DEERFIELD, Ill. — Walgreen Co. has boosted its share in the Memphis, Tenn., market by acquiring prescription files and other assets of 17 drug stores from USA Drug. Terms of the transaction were not disclosed.
Walgreens plans to transfer the prescription files to its nearby outlets and is negotiating with USA Drug, which is based in Pine Bluff, Ark., to buy two Ike’s Discount Drug stores in Memphis. At presstime, the other locations, which operate under the Ike’s and Super D banners, were slated to be shuttered.
Following closely on the heels of Walgreens’ high-profile agreement to acquire Duane Reade Holdings Inc. in New York City, the USA Drug deal underscores Walgreens’ readiness to use selective acquisitions to expand its market share more rapidly and cost-effectively than organic growth allows.
President and chief executive officer Greg Wasson discussed the benefits of the approach, which is linked directly to the chain’s downscaled store opening plans, during the company’s second quarter conference call with analysts.
“This initiative is freeing up cash for strategic acquisitions even while we open more new stores than all of our drug store competitors combined today,” Wasson said. “The acquisitions help to fill in important regions of the country and widen our footprint more quickly than through organic growth. In just the past few years, we’ve strategically filled in our store base with acquisitions of pharmacies from El Amal in Puerto Rico, Drug Fair in New Jersey, Eaton Apothecary in Boston and Snyders in Minnesota.”
Although Walgreens’ second quarter financial results fell short of analysts’ average forecasts for both profits and sales, the company managed to improve its gross margins through effective inventory management that reduced the quantity of seasonal items and thereby lowered the necessity for markdowns.
Wasson discussed in detail Walgreens’ broader effort to optimize its product assortments as part of its Customer-Centric Retailing (CCR) initiative.
Part of the work has involved improving adjacencies, including the placement of dental products next to shaving needs, both of which are part of customers’ morning personal care regimens. But the chain has also analyzed its product categories and item offerings, leading to the elimination of roughly 3,500 SKUs per store.
Wasson acknowledged, however, that Walgreens is returning “a few hundred relevant items” to certain stores that derived a higher percentage of sales from products that had been eliminated.