DEERFIELD, Ill. — If John Spina’s work to integrate Duane Reade into Walgreens goes well, it will be invisible to consumers. Thus far, it has been just that, as evidenced by the continued strength of Duane Reade under its new owner.
Shoppers may notice slight changes, such as different shelf price tags, but merchandise and employee interactions — which consumers care about most — have been maintained “seamlessly,” says Spina, corporate vice president for retail integration and new format development at Walgreens.
The unobtrusiveness of the integration effort has taken some flexibility, he notes. For example, while buyers typically replace all of an acquired chain’s systems with their own, Duane Reade’s point-of-sale system supports its Flex Rewards loyalty program, which Walgreens doesn’t have. So Walgreens had to integrate the system into its own sophisticated inventory management and pharmacy systems. One benefit of that decision is that it precluded the need to replace Duane Reade’s cash registers. That, in turn, meant no retraining for cashiers.
The success of the assimilation so far has given Walgreens confidence that its projected $120 million to $130 million in synergies from the deal over three years will be achieved. “That’s all going like clockwork,” Spina says.
More important from Walgreens’ perspective, he adds, will be the ability of Walgreens to incorporate Duane Reade’s innovations in areas such as food and beauty into other drug stores around the country. The process is already taking place, he says.
“If you live in New York and you shop in the Walgreens stores in Manhattan, you’ll notice they look totally different,” he remarks. “That’s because we’re applying some or our early learnings in them.”
At the same time, Walgreens’ areas of strength are being embraced by Duane Reade. The two-way process can be seen as a way of assuring that the two chains have the best practices available, says Spina.
“It’s not the Walgreens way or the Duane Reade way,” he says. “The question is, what’s the best way — even if it’s a third way. Let’s figure that out and apply it.”
That philosophy is exemplified by the successful operation of a Walgreens store at Union Square and Duane Reade’s new flagship store 100 feet away. Both are high performers, he says. “So we’re getting those sales from somebody else or we’re converting more people walking by,” he says. “The net impact is positive.”
The lease for the Duane Reade outlet was in the works prior to the acquisition, “and we basically said, ‘Let’s run them both and see what happens,’ ” he explains. “We’ve been pleasantly surprised. They’ve exceeded expectations.”
Likewise, Duane Reade has a store in Times Square 50 feet from Walgreens’ marquee outlet. “If there are 100,000 people walking through Times Square every day, we’re not going to get a high percentage of them in our stores in any event,” Spina notes. “There’s only so much capacity. But you can get 5,000 on one side of the street in our store and another 5,000 on the other side in the other store. It works.”
Walgreens expects to have a third of Duane Reade stores converted to the latter’s new format by the end of this year and the entire chain reformatted by the end of 2013.
What Walgreens recognizes above all, Spina says, is that two years ago Duane Reade initiated a reinvention of its brand. “It’s important that we complete that transformation. Over the next two to three years, we’re going to do that.”
And Spina notes that Duane Reade is an “iconic brand in New York,” and the banner will be retained for the foreseeable future.
“When it’s the right time to change, we’ll change. But we shouldn’t just change for Walgreens’ sake or ego’s sake,” Spina explains. “I watched other retailers make changes abruptly, and they didn’t do a good job with the consumer. And there was a major rebellion. As a longtime retailer, I don’t want to repeat the mistakes that I’ve seen in other acquisitions.”
“It doesn’t mean forever,” he adds, noting that co-branding may be imminent. “You may see in the near future a Duane Reade store with a Walgreens pharmacy inside.” Indeed, Walgreens’ Times Square store has carried an ad on its multistory billboards for flu shots at Duane Reade.
“This wasn’t just a bolt-on acquisition to add stores, get the synergies and move on,” stresses Spina. “It was that plus a whole lot more. It’s about new capabilities and finding the best of the best and applying it both ways. That’s the real magic of this acquisition. We’ll see how it manifests itself in results. But if you walk around Manhattan and go into Walgreens’ stores, they look and feel a whole lot different than they did six months ago because of what we’re learning.”
