DR Goes Vogue
NYC Duane Reade store brand makeover wins over Walgreens; strikes pose with new york attitude.
Founded in 1960 in Manhattan on Broadway between Duane and Reade Streets, Duane Reade has grown to become the largest drugstore chain in New York City.
However, over the years its age had begun to show in its store dress and merchandise mix. After it was sold by the founding Cohen brothers in 1992, its worn look was compounded by heavy debt from LBOs by successive investment bankers and private equity firms.
Prior to its sale to Walgreens in April 2010, Duane Reade’s former owner Oak Hill Partners, in an effort to resuscitate the aging chain, initiated a major modernization program which it aptly named “Prescription for Change.”
To this end, Oak Hill recruited a new management team headed by
- John Lederer who was appointed chairman and CEO in April 2008. Lederer previously served as president of Loblaws Companies, the leading grocery chain in Canada.
Lederer in turn brought in new senior managers including: - Joe Magnacca hired as chief merchandising officer (formerly with Shoppers Drug Mart of Canada),
- Joe Jackman as acting chief marketing officer (formerly with Old Navy),
- Mark Scharbo as senior vice president – supply chain (formerly with Accenture),
- Frank Scorpiniti as senior vice president – pharmacy operations (formerly with Long’s Drugstores).
Total Brand Makeover
DR Delish range includes several healthy offerings such as gluten free trail mix that is 100 vegan, vitamin-enhanced juice blends, all natural soy crisps with no trans fat, and gluten free ginger snaps.
In the company’s 2009 Annual Report, top management discusses DR’s new Prescription for Change. It includes:
- “Improving our merchandising and private label offerings and differentiating ourselves from competitors through the use of exclusive brand products, improved presentations and a strengthened Flex Rewards loyalty card program.
- “Modernizing our store locations through innovative store renovations, new interior and exterior design graphics and décor.”
- “To achieve our brand vision of New York Living Made Easy, our front-end merchandising strategy focuses on providing customers with a wide selection of competitively priced products in convenient and customer-friendly presentations.
“We offer a variety of brand name and private label health and beauty care products, including over-the-counter items, food and beverage items, including fresh sandwiches and salads, cosmetics, greeting cards and housewares.
“We further complement our front-end product offerings with additional customer services such as ATMs, sales of lottery tickets and postage stamps, DVD movie rental kiosks, money transfer services and acceptance of food stamps and other government-sponsored benefits. In addition, on-site digital photofinishing services are available in 87 of our stores as of December 26, 2009.
- “The growth of our private label offerings plays an important role in our front-end merchandising strategy. Private label products provide customers with high-quality and lower priced alternatives to brand name products, while generating generally higher gross profit margins than brand name products. Private label offerings also enhance our reputation as a value-oriented retailer, build customer loyalty and allow us to differentiate ourselves from competitors.
“During the third quarter of 2009, we successfully re-launched many of our private label household and value brands. In addition, we introduced DR Delish, our new exclusive brand for food and beverages. We also offer our own private label products under various other names including 5th Avenue, Apt 5, Christmas in New York, and Duane Reade. In fiscal 2009, our private label products accounted for approximately 10.4% of front-end sales.
- “Health and beauty care products represent our highest volume product categories within front-end sales. To further enhance our health and beauty offerings, we operate Skin Wellness Centers in 44 store locations as of December 26, 2009. Our Skin Wellness Centers are staffed by trained beauty advisors and offer our customers a wide range of skin care brands. In 2009, we also introduced our customers to the Look Boutique, our first upscale beauty department.”
Editor’s Note: At the end of 2009, Duane Reade operated 257 stores in New York City and the surrounding New York and New Jersey suburbs. It posted $1.837 billion in sales in 2009 up 3.6% versus the prior year, but posted a net loss for the year. Stores average $7.1 million in sales, representing more than $1,000 in sales per square foot. Front-end sales account for more than 50 percent of total store sales which is above average for the drugstore channel of trade.
