First Reported Here January 2010: Walgreens' Launches Fresh Foods Program in San Francisco Bay Area

Fresh and fresh-prepared foods at Walgreens.


Just as we said it would do in this story - Walgreens' Eyeing San Francisco For Fresh Foods Program: Could it Strike Category Gold in the City By the Bay? - published back on January 25, 2010, drug store chain Walgreens is launching its fresh and fresh-prepared foods program in the San Francisco Bay Area, where Tesco's Fresh & Easy Neighborhood Market started opening its first batch of stores in March.

There are currently 11 Fresh & Easy fresh food and grocery markets in Northern California. Nine of the units are in the San Francisco Bay Area. The other two units are in Modesto, in the Northern Central Valley, and Vacaville, which is about midway between the Bay Area and Sacramento.

Walgreens' is launching its fresh and fresh-prepared foods program to start in about 30 stores in the Bay Area as a test, which is what it did in Chicago. The drug chain has hundreds of stores in the region, including 64 units in San Francisco alone, so the potential store base from which it can offer fresh foods is extensive.

The first batch of stores (15 units) getting the fresh foods sections include 13 units in San Francisco, one store in nearby Daly City and a unit in San Rafael (Marin County), according to Wagreens' media relations specialist Robert Elfinger and our sources at the Deerfield, Illinois-based drug chain.

Elfinger has released a list of the initial 15 out of the about 30 Walgreens' stores in the Bay Area that are set to have fresh and fresh-prepared foods sections in by the end of June 2011. The list is at the end of this story.

The fresh and fresh-prepared foods sections include a selection of fresh produce and meats; ready-to-eat foods like sandwiches, salads, wraps, sushi and other items; and fresh, ready-to-heat entrees, side-dishes, soups and other offerings. See the photograph at top.

Fresh foods and particularly fresh-prepared foods are a major offering at Tesco's Fresh & Easy. In fact, it's a fair analysis to say - and Tesco has said it - that fresh-prepared foods are the key offering or attempted point-of-differentiation the Fresh & Easy format is premised on.

In our January 25, 2010 story we said San Francisco would be the main initial focus in the nine county Bay Area for Walgreens. It is.

Two of the 13 San Francisco Walgreens' stores, including one at 25 Point Lobos/43rd Avenue at Lands-End in the Outer Richmond District that already has the fresh and fresh-prepared foods section and offering in-store, are nearby the first two Fresh & Easy stores Tesco plans to open in the city.

The other Walgreens' store that soon will be offering fresh and fresh foods and that's near a soon-to-be-opened Fresh & Easy market is at 5300 Third Street in the Bayview District.

The 43rd Avenue Walgreens' store is 11 blocks from the Fresh & Easy market we've reported Tesco plans to open June 22 of this year. [See - May 10, 2011: Breaking Buzz: Fresh & Easy Neighborhood Market Plans to Open First San Francisco Store at 32nd and Clement June 22.]

The Walgreens' unit at 5300 Third Street in the city's Bayview District is just down the street from the Fresh & Easy store at 5800 Third Street Tesco currently plans to open August 24, as we reported on May 14 here: Breaking Buzz: Fresh & Easy Neighborhood Market Plans August 24 Opening For Third & Carroll Store in San Francisco's Bayview District.

It's no mere coincidence Walgreens' is launching its fresh foods program in the Bay Area now. The program is quarterbacked by two former executives of Tesco's Fresh & Easy Neighborhood Market - Brian Pugh and Jim Jensen.

In fact, our January 6, 2010 report (here) - Breaking Buzz: Corporate Director of Fresh Foods Jim Jensen Leaves Tesco's Fresh & Easy - that then director of fresh foods at Fresh & Easy, Jim Jensen, had left the grocery chain and was joining Walgreens - and former Fresh & Easy vice president of retail operations Brian Pugh - at the chain's headquarters in Deerfield, Illinois was responded to eight days later when Pugh, who recruited Jim Jensen to the drug chain from Tesco's Fresh & Easy, confirmed our report by announcing Jensen had joined Walgreens' to head up its fresh foods program as corporate divisional manager of fresh foods.

[See the two stories linked here for details - January 15, 2010: Just-Exited Tesco Fresh & Easy Fresh Foods Director Jim Jensen to Head New Fresh Foods Initiative at Walgreens Drug Chain; and Thursday, January 21, 2010: Walgreens' Announces Hiring of Former Fresh & Easy Fresh Foods Director Jim Jensen; Confirms Our January 6 Report.]

We reported exclusively in this story on September 22, 2008: - Key Personnel Breaking News: Co-Vice President of Retail Operations Brian Pugh No Longer Employed At Tesco Fresh & Easy Neighborhood Market - that Pugh, who was initially Fresh & Easy's vice president of retail operations and later became its co-vice president of retail operations, sharing the position with Jeff Adams, had left the Tesco-owned fresh food and grocery chain. Prior to joining Fresh & Easy Pugh worked for United Kingdom-based Tesco in a couple of its other global divisions.

Three months later on December 22, 2008 Walgreens' announced Brian Pugh had joined the chain in a new position, vice president of format development. [See our story - Breaking News: Mega-Drug Chain Walgreens' Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position.]

In March 2008 Walgreens' promoted Pugh to vice president of merchandising. He's responsible to a significant degree operationally for the drug chain's increased focus on food and grocery items in the stores over the last couple years, along with the fresh foods emphasis at retail, for example. [See - March 2, 2008: Walgreens' Promotes Former Tesco Fresh & Easy Exec Bryan Pugh to VP Merchandising Position; Move Fits Drug Chain's Current Strategic Focus.]

Like they did during their tenure at Fresh & Easy, Pugh and Jensen have been working very closely together on implementing and rolling out Walgreens' fresh and fresh-prepared foods program, which currently is in about 200 stores in metro Chicago, New York City, including units of the Walgreens'-owned Duane Reade chain which already had its own similar program when Walgreens' acquired last year, and a couple other places in the U.S.

Along with the list of 13 Bay Area locations (out of the initial 30) released by the Walgreens' spokesman, we've  learned from a good source that a number of the remaining 17 units the drug chain is implementing its fresh foods program in are near some of the nine Fresh & Easy stores Tesco has opened in the San Francisco Bay Area so far this year.

For example, don't be surprised if the Walgreens' store located right next to the (click here to see a photo) Fresh & Easy store in Danville isn't soon offering fresh produce, grab-and-go sandwiches and salads, sushi, a selection of fresh meats, ready-to-heat entrees and side dishes and the other fresh and fresh-prepared foods - all very similar to what Fresh & Easy Neighborhood Market offers - in the store.

In fact, if you've ever seen any of Walgreens' private brand ready-to-heat entrees created by Jensen and his team, like the Lasagna Bolognese pictured above, you might be tempted to nickname them "Son of Fresh & Easy." Below is Fresh & Easy's private brand Lasagna.

When Jim Jensen was director of fresh foods at El Segundo, California-headquartered Tesco's Fresh & Easy Neighborhood Market he had overall buying/merchandising responsibility for fresh produce, meat, and deli/ fresh-prepared foods. That responsibility included fresh-prepared foods brand development in conjunction with the grocer's culinary team.

Further, don't be surprised if you see fresh and fresh-prepared foods pop up in a Walgreens' store - or two or three - in San Jose, including at stores near the two Fresh & Easy stores Tesco has opened in the city so far this year.

Walgreens' stores in Concord, Walnut Creek, Hayward and a couple other Bay Area cities - all near Fresh & Easy stores opened in March and April of this year in the cities - are looking pretty good for new fresh and fresh-prepared foods installations down the road as well.

We'll have more news, along with some in-depth analysis, about Walgreens' initial 30-store fresh foods and fresh-prepared foods program roll out in the San Francisco Bay Area in the next couple days.

As we said in our story published in Fresh & Easy Buzz 16 months ago, the San Francisco Bay Area region is a major focus for Walgreens with its fresh foods program.

That's because, as we also said in the January 25, 2010 story, the region offers great opportunities for retailers that offer fresh-prepared foods.

