Walgreens Revs Up Store Brands and Store Base

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December 6, 2011

Walgreens store brand strategy is now focused on variety rather than value, as the chain looks to build businesses beyond its core pharmacy offerings.

Wade Miquelon

Until recently, Walgreens’ private label offerings were simply value priced alternatives to national brands, but all that is changing as the chain continues to develop store brands beyond the basics.

“We've done a tremendous amount to refresh our private label,” said Wade Miquelon, Walgreens’ executive vice president and CFO, speaking recnelty at the Lazard Capital Markets 8th Annual Healthcare Conference. Historically, store brands had comprised approximately 20 percent of sales, with the majority being the value offerings at 30 percent off the price of national brands, but this positioning is changing.

“It was a huge frontier for us as a company by going what I call ‘top-down.’ And top-down really means differentiated offerings: good, better, best,” Miquelon said. “Unique products that aren't available to the branded companies.”

Brand Architecture
To that end, Walgreens expanded Duane Reade’s Good & Delish line, part of the Duane Reade acquisition in 2010. Good & Delish is now carried across the entire Walgreens chain and the Deerfield brand has been consolidated under the Nice! private label. The chain launched a small selection of roughly 20 Nice! items in August and plans to expand the line to nearly 400 products in all stores by 2012.

Nice! will include high quality grocery and household products at prices up to 30 percent below other national brands, in keeping with the company’s OTC pricing strategy for store brands. The store brand is intended to bring more traditional grocery offerings to the drugstore chain such as soups, sauces and bakery items. The initial rollout included canned items such as tomato sauce, dried goods such as tea, baking ingredients, dehydrated fruit and macaroni and cheese. The brand is featured on in-store signage and is expected to be more visible in weekly ads and marketing materials as Walgreens continues its push to bring unique products to market.

But Walgreens classifies Nice! as a mid-tier brand, leaving room for more premium offerings. “Over time, we are going to dramatically expand and enhance the private label business – and it's much more profitable for us -- to the extent that they are differentiated offerings versus just compare and save,” said Miquelon. “It puts us in a great position to differentiate our box over time and give people a reason to keep coming to Walgreens.”

Laura Sturdevant

But Walgreens also sees opportunity in the economy tier. The drug chain is in the process of rolling out a no-name line with “functional quality that satisfies [consumer] need, and we want this as the lowest price on shelf for them,” Laura Sturdevant, director of private brands said during a PLMA presentation last month.

“We purposely didn’t put a name on it. We just wanted something that was fresh and clean,” she said, noting that recent consumer research indicated customers are viewing the new line just as Walgreens intended – “as fresh, clean, inviting with a price solution for them.”

Management also sees opportunity for differentiation and prestige product launches in the beauty category, where new formats are testing out new displays within the department.

Walgreens has been expanding fresh food offering and opening new formats in more densely populated urban areas. In New York and Chicago, the chain is reportedly eyeing former Borders Books locations, according to Crain’s Chicago, as it gears up to better compete with supermarkets and discount chains Target and Walmart, both of which are debuting smaller format stores with expanded fresh food selections in these cities.

Store brands like Good & Delish will play a role in this growth initiative as well, said Miquelon. The chain is growing front-of-store sales, thanks in part to new product offerings, he said.

SBD Views: The transformation with Walgreens store brands continues. Maurice Alkemade, Laura Sturdevant and the entire Walgreen’s team have done a strong job of strengthening brand positioning, improving quality and focusing the value proposition of their portfolio for Walgreens shoppers. Look for continued growth and expansion of Walgreens store brands portfolio. -- John Failla for Store Brands Decisions

Read These Related Articles:

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• Rite Aid's Private Label Share Rises
• Consumer Perceptions of Store Brands Still Strong, But National Brands Gain Ground
• Carrefour Seeks Dramatic PL Expansion
• Nielsen: Strategies to Boost Store Brands Market Share

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