Walgreen Exploring the Sale of Prepared Meals and Fresh Foods

Discussion
Jan 18, 2010
Tom Ryan

By Tom Ryan

Walgreen Co. is planning to roll out fresh foods and prepared
meals in all its stores. Bryan Pugh, vice president of merchandising, told Bloomberg
News
, “Everyone
is time-starved, and we have the most convenient 7,000 locations in the U.S.
They’re on-the-way-home destinations that are easy to get in and out of and
will provide a good value.”

Details of the program were sketchy, including
when it would launch. Mr. Pugh noted that Walgreens must examine supply
and distribution issues and conduct tests in some markets before introducing
freshly prepared foods such as salads, cut fruits, ready-to-bake pizzas and
sandwiches into more stores.

But Mr. Pugh said the drugstore chain has been
in talks with food manufacturers, mentioning Unilever, Nestle and Sara Lee,
about creating private-label and branded products for the initiative. A new
director of fresh foods will also join Walgreens in several weeks, although
Mr. Pugh declined to identify the person.

“We won’t get our customer every day on the way home, but if we could get
50 percent of our customers one day a week on the way home, that would do wonders
for our sales,” Mr. Pugh said.

The test follows some success resulting from
an increased focus on wine and beer sales. Walgreens began selling private-label
wines, including chardonnay, cabernet, zinfandel and merlot, at about 1,500
locations in December. More than 200,000 bottles at $2.99 each have been sold
under the Southern Point name, Mr. Pugh said. A $5.99 private label wine will
be offered in April, he said.

Mr. Pugh said stores carrying beer and wine have
higher average sales per person. That purchase alone pushes a shopper’s average
basket size as much as 60 percent, he said.

Prior to joining Walgreens, Mr.
Pugh was with Tesco USA’s Fresh & Easy
Neighborhood Markets, where he designed the Fresh & Easy store operations
model and launched the chain on the West Coast. He joined Walgreens as vice
president of store format development in January 2009 and became head merchant
in March 2009.

Discussion Questions: What do you
think of Walgreens’ exploration of fresh foods and prepared meals? What would
they have to do to make such a move a success? How would you compare the challenge
to efforts in c-stores and small format grocery stores?

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29 Comments on "Walgreen Exploring the Sale of Prepared Meals and Fresh Foods"


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Dave Wendland
Guest
11 years 3 months ago

Convenience remains king at retail and Walgreens has among the best addresses in America. Combining a prepared food element will not only attract new clientele, but it will also add incremental dollars to current customer’s baskets.

The key to their success will be execution and promotion–two areas that Walgreens has excelled in.

Charlie Moro
Guest
Charlie Moro
11 years 3 months ago

This seems like a good move. Recently Duane Reade in NYC has moved into convenient foods in their new flagship. The strategy would seem to be twofold. For those stores in low density areas, while you have a large majority of customers in to deal with the pharmacy, it would make sense to support them with the diet/meal solutions to enhance the shopping trip. How many are going in to pick up a prescription for a young child and would it not be great to pick up juice boxes on the same trip?

And for those high density areas where the format lends itself to high traffic, why not offer other meal solutions while customers shop for those items that can quickly be found in a short shopping trip?

Dick Seesel
Guest
11 years 3 months ago

Everybody wants “in” on the fresh food C-store business, whether it’s Tesco, Walmart, or now Walgreens. This strategy doesn’t align with the “wellness” positioning that RetailWire panelists kicked around only last week. If Walgreens is serious about what it wants to stand for, it needs to get moving on its SKU reduction, clean up its in-store navigation and improve its overall customer experience. I’m not convinced that a section devoted to fresh and prepared food is the answer, unless there is a serious effort to eliminate some of the other businesses (e.g. basic fleece separates) that are tangential to Walgreens’ brand position.

Doron Levy
Guest
Doron Levy
11 years 3 months ago

If supermarkets are opening pharmacies in their stores, it only makes sense for pharmacies to engage in food products. Shoppers Drug Mart has done very well in expanding its grocery section and it is a category that continues to grow for them.

I’m excited for Walgreens and I think the prepared food category fits in with their convenience model. Prepared also has its advantages as there is no special retooling required for the store. It can merchandised by anyone currently working in the store and requires a tad more attention to make sure expiry dates are checked and product is filled and rotated. The margin opportunity far outweighs the added labor involved.

