Inside This Issue - Opinion
Walgreens’ makeover a game-changing event
January 4th, 2010
by David Pinto
The year that just ended has seen the Walgreen Co. transform itself more suddenly, dramatically and, to some observers, inexplicably than any mass retailer in the industry’s annals.
Go back to the last months of 2007. Walgreens was hardly a focus of undue industry attention. Rather, it was a drug chain that could be dependably counted on to turn in an acceptable performance from quarter to quarter, year to year. Indeed, at one point the drug chain had seen sales and earnings increase for 34 consecutive years, a record for the chain drug industry.
Jeff Rein was solidly ensconced as the retailer’s chief executive officer, having succeeded Dave Bernauer, who replaced Dan Jorndt, who followed Cork Walgreen. All were Walgreens veterans, taught the Walgreens formula, groomed primarily through operations jobs that led from store manager to the executive suite. It was all very logical, very predictable, very orderly, very dull perhaps, but very safe — and very much in the tradition that had become the Walgreen way of doing things.
George Riedl was the retailer’s chief merchant, supported by a veteran staff led by such standouts as Dave Van Howe, Chong Bang, Kathy Steirly, Bill Hubbs and Arnie Silver. All were viewed as the best at what they did, and very few were ever publicly second-guessed or criticized, even among suppliers who didn’t always get what they wanted from Walgreens. Everything, in other words, was as it should be.
Fast-forward to the first days of 2010, the first year of a new decade. Jeff Rein has been gone for over a year, replaced, after an extensive search, by Greg Wasson, formerly the retailer’s chief operating officer.
Riedl, who had been moved to pharmacy early in 2009, was gone. So too was Van Howe, Steirly, Hubbs, Silver and, most recently, Chong Bang, who departed in December 2009 for a merchandising job at Shoppers Drug Mart in Canada.
Meanwhile, Bryan Pugh, most recently employed by Tesco’s Fresh & Easy unit, emerged as Walgreens’ chief merchant. Kim Feil, a onetime consumer goods and research company marketer, was named the retailer’s chief marketing officer. And all manner of Wal-Mart alumni — Shannon Petree and Eddie Frail — came to Deerfield, Ill., to replace those who had recently departed. (Pugh, it should be remembered, once worked for Wal-Mart.)
As the winter of 2009 wound down, Walgreens announced SKU rationalization, an effort — long overdue, in the opinion of most Walgreens watchers — to remerchandise the Walgreens drug store to give the assortment meaning, focus and a more direct relationship to its customers, many of whom had grown accustomed to shopping at Walgreens to buy “things,” without knowing what exactly they had set out to buy, rather knowing only that they would probably find it at their local Walgreens drug store.
Today, by contrast, Walgreens has become a destination store not only for pharmacy (which it had long been) but for health and beauty care, cosmetics and food as well, though a less-productive shopping destination for such general merchandise categories as household products, grocery nonfoods, hardware, and basic electrical and electronics items. Thus far, the SKU rationalization process is about 80% complete — with the remainder of the work to be finished in this year.
Walgreens’ customers have reportedly responded well to the makeover. They apparently better understand what a Walgreens drug store stands for and offers. They are also more comfortable shopping the Walgreens merchandise mix.
Suppliers, on the other hand, are more skeptical, especially those who have lost shelf space or have seen their SKU assortments pared.
The skepticism is also grounded in the departure of merchants they had come to know and trust, at least in so far as Walgreens engendered trust. Riedl, Van Howe, Bang — these were merchants whom suppliers had become comfortable with. Now they are gone.
In truth, their replacements have worked quickly and diligently to transfer trust. And those suppliers who have been allowed to give these new merchants a chance have not been disappointed. But many smaller suppliers have not yet been permitted that opportunity. And some have suffered — at least initially.
But perhaps the largest residue of bewilderment is grounded in the fact that the retailer that’s changing is Walgreens — a retailer that was never supposed to change.
After all, this is Walgreens we’re talking about, the one fixed point in a changing chain drug environment. Every other retailer might try new ideas, chart new directions, explore new options — but Walgreens was expected to continue doing what it had always done, setting the standard for chain drug retailing in America.
And that’s just the point in all this: Walgreens needed to change.
The formula that had the drug chain opening some 500 stores a year — more than one every day — had become tired and ineffective, just as its senior leadership had. While chain drug retailing was changing in dramatic and innovative ways, Walgreens was content to continue doing what had worked so well for so long but was no longer sufficient to keep the retailer on top.
CVS Caremark, its archrival, had passed Walgreens in excitement, innovation and success, those barometers that traditionally define a world-class retailer.
Suppliers still enjoyed doing business with Walgreens. But they began paying more attention to CVS — and valuing the Woonsocket, R.I., drug chain more importantly than the one in Deerfield, Ill.
After all, Walgreens would always be there. But CVS was growing, diversifying, becoming more than just a drug chain, more than just a retailer.
In the end, then, Walgreens has changed because it had to. But the speed at which it has changed and the wisdom, clear thinking and energy behind those changes are what has made the last year at Walgreens so remarkable — and so game-changing.
Not only is Walgreens a better, more competitive, more exciting — and, yes, more successful — retailer today than it was 18 months ago, it has become more meaningful for its customers, more valuable for its suppliers and a competitor that all rivals, whether they acknowledge it or not, must take more seriously than they did in 2008.
Truth is, very few competitors took Walgreens all that seriously 18 months ago. Now, public posturing to the contrary, every competitor needs to take Walgreens seriously — or will soon begin to do so.
That’s why Walgreens’ makeover is the most dramatic, significant and game-changing mass retailing event of the first decade of the 21st century. And in embarking on this course, the people who lead and manage this venerable, 108-year-old drug chain deserve a degree of recognition and respect that has thus far not come their way.
For they have demonstrated, in abundance, the vision, nerve, energy, wisdom and confidence they needed to remake a retailer that, to all outward appearances, didn’t need remaking.
What Walgreens has set out to do, and the dramatic way in which the company is accomplishing it, qualifies this exceptionable drug chain, without question or debate, to be recognized as the mass market retailer of the decade.