But in addition to that primary reason, there's a secondary one - the Tesco Fresh & Easy angle - which we've laid out for you a bit in this story - and in our past coverage and analysis (see the links below) of how Walgreens' fresh foods program relates to Tesco's Fresh & Easy via the Pugh and Jensen history and angle.

We'll have more to come. Stay tuned.

Related Stories

>April 11, 2010: When it Comes to Fresh, Prepared Foods, New York City's Duane Reade is Simply 'deLish' for Walgreens

>January 6, 2010: Breaking Buzz: Corporate Director of Fresh Foods Jim Jensen Leaves Tesco's Fresh & Easy

>January 15, 2010: Just-Exited Tesco Fresh & Easy Fresh Foods Director Jim Jensen to Head New Fresh Foods Initiative at Walgreens Drug Chain

>Thursday, January 21, 2010: Walgreens Announces Hiring of Former Fresh & Easy Fresh Foods Director Jim Jensen; Confirms Our January 6 Report

>January 22, 2009: Neighbors by Location Only: Will Mega-Drug Chain Walgreens' New Focus on Consumables and 'Affordable Essentials' Rob Sales From Tesco's Fresh & Easy?

>December 22, 2008: Drug Chain Walgreens to Slow New Store Growth; Despite Tesco Fresh & Easy's Recent Announcement to Do Similar, We Suggest An Analogy is Misplaced

>December 22, 2008: Breaking News: Mega-Drug Chain Walgreens Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position

>September 22, 2008: Key Personnel Breaking News: Co-Vice President of Retail Operations Brian Pugh No Longer Employed At Tesco Fresh & Easy Neighborhood Market

Below are the 15 Walgreens' stores in the San Francisco Bay Area set to have fresh foods and fresh-prepared foods offered in-store by the end of June 2011. Source: Walgreen Company.

San Francisco
1344 Stockton Street

100 Sansome Street

116 New Montgomery

275 Sacramento Street

450 Powell Street

30 Market Street

456 Mission Street

1301 Market Street

2690 Mission Street

3400 Cesar Chavez Street

5300 Third Street

25 Point Lobos Avenue (Richmond District store)

3001 Taraval Street

Daly City (San Mateo County)
Westlake Shopping Center

San Rafael (Marin County)
830 Third Street

When it Comes to Fresh, Prepared Foods, New York City's Duane Reade is Simply 'deLish' for Walgreens

Fresh, Prepared Foods Retailing & Merchandising

Walgreen Co. is - as of Friday, April 9 - officially the owner of New York's Duane Reade drug store chain, which with 258 stores in the New York City metro area is the number one drug channel retailer in the market.

That's a big bite out of the drug (and food and grocery) retailing apple for the drug chain in the "Big Apple."

Walgreens says it plans to operate the stores under the Duane Reade banner (perhaps not forever), which is a wise move considering the strong equity the name has in New York City. It's CEO, John Lederer, also is staying on for now.

Walgreen Co. has 70 drug stores under the Walgreens banner in New York City. The acquisition of the 258 Duane Reade units brings its total store count 328 in New York City, which makes it fae and away the leading drug chain in the region.

There are nearly 7,500 Walgreens stores in the U.S. The retailer had 2009 annual sales of $63 billion. Duane Reade had 2009 sales of about $1 billion.

Ownership of Duane Reade makes the drug retailer's plans to get into the fresh, prepared foods merchandising and retailing business much, much easier than it was just a mere two months ago, when the leading U.S. drug store retailer announced its intent to buy New York City's 50 year old iconic drug chain for $618 million and the assumption of its debt in a friendly acquisition.

Walgreen Co. had announced its plans to develop a fresh, prepared foods program just a few weeks prior to its February 17, 2010 Duane Reade acquisition announcement, by the way.

Fresh & Easy Buzz first reported on Walgreens' plans to get into fresh, prepared foods retailing in January of this year.

We were the first publication to report that Walgreen Co. had hired former Tesco Fresh & Easy Neighborhood Market director of fresh foods Jim Jensen to head the start up of its fresh, prepared foods program, something the drug chain confirmed shortly thereafter. [January 6, 2010 Breaking Buzz: Corporate Director of Fresh Foods Jim Jensen Leaves Tesco's Fresh & Easy.] [January 15, 2010: Just-Exited Tesco Fresh & Easy Fresh Foods Director Jim Jensen to Head New Fresh Foods Initiative at Walgreens Drug Chain.]

The reason Walgreens' development of its fresh, prepared foods program, which according to our sources is coming along nicely, just got easier for the chain is because Duane Reade has an impressive fresh, prepared foods program operating in some of its newest and most-recently remodeled stores in New York City, including its newest store on 8th Avenue (between 16th & 17th) in Manhattan's Chelsea district, and the location at 1350 Broadway (at 35th Street) in Manhattan, both of which we've visited.

The primary focus of Duane Reade's fresh, prepared foods merchandising is on offering an selection of packaged, ready-to-eat and ready-to-heat fresh, grab-and-go type foods under its own "deLish" private brand, merchandised in attractive and convenient refrigerated cases, like those pictured above and below. The ready-to-eat foods include sandwiches made by New York City prepared foods guru Eli Zabar (also pictured below), salads, ready meals, side dishes, snacks, desserts and more for all three meal occasions: breakfast, lunch and dinner.

The stores also feature a selection of fresh breads and baked goods merchandised in clear plastic display fixtures (pictured below).

All of its fresh, prepared foods items are made for and distributed to Duane Reade by local food vendors (like Eli Zabar) on a daily basis.

There's also a selection of manufacturer branded refrigerated fresh foods, along with a huge assortment of chilled beverages, in the stores' "grab-and-go" fresh foods area. Each store also has a fresh-brewed coffee station, like the one pictured below. Duane Reade's is a full-blown fresh, prepared foods program, not a mere hobby.

The stores look more like mini-supermarkets than they do traditional drug stores. (See below.) Think "channel bending" - one part small-format food store and one part convenience store, combined with a full drug store and pharmacy, with a fresh, prepared foods cherry on top. About all that's missing are fresh produce and traditional fresh meats. There are some convenience-type meats in the stores.

These newer and more-recently remodeled Duane Reade stores also feature an extensive selection of packaged foods, groceries, perishables and non-foods - which the chain has been adding in nearly all of its stores in various degrees depending on the available square footage of each respective store.

The key feature in these above product categories are Duane Reade's various food (and beverage) and non food private brands, which in our analysis and opinion are some of the best looking (design) and better quality store brands produced by retailers of any channel we've come across in recent times.

Duane Reade's fresh, prepared foods have been well-received in the New York City stores where they're currently being merchandised and sold. So much so in fact that including the category in its new and remodeled stores has been top priority for Duane Reade, which is something we're told will continue to be the case under Walgreens' ownership.

In fact, according to our sources, Walgreen Co. plans to speed up the process of putting fresh, prepared foods in the Duane Reade stores. It also plans to use the Duane Reade program as the blueprint for testing the sales of the ready-to-eat and ready-to-heat foods in some of its existing 70 Walgreens banner stores in New York City, starting fairly soon.

And of course, in terms of blueprints, the Duane Reade program is invaluable to the work ex-Tesco Fresh & Easy fresh foods director Jim Jensen and others are and have been doing for the last couple months in getting Walgreens' Fresh, prepared foods program developed.

New York City also happens to fit in very well with the drug chain's strategy for its fresh, prepared foods program, which puts an emphasis - but not exclusively by any means - on highly dense market regions like Manhattan, along with markets like Boston, Philadelphia, Chicago, San Francisco and others.

As we discussed in this January 2010 piece [Walgreens Eyeing San Francisco For Fresh Foods Program: Could it Strike Category Gold in the City By the Bay?] dense urban regions like New York City and San Francisco lend themselves well to grab-and-go and other forms of fresh, prepared foods merchandising and sales.

Walgreen Co. has lots of stores in both these cities (328 in New York City, population 13 million) and 64 in San Francisco, population 900,000) resulting in what in our analysis is an excellent formula for fresh, prepared foods retailing. That formula: Dense urban markets/ lots of people on the ground x having a high store count in such markets = a good grab-and-go prepared foods market. (The Walgreens store above is in San Francisco's South of Market neighborhood)

When it comes to fresh, prepared foods, Duane Reade gives Walgreen Co. not only the leading drug category market share in the number one urban market in the U.S. - New York City - it also brings the leading U.S. drug chain an already operating and largely successful fresh, prepared foods program right when it needs it most - during Walgreens' own category development stage.