The biggest challenge for Walgreens is partnering up with a brand or label that conveys high quality. I’m thinking huge in-store POP campaign with associated weekly flyer representation to get the ball rolling. Now customers can get their booze, meds and dinner all in one place (depending on what State you are in, of course).

Doug Stephens
Guest
Doug Stephens
11 years 3 months ago

It would be easy to jump to thinking this was a great decision. And while I don’t think it’s necessarily wrong, I don’t project that it will generate the results that Walgreen expects.

If you think about it, the “meals-to-go” trend really blossomed over the last 20 years as two things increased sharply:
1. The number of women entering the workforce
2. Commute times

Looking forward, I expect the number of female workers to grow more slowly compared to the last 20 years. It’s also pretty apparent that there will be a significant decrease in daily commuting as more people telecommute.

These two factors, in concert with a flat economy, could conspire to dampen Walgreen’s results in this category.

Ian Percy
Guest
11 years 3 months ago

Is it just me or is there an aura of desperation here? People have been ‘pressed for time’ for decades, so that’s certainly not insightful or breakthrough analysis. Just because there’s a “need” doesn’t mean you’re supposed to fill it. Heck, I’d like a closer discount gas outlet too, maybe my corner Walgreens can get one of those.

To me it’s about congruence as well as economic opportunity. Would you buy a contact lens cleaner branded by Lysol? How about a beverage branded by Shell? High fashion from Home Depot? Somehow “good food” and “Walgreens” is a similar mismatch to me. I hesitate to buy even milk there unless there’s no other option. And a prepared meal I can get from a dozen places nearby that have real kitchens and chefs with tall white hats.

Sometimes you just have to pick your game and put all your effort into winning it.

Steve Montgomery
Guest
11 years 3 months ago
Walgreens has been moving towards becoming a destination for food over the past several years. Today it has a “grocery” section that in many cases is larger than most c-stores. The items being carried are more representative of the central store of a supermarket than they are of the refreshment approach taken by most c-stores. Each location has a “food” manager in addition to its other management positions. Their current ad features food items ranging from candy to items such as dish washing detergent, cereals and Cambell’s soups. They are definitely in the packaged foods business. Moving to fresh will not be just adding another category. It requires a completely different set of skills, etc. Walgreens uses a number of distributors today to handle its food items, many of which are not really in the fresh business. There is a considerable difference in the requirements to handle dry goods and being a wet house. Managing a cold supply chain requires a different mindset, equipment, etc. Most c-stores are not in the fresh business beyond milk.… Read more »
Dr. Stephen Needel
Guest
11 years 3 months ago

I think this may be another example of a misguided attempt to be all things to all people, ending up being good at none of those things. Beer and Wine are not the same thing as foods and would require them to adopt more of a convenience store business model rather than a drug store model and adopt all of the processes (and headaches) from a grocery store model regarding fresh foods. Weak idea.

Roger Saunders
Guest
11 years 3 months ago

Walgreens tried an added consumer space a number of years ago. It was in the hospitality space–WAGS Restaurants, in the 70s, as we all were increasing our “food away from home” consumption.”

Walgreens properly saw a consumer trend, actually produced reasonable good food and service within the restaurants. However, Cork Walgreen appropriately pulled the plug on the restaurants, and had the firm “Stick to their knitting.” The firm became more strongly focused in the 80s/90s, and excelled.

This move to fresh foods in 7,000 locations, with smaller boxes than grocery stores, which prepared foods and more convenient locations (when you add up all the local players), seems like a move that could have Walgreens taking their eye off the ball–the health care space that still offers sharper margins than food.

“Stick to the knitting.”

Gene Hoffman
Guest
Gene Hoffman
11 years 3 months ago

The 7,000 jam-packed Walgreen stores are evolving and they could be a natural for selling fresh and prepared foods providing they keep well-selected products totally fresh and display them in totally clean stores in an inviting and convenient food section, not crowded among foot remedies, nail polish and shampoos.

If this latest Walgreen effort were to be successful, what would be next–sidewalk cafes in store fronts, gasoline stations on the tarmac, or a possible merger with Trader Joe’s? Stay tuned.

Carol Spieckerman
Guest
11 years 3 months ago

As I posted on my blog over the weekend, the humble grocery sack is retail’s new “it” bag. I would like to see Walgreen get further down the road on its CCR (Customer-Centric Retailing) initiative before introducing more products and categories. Cleaning up the clutter, optimizing assortments and improving adjacencies in the majority of stores through CCR will keep these new introductions from looking like a food fight in the stores (or at least give food a fighting chance)!

