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.
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'
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'
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