Walgreens Eyeing San Francisco For Fresh Foods Program: Could it Strike Category Gold in the City By the Bay?

News & Analysis

Drug chain Walgreens is looking closely at San Francisco, California as one of the first major U.S. cities in which to launch its fresh foods (ready-to-eat foods and probably some ready-to-heat as well) program, Fresh & Easy Buzz has learned.

As we first reported in this January 6, 2010 story, former Fresh & Easy Neighborhood Market director of Fresh Foods Jim Jensen left the Tesco-owned chain on December 30, 2009 to take a job with Walgreens at its corporate headquarters in Illinois. Fresh & Easy is based in the Southern California city of El Segundo

Jensen's new position at Walgreens is as the drug chain's new corporate divisional manager of fresh foods. See our stories here for details. Both the division and the position are new at Walgreens.

Jim Jensen is joining Brian Pugh, the former vice president for retail operations at Tesco's Fresh & Easy, at Walgreens. Pugh is the vice president of merchandising at the drug chain, a position which includes responsibility for the consumables categories, including the new fresh foods focus.

San Francisco: The City

San Francisco would be a good and logical choice as one of the first major U.S. cities for Walgreens to launch it's fresh, prepared foods program for a number of reasons:

>Geography and dense population: San Francisco is a compact city, just 47 square miles in size. It's also a highly dense city. San Francisco has a population of about 850,000 residents living in those mere 47 square miles. In addition, because San Francisco is a headquarters city, it's estimated it has a daytime population of about 2 million.

>Strong retail real estate: Walgreens has a whopping 64 drug stores in San Francisco, including having at least one store in just about all of the city's many neighborhoods. This is powerful retail real estate penetration. San Francisco is a city of neighborhoods.

>Prime demographics: San Francisco's population skews young. It also has a high percentage of single people. These two demographics are excellent for the retail merchandising of ready-to-eat and ready-to-heat fresh, prepared foods of all types. In other words, San Francisco is a grab-and-go and more fresh foods merchandising heaven.

Additionally, San Francisco has among the highest income of all U.S. cities. It's in the top five.

But even more important, San Franciscans spend a higher percentage of their income on prepared foods of various types than do residents of nearly any other U.S. city. New York City and Boston being the two closest.

San Francisco has a much higher proportion of people living in apartments than it does single family houses. This phenomenon also lends itself to higher purchases of ready-to-eat and ready-to-heat fresh foods.

Add to this the fact that San Francisco is a walking and public transit city, which means frequent grab-and-go eating, and you can begin to see the reasons why making the city one of its first markets in which to launch its fresh, prepared foods program would make good and logical sense for Walgreens.

San Francisco's high daytime population - they all have to eat lunch - also offers an added incentive for a chain like Walgreens to add fresh, prepared foods to some or all of its 64 stores in the city. These suburban commuters work downtown in the city's financial district, but also at the many media companies in the South of Market neighborhood, as well as in numerous neighborhoods throughout the city. Their are Walgreens stores in nearly all of these neighborhoods.

Pictured above is a Walgreens store in San Francisco's South of Market neighborhood. The store is the retail anchor of a mixed-use office and residential building, which offers a ready-made customer base for grab-and-go prepared foods.

San Francisco: Fresh foods gold mine

Walgreens already sells a limited variety of fresh foods, such as milk, eggs, juices and other beverages, along with some perishable and frozen foods in its stores nationwide. However, by fresh, prepared foods we're taking about ready-to-eat items like sandwiches, snacks and desserts, and ready-to-heat items like pizza's, hot sandwiches and perhaps even entrees and side-dishes in a limited assortment.

San Francisco, which was where the successful gold miners spent their treasures during the great California Gold Rush in the 1800's, is one of the strongest markets in the U.S. for sales of ready-to-eat and ready-to-heat fresh, prepared foods. This includes sales at supermarkets, specialty food stores, corner grocery markets, convenience stores and at a vast variety of prepared foods venues like restaurants, kiosks and other outlets.

With its existing base of 64 stores in the city, if Walgreens were to introduce fresh, prepared foods in some or all of those stores, it would become a major retailer of ready-to-eat and ready-to-heat foods in San Francisco by virtue of the fact it covers those 47 square miles with a retail store unit blanket. Existing retail real estate is a powerful strategic tool to have.

For example, Supermarket chain Safeway Stores, Inc., which is headquartered just 30 miles from San Francisco in Pleasanton, has about 15 stores in the city. Of course Safeway's supermarkets, even its smallest units in San Francisco, are at least three times the size of the San Francisco Walgreens' drug stores. They also offer much more in the way of food and grocery selection.

But that's not what's most significant in this case, since little square footage is needed to merchandise a selection of fresh, prepared foods. What's key for Walgreens is that it has those 64 stores, which are located throughout the city, including in the downtown, as well as in San Francisco's many neighborhoods. This is the power of existing retail real estate we mentioned earlier.

Walgreens and Safeway have the most stores in San Francisco of any retail chain of any format we are able to find.

It's clear San Francisco offers considerable opportunity for Walgreens in the fresh foods space as it further develops and starts to launch its program.

Walgreen's isn't at present confirming or denying that it's looking closely at San Francisco as one of the first markets in which to rollout its fresh, prepared foods program, which we think will be mostly ready-to-eat-focused, but will also have some ready-to-heat items as a part of it.

Walgreens recently applied to the city of San Francisco for permits to sell alcohol at 34 of its 64 stores in the city. This is part of a national corporate move, to offer alcohol sales in more of its stores in the U.S., which is part of the drug chain's increased focus on offering more consumables for sale in its stores, which we first wrote about here in January 2009. The new fresh foods program is also part of that new consumables strategic emphasis.

Tesco's Fresh & Easy currently has two confirmed store locations in San Francisco - at 3rd Street & Carrol Avenue and at Silver Avenue & Goettingen Street. However, those locations have been confirmed by Fresh & Easy since January 30, 2008.

The fresh foods and grocery chain has twice postponed its Northern California launch since then. And Fresh & Easy has yet to announce if it will open any stores in Northern California, including the Bay Area, in 2010.

But it appears, based on our information, research and analysis, that Walgreens is thinking that if you are in San Francisco, you should have fresh foods in your stores.

Related stories from Fresh & Easy Buzz:

>January 6, 2010 Breaking Buzz: Corporate Director of Fresh Foods Jim Jensen Leaves Tesco's Fresh & Easy.

>January 15, 2010: Just-Exited Tesco Fresh & Easy Fresh Foods Director Jim Jensen to Head New Fresh Foods Initiative at Walgreens Drug Chain.

>Thursday, January 21, 2010: Walgreens Announces Hiring of Former Fresh & Easy Fresh Foods Director Jim Jensen; Confirms Our January 6 Report

>January 22, 2009: Neighbors by Location Only: Will Mega-Drug Chain Walgreens' New Focus on Consumables and 'Affordable Essentials' Rob Sales From Tesco's Fresh & Easy?

>December 22, 2008: Drug Chain Walgreens to Slow New Store Growth; Despite Tesco Fresh & Easy's Recent Announcement to Do Similar, We Suggest An Analogy is Misplaced

>December 22, 2008: Breaking News: Mega-Drug Chain Walgreens Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position

>Monday, September 22, 2008: Key Personnel Breaking News: Co-Vice President of Retail Operations Brian Pugh No Longer Employed At Tesco Fresh & Easy Neighborhood Market

[Graphic credit: The limited edition print of San Francisco's North Beach neighborhood with the Transamerica Pyramid building in the background is by Cao Yong Editions, courtesy of NCH Galleries.]