Bill Emerson
Guest
Bill Emerson
11 years 3 months ago

This seems like a very sound strategy. It takes advantage of increasing traffic from aging baby boomers, offers a potential increase in average ticket, offers an opportunity to increase visit frequency, and provides a big differentiator from CVS.

The big challenge, of course, is the short shelf life of prepared foods. Walgreens has no experience in managing perishable products at the corporate level, much less at the store level. It will be interesting to watch how they handle this.

Steven Johnson
Guest
11 years 3 months ago

Great move! Targeting small portions, focused on seniors and people in a hurry! This is one move that will turn the heat up in the food industry!

Rick Myers
Guest
Rick Myers
11 years 3 months ago

As a consumer I would not stop at Walgreens specifically to pick up dinner. I might pick up drug items while at the grocery store, however. Do I want to buy a roasted chicken from the same place I buy my insulin?

Also, shelf space is at a premium in most of the Walgreens I have been in. I can’t see a lot of free space to dedicate to convenience items.

Mel Kleiman
Guest
11 years 3 months ago

When you try to become everything to everybody you become nothing special to anybody.

Yes, shoppers are time-starved but I wonder how many of the people who responded to this post would actually stop at a Walgreens to pick up a ready-to-eat meal. The C-Store sector has been pushing to get into this segment for years and only a few have been successful at it.

Yes Walgreens has some 7,000 stores and some great locations. But package goods and fresh-prepared goods are two different stores.

I make the projection that 12 to 24 months down the road this will not have taken off.

Cathy Hotka
Guest
11 years 3 months ago

It’s all about timing. The dinner scenario is unlikely (people who run into Walgreens for nail polish remover or toilet paper are also going to buy a meatloaf for dinner?) But the lunch scenario works–office workers may well look for alternatives to local fast food joints. This may work particularly well in urban environments where drug stores are on nearly every block.

Expect more format shifting as retailers fight for customers this year….

Mark Burr
Guest
11 years 3 months ago
Rarely would I ever disagree with Mr. Percy, but in this case, I strongly disagree. I would venture to say that milk may be one of Walgreens’ top selling items if not the top 10 selling SKUs in the store. At least, in my region, their milk is the price leader in the market. If you sit in their lot as I do many times while ‘Mrs. Scanner’ makes that supposed quick run in, milk is in the hand of at least 3 out of 5 customers leaving. Bad milk at any price is never good milk. Their milk is low priced and of good quality and freshness. Going beyond that, other dairy products such as ice cream and other fresh products are already available at Walgreens. Skepticism, yes. Underestimate them, no. Their sales growth, store growth, and same store sales growth has been and continues to be impressive to say the least. Even their most recent numbers were positive. Their most recent report of December ’09 shows comparable store sales up 4.9%–a number any… Read more »
Richard J. George, Ph.D.
Guest
11 years 3 months ago
Certainly this is not a unique concept, namely fresh prepared, convenient meals. Walgreen needs to answer the following questions: 1. Can Walgreens do it? That is, can the company make or buy and merchandise/promote fresh-prepared meals? It appears that conversations with noted food manufacturers will address the make or buy. The issue of merchandising and promoting has yet to be seen. 2. Will the target market give Walgreen permission to do meals? This is the biggest question, not only for Walgreen but for any organization looking to do something new or different. Walgreen gets permission to make these meals from its board of directors. It gets permission to sell these meals from its customers. Before definitively answering this question we need to understand what business Walgreen is in. In the words of Charles Revson, “At the factories we make cosmetics, at the counters we sell hope.” What is Walgreens’ equivalent to “selling hope”? 3. Will the competition allow Walgreen to do this. I expect that traditional food retailers will recognize the seriousness of alternative food… Read more »
David Biernbaum
Guest
11 years 3 months ago

Walgreens has an opportunity to create an excellent flow of traffic into its stores with prepared foods. However, the check-out process needs to be “convenient.”

Ian Percy
Guest
11 years 3 months ago

If you’ve read this chain it’s clear that I agree with Roger and Gene’s insights. I’d like to add one further comment about the “Stick to the knitting” philosophy because I think that’s too narrow a perspective these days. The question to ask is “How many ways are there to make a sweater?” Knitting is just one of them. Knitting is a ‘means’ the sweater is an ‘end’. The trouble lots of companies have is knowing what their ‘end’ is. I think that’s true of Walgreens right now.