New York Attitude
Fire Fighter’s Joe is one of four premium coffee blends under the DR Delish food and beverage line. With the sale of each bag of coffee. Duane Reade is making a donation to the New York Police & Fire Widows and Children Benefit Fund with a minimum guarantee of $10,000 for the year through November 15, 2010.
Duane Reade is also running a promotion for shoppers to come up with a new name for its store brand Delish Decaf Coffee. The new name should connect the coffee to a famous New York area, landmark or tradition. The shopper with the best name wins a $500 gift card. After submitting a name shoppers can then vote online for their favorite entries. The deadline for entries was May 28th.
Duane Reade engaged in extensive consumer research to find out what New Yorkers wanted and needed from their neighborhood drug store. Based on the findings, the retailer revamped its image, store design, and product offering to create a more efficient and enjoyable shopping experience. In remodeled or new stores, aisles are wider, the store better organized, lit and signed, and the product selection customized to meet the New Yorker’s needs in each neighborhood. The updated image and rebranding – including the redesigned logo and new color scheme – are intended to reinforce the unique New York character of the brand.
To give visual expression to the brand’s new positioning — New York Living Made Easy – Duane Reade has employed the creative services of CBX, a strategic branding consultancy headquartered in NYC.
“Our mission was to broaden Duane Reade’s private brand product appeal, enhancing the position as the preferred store for New Yorkers and further bringing to life the brand’s new positioning, New York Living Made Easy,” explains Todd Maute managing partner, CBX.
“We brought in a New York agency that is expert with private brand image and packaging design, and understands the quintessential New York shopper. CBX helped us communicate and connect with New Yorkers through a unique product voice,” says Joe Magnacca.
New York-Centric Design
To build upon Duane Reade’s new image, CBX collaborated with the retailer on multiple fronts to help strengthen their relationship with customers, according to the CBX press release announcing the project.
First CBX provided input into Duane Reade’s private brand architecture, and designed its private label brand imagery and packaging systems. Then they helped revamp the loyalty card brand image and collateral material. To further establish direct communication with Duane Reade’s customer, CBX designed an edgy New York publication called the Duane Reader to help market and support all of their branding and product development efforts.
The private label brand portfolio was completely revamped along with the product mix to draw consumers into the store as well as enhance their ‘uniquely New York’ and value messages. Multiple brands across 2,000 SKUs were developed.
Private Brand Portfolio
DR Delish: is a new line of premium foods that stand out on shelf with black and white packaging and feature fun and edgy New York-themed photography and proprietary artwork of New York City landmarks. Items in the line include Spectacular Chocolate Chip Cookies with a theatrical spotlight shining on appetizing product shots. Deluxe whole cashew cans whimsically position the cashews on bar stools and park benches, and Fire Fighter’s Joe coffee packages include a backdrop of New York skyscrapers.
Apt. 5, was repositioned as a household products brand with an apartment living slant. Products in bright, colorful packages pop from the shelf and include toilet paper with an image of an empty roll on a tiled bathroom wall in a typical New York City apartment. A green version, designed to take their rightful place alongside other credible “green” brands, includes cleaning products featuring bright green labels and interior photography of bathrooms, kitchens and living rooms from pre-war New York apartments.
DR is a line of HBA products that were formerly found under the Duane Reade label. Bright bands of color delineate the line of products on white, apothecary-style packaging compositions.
In addition, a value line of products was developed to provide the Duane Reade customer with extreme value in key categories. Products include high-value items such as bottled water, paper towels and nuts with iconic, UPC-style illustrations of New York landmarks (i.e. The Statue of Liberty, Brooklyn Bridge). Products from these lines began rolling out in October 2009.
The first issue of The Duane Reader, a twice-yearly store-branded publication, debuted in November 2009 and was distributed in The New York Times and The Daily News, and handed out throughout the city. Filled with products, historical information and consumer tips connected with city living, it has a distinctive, edgy New York tone.