Walgreens Announces Hiring of Former Fresh & Easy Fresh Foods Director Jim Jensen; Confirms Our January 6 Report

On January 6, 2010 Fresh & Easy Buzz was first to report that Jim Jensen had left his position as director of fresh foods at Tesco's Fresh & Easy Neighborhood Market, and was taking a similar position at the Walgreens drug chain. Our Report - Wednesday, January 6, 2010 Breaking Buzz: Corporate Director of Fresh Foods Jim Jensen Leaves Tesco's Fresh & Easy.

Additionally, see our follow-up piece - Friday, January 15, 2010: Just-Exited Tesco Fresh & Easy Fresh Foods Director Jim Jensen to Head New Fresh Foods Initiative at Walgreens Drug Chain.

Today, Thursday, January 21, Walgreens announced in a statement it has hired former Fresh & Easy fresh foods director Jim Jensen to head up its fresh foods program, confirming our early reports.

Here's a report on Walgreens announcement from Dow Jones Newswires published in today's Wall Street Journal - January 21, 2010: Walgreen Taps New Executive For Venture Into Fresh Food

Numerous other business and industry trade publications will be reporting the story today and tomorrow now that Walgreens has publicly announced the move in a press release...

But Fresh & Easy Buzz readers learned the news 15 days ago when we broke it on the Blog.

Fresh & Easy Buzz has been reporting on and writing about Walgreens' increased food and grocery product merchandising emphasis - and its connection to Tesco's Fresh & Easy - long before the recent spate of coverage in the mainstream press and in other Blogs came about in the last couple days.

For example, below is a bibliography of just a few of the related stories from Fresh & Easy Buzz on the topic going back as far as well over a year ago. There are links at these posts to other related stores from the Blog as well.

>January 22, 2009: Neighbors by Location Only: Will Mega-Drug Chain Walgreens' New Focus on Consumables and 'Affordable Essentials' Rob Sales From Tesco's Fresh & Easy?

>December 22, 2008: Drug Chain Walgreens to Slow New Store Growth; Despite Tesco Fresh & Easy's Recent Announcement to Do Similar, We Suggest An Analogy is Misplaced

>December 22, 2008: Breaking News: Mega-Drug Chain Walgreens Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position

>Monday, September 22, 2008: Key Personnel Breaking News: Co-Vice President of Retail Operations Brian Pugh No Longer Employed At Tesco Fresh & Easy Neighborhood Market

[Editor's Note: Fresh & Easy Buzz will have more to come in the following days on Walgreens' move into fresh foods merchandising. Stay tuned.]

Just-Exited Tesco Fresh & Easy Fresh Foods Director Jim Jensen to Head New Fresh Foods Initiative at Walgreens Drug Chain

Connecting the Dots - And More

On January 6, 2010 we broke the news in this report [Breaking Buzz: Corporate Director of Fresh Foods Jim Jensen Leaves Tesco's Fresh & Easy] that Jim Jensen, Tesco Fresh & Easy Neighborhood Market's director of fresh foods, had left the company.

In the January 6 story we also reported that Mr. Jensen had left his position at Fresh & Easy to take a job with the Walgreens drug chain at its corporate headquarters in Deerfield, Illinois.

We also reported in the January 6 piece that Jim Jensen would join another Tesco Fresh & Easy corporate headquarters former employee at Walgreen's - Jeff Pugh, Fresh & Easy's former vice president of retail operations.

Mr. Pugh left Tesco's Fresh & Easy in September 2008, as we reported in this story: September 22, 2008: Key Personnel Breaking News: Co-Vice President of Retail Operations Brian Pugh No Longer Employed At Tesco Fresh & Easy Neighborhood Market.

In December 2008 Brain Pugh joined Walgreens as its corporate vice president of format development, a new position at the drug chain, as we reported in this story: December 22, 2008: Breaking News: Mega-Drug Chain Walgreens Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position.

In March 2009 Brain Pugh was promoted by Walgreens, as we detailed in this report: March 2, 2009: Walgreens Promotes Former Tesco Fresh & Easy Exec Bryan Pugh to VP Merchandising Position; Move Fits Drug Chain's Current Strategic Focus.

In our reporting for the January 6, 2010 story, we had information that Jim Jensen was not only leaving Tesco's Fresh & Easy to join Walgreens but that he is taking a new position at the drug chain - director of fresh foods.

However, we didn't have enough source confirmation on that particular aspect of the story to go with it in print, based on our source and fact checking criteria - so we left it out, even though we believed it to be the case based on the information we obtained.

But today Bloomberg reporter-writer Carol Wolf helps us - and the ongoing story - out a bit.

In an interview piece today, she quotes Walgreens' vice president Brian Pugh from a January 11 interview she had with him (just five days after our Jim Jensen story was published) as announcing publicly that Walgreen Co. is going into the fresh foods merchandising business.

Here's what is reported in the piece today (in italics) from the January 11, 2010 phone interview with Brian Pugh:

Walgreen Co. plans to offer fresh foods and prepared meals to draw “time-starved” shoppers to its more than 7,000 stores, taking on retailers such as Target Corp. and Kroger Co. The drugstore chain has been talking with foodmakers including Unilever NV , Nestle SA and Sara Lee Corp. about creating private-label and branded products, said Bryan Pugh , vice president of merchandising.

“Everyone is time-starved and we have the most convenient 7,000 locations in the U.S.,” Pugh said in a Jan. 11 telephone interview. “They’re on-the-way-home destinations that are easy to get in and out of and will provide a good value.” He declined to say when the project will be implemented or how much it costs.

Walgreen, based in Deerfield, Illinois, must sort out supply and distribution issues and test in some markets before introducing freshly prepared foods such as salads, cut fruits, ready-to-bake pizzas and sandwiches into more stores, he said. The goal of the program, along with the sale of beer and private-label wine, is to boost revenue , Pugh said.

[You can read the entire Bloomberg piece here.]

In the Bloomberg interview Brian Pugh confirms Walgreens is getting into the fresh foods merchandising business in some form.

It's important to note though that unlike Tesco's Fresh & Easy, Walmart, Safeway and most other major food retailing chains that develop and operate their own fresh foods programs in-house, Walgreens is looking to (or already has found) find outside vendors/suppliers to actually make the fresh foods products it introduces in its drug stores. This in fact is a smart idea, since it would make little sense for the drug chain to create its own in-house fresh foods program given the high start up and operational costs associated with it. It's much better, if managed well, for the retailer to use outside suppliers to make the products.

Interestingly though - and remember we are connecting dots - in the Bloomberg interview piece Brain Pugh declines to name the new director of fresh foods Walgreens has hired to head up its fresh foods program - and no name is reported in the story.

Here's what Walgreen Co. vice president Pugh told the Bloomberg reporter as she reports in her piece today (in italics):

Walgreen hired a director of fresh foods, who will begin work in several weeks, Pugh said. He wouldn’t name the person.

Since Bloomberg's Carol Wolf helped us out a bit with this ongoing story in her piece today, it would only be fair to return the favor. So we will.

The name of the new director of fresh foods for Walgreens is Jim Jensen, who left his position as director of fresh foods at Tesco's Fresh & Easy on December 31, 2009, as we reported on January 6, 2010 in this story. Mr. Jensen is taking a little time off, packing up and moving to Illinois from Southern California, and will start work at Walgreen Co. in a week or two.

Walgreens has not confirmed publicly or officially confirmed Jim Jensen as the new head of its fresh foods merchandising efforts.

The story of Walgreen's going into the fresh foods business - although we stress we don't see it offering an as complete and extensive line of fresh, refrigerated ready-meals and other products like Tesco's Fresh & Easy and Safeway do, for example - gets all the more interesting because in California, southern Nevada and Arizona, where Fresh & Easy has its current 134 stores, a key store location strategy for Tesco has been to locate many of its Fresh & Easy Neighborhood Market stores right next to or near a Walgreens drug store unit.

Tesco and Walgreens have even partnered with shopping center developers to be the two key retail anchors - food and drug/pharmacy - in a number of new and remodeled centers.

[Fresh & Easy Buzz started connecting Walgreens and Tesco Fresh & Easy dots in late 2008 and early 2009. Suggested reading: January 22, 2009: Neighbors by Location Only: Will Mega-Drug Chain Walgreens' New Focus on Consumables and 'Affordable Essentials' Rob Sales From Tesco's Fresh & Easy? December 22, 2008:Drug Chain Walgreens to Slow New Store Growth; Despite Tesco Fresh & Easy's Recent Announcement to Do Similar, We Suggest An Analogy is Misplaced.]