Bob Phibbs
Guest
11 years 3 months ago

This is just another example of brand extension gone awry. Are people really looking to Walgreens for a quick meal? I doubt it. And as those “fresh prepared” meals spoil, who will pay for it? Customers and stockholders.

Is this fundamentally any different than an Italian restaurant opened for dinner only who decides, “we’re paying rent anyways, why not add lunch?” They meet with moderate success and then open for breakfast. Meanwhile, traffic starts to ebb because they stop paying attention to their core business and its competitors.

There are already too many places to buy too much of the same thing. Adding to the blur of what a category store is just doesn’t seem smart–but I’m sure I’m in the minority on this one.

Art Williams
Guest
Art Williams
11 years 3 months ago
This concept brings a number of issues to mind for me. Walgreens is so cluttered and out of sync with what they are already doing that this could just make it worse. Where will they merchandise it and how much space will they devote to it? Freshness is critical for this type of adventure and that means a very expensive distribution system. How will they dispose of the out-of-code merchandise? Will they donate it to food pantries or throw it away? Or worse yet, will they leave it past code? I agree with the comment about being reluctant to even buy milk there and I would have to be pretty desperate to buy fresh food there. Of course, I have a hard time buying fresh food in most C-stores too and for similar reasons. They treat it like a part-time business in terms of freshness, cleanliness, and general food handling. What is Walgreens waiting for in regard to selling gas? They could position themselves as the low price leader to drive traffic or as the… Read more »
Li McClelland
Guest
Li McClelland
11 years 3 months ago
Not all of Walgreens’ merchandising tests and trials pan out, but I give them enormous credit for being a very resourceful and creative retailer. Their locations are what may make this prepared food thing work. In the Chicago area one cannot go more than a couple miles on any main road or artery without driving past a Walgreens. They are almost always “on the way” to wherever you are going. In fact, Walgreens need not even have a huge selection or variety in these offerings. If they can come up with three or four yummy and unique signature Walgreen specialties that are a hit with consumers then the once a week strategy could blossom without having a lot of waste or taking up a ton of space. Going along with their focus on health as a pharmacy destination, featuring low carb/sugar free entrees for diabetics or gluten free items for celiacs would also make sense. And, if they are smart, to roll it out they will offer free food samples when folks are already in… Read more »
John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
11 years 3 months ago

Location, Location, Location; and Walgreens has some of the best. My initial opinion is it will be a good move. Execution of the program will be the key. They will need to show consumers that Walgreens is not only a great place to pick up beer and wine, but fresh food as well. I suggest they review 7-Eleven stores for some ideas. They have one of the best retail databases for understanding what consumers are going to buy and when. Knowing this allows them to keep fresh foods moving with little waste and few out of stocks. These two issues can kill a fresh food program along with poor quality/taste. I can only assume they will offer tested items that consumers would like.

Execution by Walgreens will make or break this program.

Joel Warady
Guest
Joel Warady
11 years 3 months ago
It’s a funny thing about Walgreens and meals. It is not like this is anything new; only the format has changed. When Walgreens first started out in the Chicago area, all of their stores had “lunch counters,” and Walgreens was a great place to get a hamburger, fries, and a coke. They then decided that it made more sense to get out of food service within the stores, and use the store space for higher margin product. But Walgreens could not stay away from food for long. They owned two restaurant groups in the US in the ’80s. They owned a small Bennigan’s type chain named RobinHood Restaurants, and a larger chain similar to Denny’s named Wags. They unloaded both food service experiments after once again deciding that they did not want to be in the “meal” business. Now they are looking to enter the meal preparation business one more time? Someone earlier said that it is all about execution. This is true; it is not simply about foot traffic. With all of the fast… Read more »
Craig Sundstrom
Guest
11 years 3 months ago

I’m having trouble here deciding what is meant by “prepared meals.” I’m picturing an entree, several sides, soup/salad, etc., while the article mentions (packaged) salads and sandwiches. If the former is meant, then I think the idea is a stretch – a BIG one; if the latter, then it doesn’t really sound like much of an idea. WG’s already carries such items (at least here in the Bay Area).

So I guess my reaction is either “What?!?” or “So what?” depending on what they are planning.