy. The store also offers beauty services, such as an Essie/OPI manicure bar and a hair styling salon provided by Phyto Universe, typically not found in a U.S. drug chain.
For more photos of the flagship store:
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CVS: Generics essential to reducing health costs
Health care is like precision engineering; tweaking one element ever so slightly can mean the difference between a healthy life and an early death or, in the case of drug spending, between nearly $50,000 and just north of $1,000.
That sums up a study published in last month’s issue of the journal Health Affairs. The study, conducted by CVS Caremark, Harvard University and Brigham and Women’s Hospital in Boston, found that the expansion of generic medications for treating and preventing chronic diseases could make the cost of preventive health care much lower than previously thought because earlier studies made projections based on the costs of branded drugs. The study was part of a three-year research collaboration between the three groups focused on understanding reasons for medication nonadherence and developing ways to improve it.
As recently as 2008, a study found that the cost of lowering “bad” LDL cholesterol was $83,327 per quality adjusted life year, or QALY, a financial measure based on the effect of improving the quality of life for patients with chronic diseases. But that number assumed patients were using branded drugs; when the numbers were recalculated for the same treatment using generic drugs, the cost went down to $17,084. When calculating the cost of glucose control, the 2008 number was $48,759 per QALY. Today, with generics, it stands at $1,022.
“No matter who holds the financial risk — the patient, employer or government health plan — using generic medications has to be a key part of managing treatment for chronically ill patients,” CVS Caremark EVP, chief medical officer and study author Troyen Brennan said. “This is a practical solution we need to focus on as we work to operate the healthcare system in a more cost-effective way.”
In response to the findings, the study’s authors made a number of policy recommendations, including amendments to state Medicaid statutes that require patient consent for substitution of generics; limitations on the use of such prescribing practices as dispense as written; ensuring electronic prescribing guidelines encourage use of cost-effective medications; developing programs to educate physicians and patients about the effectiveness of generics and dispel notions that generics are less effective than branded drugs; and developing incentive programs through pharmacy benefit managers and health plans that promote use of generics.
Absolutely no correlation to the increased profit of generics in retail pharmacy. None whatsoever.