Since Brain Pugh was in charge of retail operations at Tesco's Fresh & Easy, do you suppose he might see the irony - and potential opportunity - in the fact that so many Fresh & Easy and Walgreens units are located so close together in California, Nevada and Arizona?

Further, since fresh foods (and all consumables) falls into his responsibility list as the merchandising vice president at Walgreens, might Brain Pugh be seeking to use the close proximity of these numerous Fresh & Easy and Walgreens stores as a competitive advantage for the Drug chain in terms of fresh foods - and other consumables - merchandising and retailing?

And, in addition, might he like to use the irony of the Fresh & Easy and Walgreens units' close proximity as a retail category (fresh foods and all consumables) stiletto against Tesco, which he worked for in Asia for many years before coming to Southern California as part of the team starting up Fresh & Easy? When Brain Pugh left Fresh & Easy he left his career at Tesco plc as well, even though it began with the company long before Fresh & Easy was envisioned?

With Walgreen Co. getting into the fresh foods category - which is about 40% -to- 50% of the total offerings in a Fresh & Easy store (the other half being packaged goods and grocery products in various categories) - combined with the fact that numerous Fresh & Easy stores are located near Walgreen's stores in Tesco's three markets mentioned above - Tesco's Fresh & Easy will find itself with new and added competition right next door or across or just down the street at many of its locations.

Walgreen's already sells limited selections of packaged food and grocery items, household goods, beer, wine (and spirits in some locations) and perishables in its stores - and as we've reported and written about has been expanding its food and grocery selections in the stores for well over a year now - so that is existing competition close by for Fresh & Easy. But adding the fresh, prepared foods in whatever dimension and SKu count will add a new layer of competition to a category that Tesco believed was underdeveloped in the U.S., using that belief as one of the key reasons it invested in and developed the Fresh & Easy concept and chain.

The story is far from over - and it will get even more interesting. We will have more to come soon.

Connecting the Dots - And More: Related stories from Fresh & Easy Buzz:

>December 25, 2009: It's 'British Invasion: The Sequel Down Under' For Former Tesco Fresh & Easy Neighborhood Market Director of Grocery Charlotte Maxwell

>August 17, 2008: Special Report: Tesco Fresh & Easy Neighborhood Market Experiencing A Category Manager and Buyer 'Brain Drain'

>August 17, 2008: Special Report: Tesco Fresh & Easy's Director of Grocery Returning to the UK; Grocery Chain Reorganizing its Corporate Buying Department

>August 22, 2008: Special Report: Today Last Day For Fresh & Easy Neighborhood Market Director of Grocery Charlotte Maxwell; Moving Back to Tesco in the UK

>September 22, 2008: Key Personnel Breaking News: Co-Vice President of Retail Operations Brian Pugh No Longer Employed At Tesco Fresh & Easy Neighborhood Market

>December 22, 2008: Breaking News: Mega-Drug Chain Walgreens Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position

>March 2, 2008: Walgreens Promotes Former Tesco Fresh & Easy Exec Bryan Pough to VP Merchandising Position; Move Fits Drug Chain's Current Strategic Focus

>March 12, 2008: Breaking News: Tesco plc. Makes Major Personnel Change to Fresh & Easy Neighborhood Market USA Senior Management Team

>May 29, 2008: Tesco Makes Official Announcement of Jeff Adams' Title and Position at Fresh & Easy Corporate; Confirms Our Report of March 5

>January 22, 2009: Neighbors by Location Only: Will Mega-Drug Chain Walgreens' New Focus on Consumables and 'Affordable Essentials' Rob Sales From Tesco's Fresh & Easy?

>December 22, 2008: Drug Chain Walgreens to Slow New Store Growth; Despite Tesco Fresh & Easy's Recent Announcement to Do Similar, We Suggest An Analogy is Misplaced

>March 29, 2008: Tesco's Fresh & Easy 'Taking a Pause' From New Store Openings: A Full Review In the Works

Family Dollar Discount Store Chain Increasing Amount of Store Square Footage Devoted to Merchandising Food-Grocery Items in Stores Beginning in May

Arizona Region Market Report
Alternate-Format Food & Grocery Retailing

Beginning next month, discount dollar store chain Family Dollar will start expanding the amount of space it devotes in its stores to merchandising food, grocery, household and related packaged goods items.

North Carolina-based Family Dollar operates 6,600 (in 44 states) of its small-format (7,500 -to- 10,000) square feet) dollar discount stores in the United States, including numerous stores in Arizona, one of the three states where Tesco operates its small-format (10,000 -to- 13,000 square foot) Fresh & Easy combination grocery and fresh foods markets. The other two states are California and Nevada.

The decision to expand the amount of square footage devoted to consumables and groceries in its stores beginning in May is all about consumer trends and sales in the current recession for Family Dollar, which is one of the U.S. retail chains that's currently benefiting from a flight to value retailers by shoppers in the current economic downturn in the U.S..

"Right now our customers are focused on needs, and so that's why we're focused on driving consumables," Kenneth Smith, Family Dollar's chief financial officer, said last week on Wednesday, April 9 in a Web-based conference call discussing the retailer's second-quarter financial results. "That's (consumables, groceries, essentials) where the action is today."

Family Dollar stores' s just-reported second-quarter financial results bare out the fact that consumables and essentials are where it's at for the retailer.

The dollar-discounter said a 13% increase in sales of consumables — including food, household-oriented packaged goods products, health and body care and pet food — drove second-quarter revenues up by 8.7% to $1.99 billion, compared $1.83 billion in the same quarter in 2008. As a percent of total sales, consumables increased to a whopping 61% at Family Dollar.

Gross margins are also looking rather good for the small-format, dollar-discount chain. For the second-quarter it reported its margins were up by 1% to 33.7% of sales.

Income for Family Dollar also is on the rise. The chain's Q2 net earnings improved 32.9% to $84.1 million, or 60 cents per share, up from the same period in 2008 when it reported $63.3 million and 45 cents per share.

It's clear the dollar-discount chain, which has Arizona stores in Phoenix, Tempe, Avondale and Tolleson, with additional units planned for the state, is benefiting from what we've identified and term a significant consumer flight to value-based retailers when it comes to much if not all of their food and grocery shopping in the current recession.

Fresh & Easy Buzz has learned that Family Dollar will carve out as much additional space in its stores for consumables, grocery, household cleaning and related "supermarket-type" items as it can. The retailer believes with its lower-cost, small-format store structure, combined with its huge buying power (the 6,600 stores), it can offer food and grocery items it currently isn't selling in its stores at prices that come in on a regular basis as the lowest in most of the market regions where it has its stores.

Family Dollar chairman and CEO Howard Levine said last week that he thinks the chain's combination of offering value (dollar store format and pricing) and convenience (the smaller footprint store size) positions the chain to continue doing well as it devotes the increased store square footage to consumables-groceries and the related packaged goods items, with at the same time continue to focus on value with its general merchandise product selection.

"In today’s challenging economic environment, families of all incomes are looking for ways to save money. Our strategy of providing both value and convenience continues to resonate well with consumers, and, as a result, we continue to capture more shopping trips and gain market share," Levine in a statement.

Family Dollar is the latest, but far from the only of what we call "alternative-format" retailers, to increase the amount of space (and number of SKUS) for food and grocery items in its stores.

For example, we've written about and offered analysis on drug chain Walgreens' major move to position its stores as offering more "affordable essentials" items, including dramatically expanding the number of food, grocery, household packaged goods, health and body care and related SKUS in its drug stores located throughout the U.S. Walgreens has hundreds of drug stores in California, Nevada and Arizona.

[Here are links to those stories: March 2, 2009: Walgreens Promotes Former Tesco Fresh & Easy Exec Bryan Pough to VP Merchandising Position; Move Fits Drug Chain's Current Strategic Focus...January 22, 2009: January 22, 2009: Neighbors by Location Only: Will Mega-Drug Chain Walgreens' New Focus on Consumables and 'Affordable Essentials' Rob Sales From Tesco's Fresh & Easy?...December 22, 2008: December 22, 2008: Breaking News: Mega-Drug Chain Walgreens Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position.]