The new loyalty card is named Duane Reade Flex Rewards, to signal change from its old program to a more flexible and easy system. The card’s design leverages the popular and iconic Duane Reade “urban luggage” shopping bag and boxes spelling out the word “rewards” floating into the shopping bag to add an element of freedom and reward. An 80-page Beauty Book was also developed as a tool to educate consumers about Duane Reade as a destination for prestige and everyday beauty needs.
“Duane Reade’s remarkable transformation has been guided by several clear and actionable points of strategy,” says Joe Jackman. “Easy, rewarding, and uniquely New York. These same words could as accurately describe our partnership with CBX.”
New Store Brand Lines
The new food range also includes several organic items such as salsa and crème cookies.
The company has recently tested fresh and refrigerated food offerings in select stores aimed at meeting the needs of the hurried lunch and dinner crowd. In February 2010, the company featured its significantly expanded DR Delish fresh food, ready-to-eat, and frozen food grocery offerings at its newly opened store in Chelsea. The expanded food section comprises approximately 40 percent of the 15,000 sq. ft. two-level store. The street level space contains a broad-line urban grocery store and is positioned and signed as a convenience food center. The second, below-ground space contains a full-line drugstore including the new Look Boutique.
Natural and organic DR Delish items debuted in April 2010, including organic salsa, organic lollipops and maple-leaf crème cookies as well as gluten-free ginger snaps. As noted earlier, Duane Reade also offers a wide selection of eco-friendly household products under its Apt 5 brand.
Eco-friendly and organic private brand products are exceptional offerings for a drugstore chain in the U.S. and follow the lead of Shoppers Drug Mart in Canada with its line of Bio Life eco-friendly products and Nativa organic foods.
Prevail is a new private brand cosmetics line from Duane Reade that was launched in time for Mother’s Day 2010. The line includes a range of nail polish colors, lotions, exfoliators, and glycerin soaps and is positioned as a great value.
Private Brand Marketing
Duane Reade uses a full range of tactics to promote its private brands including: paid advertising media, in-store signage, database marketing, social media, events, promotions and publicity. The center point of the retailer’s private brand marketing efforts is a ‘magalog’ print publication called The Duane Reader. As noted earlier, it is a fun and informative guide to new products and New York tips and ideas that is published twice yearly. The latest Duane Reader, entitled the New York Goes Green issue, was launched this past April supported by an innovative interactive technology called JagTag, in which consumers can text a picture of a patterned image featured in ads in print media and guerilla marketing placements across the City and receive private brand deal messages to their personal electronic devices.
Walgreens Wallet
Apt 5 household product range includes the sub-brand Apt. 5 Goes Green that offers phosphate free cleaners, BPA free stainless steel water bottles, and 75% tree free paper products made from sugar cane.
In February 2010, Walgreen Co., Deerfield, IL, announced a definitive agreement to acquire Duane Reade from Oak Hill in a cash transaction for a total enterprise value of $1.075 billion, which includes the assumption of debt. Walgreens completed the acquisition in April 2010.
“Duane Reade is a compelling strategic acquisition that will immediately provide Walgreens with a leading position in the largest drugstore market in the U.S.,” says Walgreens president and CEO Greg Wasson. “In addition, Duane Reade’s recent initiatives in urban retailing, customer loyalty and private brand products support and accelerate Walgreens strategy to enhance the customer experience in our network of more than 7,100 stores across the country.”
For his part, Duane Reade CEO John Lederer says: “We are very pleased that this national leader has recognized the successful transformation under way at Duane Reade.”
According to Walgreens press announcement, Duane Reade will continue to operate under its brand name after the transaction. With Walgreens currently operating 70 stores in the New York City metropolitan area, decisions will be made over time as to the best, most effective way to harmonize the Walgreens and Duane Reade brands. Walgreens expects to retain Duane Reade’s store pharmacy and distribution center employees and many members of Duane Reade’s senior management team. Over time, consolidation of core functions at the corporate offices will occur.
In response to the question: Will Duane Reade start carrying some of Walgreens private label merchandise or vice versa? Lederer says: “We will continue with the product categories and lines that we currently offer, including our growing family of exclusive private brands, yet remain open to exciting new opportunities as they arise."
