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Walgreens, Rite Aid hatch new store concepts

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NEW YORK — Looking to enhance the customer experience, Walgreen Co. and Rite Aid Corp. are tinkering with store formats and services as well as envisioning new offerings.

Looking to enhance the customer experience, Walgreen Co. and Rite Aid Corp. are tinkering with store formats and services as well as envisioning new offerings.

After investor meetings last week with Walgreens chief financial officer Wade Miquelon and divisional vice president of investor relations and finance Rick Hans, analyst Mark Miller of William Blair & Co. reported in a research note that the drug store chain has multiple ongoing efforts to improve the customer experience, reflecting its mantra of being a destination for "health and daily living" solutions. That includes the remodeling of 5,500 stores under the Customer-Centric Retailing (CCR) initiative, which is slated to wrap up by the end of this year, he said.

Yet the retailer also is working to heighten employee/customer engagement as it revamps its stores, Miller noted in his report, released this week. "Walgreens believes it has an opportunity to segment the customer base, and management is developing loyalty programs and greater service for its best consumers," he wrote.

For instance, Walgreens has been piloting a health care concierge in stores, an effort that executives said has been "phenomenal" so far, Miller reported. "Strategies in the pharmacy have historically been oriented to the acute customer, but the larger opportunities — and prospective efforts — are shifting to the chronic customer," he pointed out.

Walgreens also is devising new store formats and features, with the idea of refurbishing stores to better cater to customer demographics and return opportunities, according to Miller.

"For example, in beauty, an estimated 1,500 Walgreens stores might be able to feature an expanded prestige assortment over time," he wrote in his analysis. "Also, new stores are adding consultation rooms that can be used for expanded services."

And in the pharmacy, Walgreens is angling to evolve its health care services to what it
describes as "primary care triage," Miller explained. "The company is piloting screening and consultations in stores, and management expects that accountable care networks (or ACOs) will increasingly partner with Walgreens for interventions with the implementation of health care reform," he stated.

Rite Aid, meanwhile, is pushing ahead with its own segmentation strategy by testing several store formats that aim to better serve the needs of a particular market area.

The chain said in its recent fiscal 2011 10-K filing with the Securities and Exchange Commission that it’s "encouraged" by results thus far, especially in the front end, at its 10 co-branded stores in South Carolina with Supervalu Inc.’s Save-A-Lot supermarket chain. The Rite Aid-owned and -operated stores meld Save-A-Lot’s limited-assortment discount grocery concept — including a selection of fresh meat, processed smoked and packaged meat, fresh produce, frozen food, dairy and dry groceries — with a full-service pharmacy and traditional health and beauty care offerings.

Also being piloted by Rite Aid is a value store format that the retailer said features lower front-end prices, a more focused front-end SKU selection, a "wall of values" and a larger dollar section, along with a full pharmacy.

"These stores are designed to better compete in markets where pricing is the main competitive differentiator," Rite Aid stated in its 10-K report.

And in March Rite Aid opened six new "wellness" stores. The retailer said those stores sport a new decor package, a lower shelf height with a clear view of the pharmacy, wider aisles and brighter lighting.

"There are significant changes to our merchandising in these stores, including the addition of an expanded selection of organic foods, all-natural personal care products and homeopathic medicines," Rite Aid explained in the SEC report. "These stores will also have expanded clinical pharmacy services, including diabetes care specialists and medication therapy management experts."

In an analysis of Rite Aid’s fiscal 2011 results, Credit Suisse Equity Research analyst Ed Kelly cited the new store formats as a positive development for the chain.

"Management highlighted early successes at its combo Rite Aid/Save-a-Lot stores. Front-end comps at 10 pilot stores were up ~80% on average. The company is in
discussions with Supervalu regarding future expansion," Kelly wrote in his report. "The company also noted a 2% to 3% increase in sales at recently remodeled ‘value’ stores."

Rite Aid plans to complete about 500 store remodels in fiscal 2012 to support its segmentation efforts as well as make other necessary store improvements.

A key driver for Rite Aid’s new formats and existing stores going forward will be its burgeoning wellness+ customer loyalty program. The retailer reported that as of April, the program had more then 36 million members, who accounted for 67% of front-end sales and 58% of prescriptions filled.

"Wellness+ members have higher basket sizes than nonmembers and also have a much higher rate of prescription retention," Rite Aid noted in the 10-K filing.

Kelly also pointed to the strides made by the shopper rewards program. "Rite Aid’s wellness+ loyalty program continues to gain traction with 36 million members, up from 29 million in the third quarter," he said in his research note. "Management is attributing much of its recent sales momentum to the program, as it helps with customer retention."


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