The dollar store retailing format segment in general is doing well, particularly in consumable and grocery sales, in the current economic downturn. As an example, the California-based "99 Cents Only" chain has already expanded the number of food and grocery SKUS it carries in its stores, which prior to that expansion was already a significant amount, across numerous categories.

Dollar stores were popular before the recession hit. But they've become even more popular since the recession started, and even more so as it has intensified. Many consumers who never bought consumable and related grocery items before at dollar or 99-cent stores are now doing so, which helps explain the double-digit sales growth at chains like Family Dollar.

Tesco's Fresh & Easy Neighborhood Market, like Target and others before it, has realized the popularity of dollar stores, and of 99-cent and $1 pricing. Like Target and others Fresh & Easy now has what it calls "Under $1 sections" in its small-format grocery and fresh foods stores.

Alternative-format retailers -- retailers that aren't positioned mainly as a supermarket or grocery stores but still sell limited assortments of food and grocery items -- like drug chains and dollar-99-cent store chains have numerous stores in the U.S.; the power of location. (Walgreens has over 10,000 units in the U.S. Add that to Family Dollar's 6,600 and you have about 17,000 stores represented by just two chains in these segments.)

Therefore, by adding even just a few hundred new SKUS in the food and grocery categories to their respective stores, such chain's can have a significant overall competitive influence on food and grocery format-centered retailers (supermarkets, ect.) because of this power of location; having so many stores in so many places and markets.

And in this recession there is a growing trend by various alternative-format retailers to increasing the variety and number of consumables and consumer packaged goods SKUS they offer in their stores.

For example, in the drug chain segment the CVS chain and Rite-Aid both are putting an increased emphasis on consumables and grocery items, particular in the number of items featured and discount-price promoted in their weekly advertising circulars.

Even big box home retailers like Home Depot and Lowes are offering more consumables, particularly bottled water and soda pop, on promotion in their stores. And these chain's are offering far more SKUS in the household cleaning products category than they were before the recession hit. They have to because the housing foreclosure crisis and recession took the bloom off the rose off what until early 2008 was a booming home improvement trend in the U.S. among consumers -- a trend that benefited home stores like Home Depot and Lowes significantly.

And, according to this April 3, 2009 report in Natural~Specialty Foods Memo [Retail Memo - Alternate Formats: Toys 'R' Us Testing Store-Within-Store 'R Market' Grocery Departments in Three Chicago-Area Toys 'R' Us Toy Stores], even the Toys "R" US chain is testing limited assortment food and grocery sections in three of its toy stores in the Chicago, Illinois Metro region.

It's our analysis that additional alternative-format retailers will continue to expand the amount of square footage devoted to food and grocery items in their stores, along with expanding the variety and number of SKUS they merchandise in the stores, during this economic recession.

We also believe many of the retailer's that do so will most likely keep the expanded food and grocery selections once the recession ends.

We even expect that a few other U.S. retailers that don't at present offer any food and grocery items for sale in their stores, like the Toys "R" Us example, will began offering limited assortments of consumables and groceries, particularly essentials, this year as a way to attempt to draw shoppers into their often empty stores, whatever the format, increase sales, and overall compete during a time when general merchandise, soft, hard and durable goods retailers are struggling in a very serious way.

Walgreens Promotes Former Tesco Fresh & Easy Exec Bryan Pough to VP Merchandising Position; Move Fits Drug Chain's Current Strategic Focus

Mega-drug chain Walgreens has promoted former Tesco Fresh & Easy Neighborhood Market co-vice president for operations Bryan Pough to the position of corporate vice president of merchandising-Walgreens after just slightly over two months on the job as vice president of store format development at the corporate headquarters of the largest drug chain in the U.S.

As we reported in this December 22 piece [Breaking News: Mega-Drug Chain Walgreens Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position], Deerfield, Illinois-based Walgreens hired Pough as its vice president of store format development in December, 2008, a new position in which he was tasked with focusing on growing the consumables and related categories in the drug chain's stores, such as food, groceries and household goods, as well as the strategic development of the existing and new store formats for the drug chain, including its new small-format drug store development we call "Smallgreens." The existing format development has to do with the drug chain's new, added focus on food, grocery and related products.

As we've written about previously in Fresh & Easy Buzz, Walgreens has been dramatically increasing the number of consumables SKUS in its U.S. drug stores, including adding lots of food, grocery and perishable products, both national and regional brand, as well as under its own store brands, which include Deerfield Farms, Walgreens and W, along with a couple others.

Walgreens has also been featuring more food, grocery, health and beauty care (HABA) and household item packaged goods in its 12-page weekly advertising circle since late last year, something we've previously reported on as well.

And since mid-January of this year the quantity of consumable, HABA and household packaged goods items in the weekly advertising circulars has more than doubled. For example, this week's Walgreens ad circular looks much more like a supermarket chain advertising circular than one that a drug store chain would normally produce. The first three pages of the promotional piece, for example, are devoted almost entirely to food, grocery, HABA and household items.

This is all part of Walgreens' strategic plan to focus more on everyday essential products in its stores in general, and in particular because of the current economic recession in which shoppers are cutting back dramatically on non-essential products.

Walgreens said today that Bryan Pough was named the comapny's new vice president of merchandising effective yesterday, Sunday, March 1. As vice president of merchandising Pough will continue in his roll as head of store format development, adding the merchandising responsibilities to that role, according to Walgreens. This gives the former Tesco Fresh & Easy Neighborhood Market USA executive a full plate right on the front lines at the drug chain.

Pough replaces former Walgreens vice president of merchandising George J. Riedl, who has been named senior vice president of pharmacy innovation and purchasing in the pharmacy services department, effective March 1, according to the company.

"During his 27 years with Walgreens, George has led several areas in pharmacy services, e-commerce and purchasing,” said Walgreens President and CEO Greg Wasson. “He brings vast knowledge of our entire company to his new role, and his pharmacy experience uniquely positions him for taking the implementation of POWER forward and driving our transformation of community pharmacy."

Riedl, 48, will oversee all pharmaceutical purchasing along with rollout of the POWER project, which is designed to enhance patient-pharmacist interaction and reduce costs. POWER is currently operational in more than 360 Florida stores and is anticipated to roll out to all 774 Florida stores by the end of August, according to Walgreens CEO Wasson.

Pough brings with him an extensive background in the food and grocery retailing industry, which fits the current merchandising direction Walgreens is moving in regarding beefing-up its consumer packaged goods merchandising and marketing, along with the transformation of its stores into a more consumables and essential consumer packaged goods-focus merchandising mix.

His focus while at Tesco on the small-format Fresh & Easy also fits with Walgreens plans to develop and open the smaller-format "Smallgreens" stores, along with continuing to open its larger drug stores.

Here's what Walgreens' CEO Wasson said today about the promotion of former Tesco Fresh & Easy Neighborhood Market co-vice preident of operations Bryan Pough to the vice president of merchandising position at the drug chain:

"Bryan brings a quarter century of terrific merchant expertise to Walgreens, including a combination of store operations and merchandising responsibility for Wal-Mart and Tesco,"
Wasson said.

"Over the last three years with Tesco USA, Pugh designed the Fresh & Easy Neighborhood Market store operations model and launched the retail grocery chain on the West Coast, where it grew to 90 locations in less than a year.

Prior to his Tesco experience, Pugh spent six years with CP Group of Asia, opening hypermarkets in China and Thailand and having responsibility for all purchasing, including consumables, over-the-counter health and wellness, electronics, clothing and other categories. From 1985 to 1993, he worked for Wal-Mart Stores, Inc., moving up from an assistant store manager in the Sam’s Club division to vice president of membership marketing."

The store format development aspect of Pough's portfolio includes, among other things, heading up a group that's looking to open small-format Walgreen's drug stores in the U.S., as we mentioned above. This development is something Fresh & Easy Buzz reported almost a year ago that Walgreens was studying.

The "Smallgreens" (our term not Walgreens') stores would be about half the size of the chain's current stores, which are in the 10,000 -to- 20,000 square foot range, depending on the store location and format model.

Walgreens already operates some smaller footprint stores, such as those in highly-dense citys like San Francisco. But they are small-format based on design considerations and space (real estate)restrictions rather than intent. In other words, the stores are basically smaller versions of a basic Walgreens drug store.

The "Smallgreens" format is a specific design and format for the chain's smaller-version drug stores.

We've learned that a major focus of the smaller-format Walgreens stores will be on consumables, particularly food, grocery, household and HABA items, including a limited assortment of perishables like Walgreens currently offers in its 6,658 drug stores, which it operates in 49 U.S. states, and is expanding upon in those stores. Think "affordable esentials" as the merchandising base mix for the "Smallgreens" format stores. This focus also fits with the company's current strategic focus chain-wide on consumables and essential packaged goods items.

Walgreens announced another personal move today. Thomas J. Connolly, 49, has been promoted to vice president of facilities development effective March 1, overseeing real estate, construction and facilities planning, design and engineering. Connolly succeeds senior vice president of facilities development William A. Shiel, 58, who has retired after a 38-year career with Walgreens.

Expect to see an even greater focus on the food, grocery, household and health and beauty care categories in Walgreens' stores over the next couple months and throughout 2009.

This will include, in our analysis:

>An ongoing increase in store floor and shelf space devoted to food, grocery, household and HABA items.

>Increased introduction of more store branded items across all consumable and packaged goods categories. This includes packaged perishables in the dairy, deli categories.

>The likely addition of a couple new grocery product categories, including in the perishables segment.

>An increased emphasis on promoting grocery items, with a focus on essentials, in-store and in the drug chain's weekly advertising circular. More consumables and packaged goods in the weekly ads, less items like cameras and gifts.

>Increased focus on offering "everyday essentials" at hot promotional prices. This includes items like eggs, milk, bread, refrigerated orange juice, toilet paper, toothpaste and the like.

Another added added layer of competition

Walgreens' strategic focus on consumables and related consumer packaged goods is adding an additional layer of competition in the already red-hot competitive environment in U.S. food and grocery retailing between discounters like Wal-Mart, Target and Costco (and others) and supermarket chains, along with all of the other alternative format retailers out there, such as dollar and 99-cent format stores, other drug chains like CVS-Longs, and many other competitors

This competition is being felt in a white-hot way in California, Nevada and Arizona, where Tesco's Fresh & Easy operates its 115 small-format, convenience-oriented, combination grocery and fresh foods markets.

And since Walgreens, which had gross sales of $59 billion in 2008 (all in the U.S.), operates numerous stores in these three states, another layer of competitive heat in the food and grocery (and household item and HABA) categories is being added in each of these market regions, as Walgreens continues to up its ante in the food, grocery and related category segments in its drug stores.

Suggested Reading: Related posts from Fresh & Easy Buzz

>January 22, 2009: Neighbors by Location Only: Will Mega-Drug Chain Walgreens' New Focus on Consumables and 'Affordable Essentials' Rob Sales From Tesco's Fresh & Easy?

>December 22, 2008: Breaking News: Mega-Drug Chain Walgreens Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position

>December 22, 2008: Drug Chain Walgreens to Slow New Store Growth; Despite Tesco Fresh & Easy's Recent Announcement to Do Similar, We Suggest An Analogy is Misplaced

>September 22, 2008: Key Personnel Breaking News: Co-Vice President of Retail Operations Brian Pugh No Longer Employed At Tesco Fresh & Easy Neighborhood Market

>March 12, 2008: Breaking News: Tesco plc. Makes Major Personnel Change to Fresh & Easy Neighborhood Market USA Senior Management Team

>May 29, 2008: Tesco Makes Official Announcement of Jeff Adams' Title and Position at Fresh & Easy Corporate; Confirms Our Report of March 5

>March 29, 2008: Tesco's Fresh & Easy 'Taking a Pause' From New Store Openings: A Full Review In the Works

>August 22, 2008: Special Report: Today Last Day For Fresh & Easy Neighborhood Market Director of Grocery Charlotte Maxwell; Moving Back to Tesco in the UK

>August 17, 2008: Special Report: Tesco Fresh & Easy's Director of Grocery Returning to the UK; Grocery Chain Reorganizing its Corporate Buying Department

>August 17, 2008: Special Report: Tesco Fresh & Easy Neighborhood Market Experiencing A Category Manager and Buyer 'Brain Drain'

Neighbors by Location Only: Will Mega-Drug Chain Walgreens' New Focus on Consumables and 'Affordable Essentials' Rob Sales From Tesco's Fresh & Easy?

Competitor News and Analysis

On December 22, 2008 we reported on the development that former Tesco Fresh & Easy Neighborhood Market co-vice president of retail operations Brain Pugh had been hired by the mega-drugstore chain Walgreens in the new position of vice president of format development-Walgreens.

The primary focus of Pugh's new position at the drug chain, which has thousands of stores throughout the U.S., is to focus on growing and strengthening Walgreens' consumables (food and grocery) household products (toilet paper, cleaners, ect.) and health and beauty care merchandising and retailing program. [Read the story here: Breaking News: Mega-Drug Chain Walgreens Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position.]

In the December 22 story we also wrote about an additional two new hires the drug chain announced at the same time. Those new hires were: Jeffrey Zavada, as vice president and chief sales officer, and Colin Watts, as vice president and president of the Walgreens' Health and Wellness disease management business.

In September, 2008 Walgreens, which is headquartered in Deerfield, Illinois, made an additional major hire, bringing in Kim Feil as its new corporate chief marketing officer.

Ms. Feil, Brian Pugh and chief sales officer Colin Watts were all hired in large part because of their experience in consumer packaged goods marketing, merchandising, operations and sales.
The Hiring of these folks for that experience was not by accident.

Beginning in about the spring of 2008, and intensifying in the early summer of last year, Walgreens made a strategic marketing and merchandising decision to put a greater focus on consumables and related consumer packaged goods marketing, merchandising and sales in its drug stores, including dramatically increasing the number of food, grocery, household and health and beauty care items it will sell in its stores under the retailer's own store brands. These store brands include the Walgreens' brand (across all product categories including food, grocery and beverage) and its Deerfield Farms brand, which is for consumables only.

In the last month Walgreens has been introducing numerous new food, grocery and consumer packaged goods items in its drug stores under these store brands. The retailer also has been promoting consumables and household packaged goods items much more aggressively in its weekly advertising circulars, which are distributed in Sunday newspapers and via direct mail to households, with a particular focus on essential products, including grocery items.

For example, among the numerous food, grocery and non-food consumer packaged goods items in its advertising circular this week include two new products under the Deerfield Farms brand -- fresh butter and a line of packaged cheeses. Essentials. And perishables as well. Walgreens also is now promoting fresh milk and often eggs and fresh bread nearly every week in its advertising circular, as well as essentials such as toilet paper, soap, paper towels and cleaning products, for example.

Even more so the drug chain has increased the number of food and grocery items -- both store brand and national brand -- it runs in its advertising circular each week. This reflects Walgreens' evolving strategy over the last few months of adding additional national, regional and store brand skus of food and grocery products to its stores. This is a strategy and practice the retailer says it will continue.

In fact, beginning February 8, Walgreens is launching a major marketing and merchandising program it's calling "Affordable Essentials." The program, which will focus on consumables, household and related packaged goods "essentials" like milk, bread, toilet paper and the like, is designed to capture an increased share, including from supermarkets, of the dollars consumers are spending on basic or essential packaged goods products during the current recession.

"We've zeroed in on the last things people cut back on when they're in a (financial) pinch," chief marketing officer Kim Feil said at Walgreens' annual shareholders' meeting last week, on Wednesday, January 14.

Ms. Fell described Walgreen's "Affordable Essentials" marketing and merchandising program this way: The drug chain has selected one item from key basic or essential product categories (milk, bread, eggs, laundry detergent, toilet paper, aspirin, disposable diapers, ect.) that recent marketing research shows consumers purchase even in tough economic times like the present. The combined items will then become an "Affordable Essentials" market basket of products. Beginning on February 8, and running indefinitely, Walgreens will offer the items in the "Affordable Essentials" market basket at significantly reduced everyday low prices. The retailer will then tout the affordable market basket of essentials in-store and via all of its various advertising media.

The "Affordable Essentials" product market basket (it's a market basket in the sense of a collection of items rather than an actual physical basket of the goods) will contain a mix of Walgreen's store brands and national brands. The drug chain plans to include plenty of national brands because consumer use of manufacturer's cents off coupons has sored in its stores since about the middle of last year, as it has in other drug stores and in supermarkets throughout the U.S. By offering a strong selection of national brands as part of the program, along with the store brands, Walgreen's believes it can gain added sales since the manufacturers' cents off coupons serve to lower the cost of the items further for consumers but don't impact the retailer's profits because its paid back by the manufacturer.

Walgreen's focus on basic or essential products fits with much of the market-based research and retailer-based scan data currently available. The data is showing consumers are focusing on purchasing basic food, grocery and non-foods packaged goods items at present to a degree not seen in decades. The closest many market researchers and retailers we've discussed the data with say they've seen was the recession of the early 1980's. Most say however the trend towards essential or basic item purchasing is currently even stronger than during that serious recession.

As an example, the market research firm America's Research Group has been conducting regular shopper surveys over the last few months. What it's found, including in its latest survey conducted a little over a week ago, is that shoppers, pressured by debt, credit card bills and fear of losing their jobs, have been reluctant to buy anything beyond essentials. The percentage of shoppers who say in the surveys they are focusing more on essentials has increased progressively since the middle of 2008.

"Retailers are experiencing their most challenging time in three decades," C. Britt Beemer, CEO and founder of the Charleston, S.C.-based America's Research Group consumer research firm says about the results of its latest survey conducted a little over a week ago. "Our survey confirmed that consumers are in deep hibernation, and there is no sign that they will wake up this spring or that the retail outlook will pick up anytime soon," Beemer adds.

At the January 14 annual meeting, Walgreens' CEO Greg Wasson said consumer spending is going to be a challenge for all drug retailers and others throughout 2009, and could get even tighter than it currently is."

He announced that in response to this new consumer behavior Walgreens is moving 29 corporate vice presidents into the field instead of stationing them at its Deerfield, Illinois headquarters in a new local merchandising and operations program. The purpose of the change is to be able to better respond and adapt to local consumer trends and to be better able to focus the stores on their local markets, he said at the meeting.

The Walgreens - Fresh & Easy Connection

There are two interesting and related ironies about Walgreens' new focus on food, grocery and non-foods packaged goods items in relation to Tesco's Fresh & Easy Neighborhood Market.

The first one of course is that former Fresh & Easy chief operations executive Brian Pugh, who left his employ with Tesco's Fresh & Easy on a rather mysterious note (according to some company employees) in September, 2008, as we reported in this story, is now in charge of beefing-up Walgreen's store presence and sales of consumables, including store brands. Consumables, and particularly consumables under its fresh & easy store brand (about 60-65% of the grocery items sold in the stores are under the brand), are the near-100% focus of the Fresh & Easy stores. The stores carry only a very limited assortment of non-foods items.

Just by itself Pugh's moving from Tesco's Fresh & Easy to Walgreens isn't that unique of a development. After all, retailing executives, category managers and others change employers all the time.

But the related irony is that Tesco's Fresh & Easy, of which Brian Pugh was in charge of the retail operations aspects of from the time it started in the Western U.S. until September, 2008, has used Walgreens' as a model in terms of its "critical mass" store location strategy in the Western U.S. markets of Southern California, Metro Las Vegas, Nevada and Metropolitan Phoenix, Arizona. That strategy, like Walgreens in the same three markets where it has hundreds of stores, is one of locating stores rather close together (about two miles apart in concentrated rings) so as to create a retailing critical mass. The strategic goal of such as strategy being to become the de facto "neighborhood grocer" in the area -- in Fresh & Easy's case -- and the defacto "neighborhood drug store" in the specific areas -- in Walgreens' case.

This is a strategy Walgreens has been using for years in various U.S. markets. A few years ago it began turning this strategy into super-high gear in California, Nevada and Arizona. Tesco took notice of it. In large part Tesco used Walgreens (as well as Starbucks' store location strategy) as its model for this "critical mass" store location strategy.

As part of this strategy, numerous Fresh & Easy markets are located next to or just across the way from Walgreens' drug stores. In fact, the two retailers have gone into, and are further going into, numerous shopping centers as co-anchor tenants.

We've talked to a number of retail commercial real estate professionals who work with Tesco's Fresh & Easy. When they started doing so, they were given as one key criteria to identify potential Fresh & Easy store locations based on where Walgreens drug stores were located, as well as to identify locations where Walgreens plans to put new stores in the three markets. As a result, many of Tesco's & Fresh & Easy Neighborhood Market combination grocery and fresh foods stores are located next to or within walking distance (like across a shopping center) to a Walgreens' unit.

Taken together, we therefore find the two related developments become much more interesting -- and gain some added irony.

With Walgreen's new emphasis on consumables development under the leadership of former Tesco Fresh & Easy vice president of operations Brian Pugh, along with the retailer's "Affordable Essentials" program which begins in a couple weeks, it's feasible that if the mega-drug chain is successful, it will end up taking considerable sales in the basic food and grocery categories away from those many Fresh & Easy stores that are located next to or very near Walgreens' units.

With so many Walgreens drug stores in Southern California, Arizona and southern Nevada -- Fresh & Easy's three market regions with its 107 stores -- if successful with its new consumables and "Affordable Essentials" push, the mega-drug chain could likely take grocery share away from numerous other food and grocery retailers in these markets, not just Fresh & Easy. Fresh & Easy is worthy of singling out though because of the facts we laid out above -- the fact so many of the stores are in close proximity to Walgreens' drug units.

It's also worth noting that Walgreen's has found it needs to focus more on consumables and the essentials program because it's found itself losing sales most particularly to Wal-Mart Stores, Inc.'s Supercenters, which has been the only major discount retailer to increase sales during the recession. Despite that fact, Walgreen's same store sales did increase by slightly over 4% over the previous year in its most recent quarter.

Walgreens hopes its more aggressive focus on consumables and the "Affordable Essentials" grocery and non-foods packaged goods program starting on February 8 will bring more shoppers into its stores. Then once in the stores for those "Affordable Essentials," the drug chain hopes customers will pick up some higher margin items while shopping.

We've argued since about the middle of 2008 that in this current and severe recession nothing is more important for retailers than to create, execute and communicate a unique value principle. Walgreens appears to be moving towards this with its ongoing increased focus on consumables and essentials. It will be interesting to see the depth and focus of the new program beginning on February 8.

Linkage: Related stories from Fresh & Easy Buzz:

>Breaking News: Mega-Drug Chain Walgreens Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position

>Drug Chain Walgreens to Slow New Store Growth; Despite Tesco Fresh & Easy's Recent Announcement to Do Similar, We Suggest An Analogy is Misplaced

>Key Personnel Breaking News: Co-Vice President of Retail Operations Brian Pugh No Longer Employed At Tesco Fresh & Easy Neighborhood Market

>Breaking News: Tesco plc. Makes Major Personnel Change to Fresh & Easy Neighborhood Market USA Senior Management Team

>Tesco Makes Official Announcement of Jeff Adams' Title and Position at Fresh & Easy Corporate; Confirms Our Report of March 5

>Special Report: Tesco Fresh & Easy Neighborhood Market Experiencing A Category Manager and Buyer 'Brain Drain'

>Tesco's Fresh & Easy 'Taking a Pause' From New Store Openings: A Full Review In the Works

>Special Report: Tesco Fresh & Easy's Director of Grocery Returning to the UK; Grocery Chain Reorganizing its Corporate Buying Department

>Special Report: Today Last Day For Fresh & Easy Neighborhood Market Director of Grocery Charlotte Maxwell; Moving Back to Tesco in the UK

>Vegas Baby!: Tesco Announces Ten More Fresh & Easy Grocery Stores For The Las Vegas Metro Region; it's All About 'Critical Mass'