Drug Stores Go Fresh

Drug stores are starting to compete on a fresh/prepared food level, but should c-stores be worried?

Competitive eyes are set on drug stores as they set out to get "fresh" with consumers.

In January, Walgreens announced it would dramatically expand its fresh food offerings, initially in limited target markets, and hired Jim Jensen, former director of fresh foods for Tesco's Fresh & Easy, as its newly created divisional merchandise manager of fresh food.

"We're looking at offering fresh food options that will appeal to urban on-the-go shoppers, as well as offering a 'tonight's meal option' for suburban customers," Robert Elfinger, spokesperson for Walgreens, recently told Convenience Store News. He added the national drugstore giant specifically plans to expand fruit, sandwiches, salads and refrigerated foods.

Earlier in the year, Bloomberg News reported the Deerfield, Ill.-based retail chain was talking to manufacturers such as Nestlé, Sara Lee and Unilever about producing private label gourmet meals and branded food products.

On another convenient consumables note, Walgreens already added beer and wine to most of its locations, and there is also industry speculation that the chain will renovate some of its stores to include a small café.

Meanwhile, New York's Duane Reade, which is now owned by Walgreens, is setting a fresh food example for its new parent. In March, New York's largest drug store chain unveiled a Chelsea neighborhood store with greatly expanded fresh food and grocery offerings, including fresh sandwiches, single-serve entrées, baked goods and freshly packed salads and vegetables.

The store's expanded food section comprises approximately 40 percent of the 15,000-square-foot, two-level store and includes soups and easy-meal items, such as "freshly made and easily microwavable single-serve entrées that customers can take home for a quick and satisfying meal," the company reported. To complement the entrées, Duane Reade's new Chelsea store also offered fresh produce, including bagged salad, and packaged celery and carrots, for the first time. Breakfast items include fresh-cut fruit, and fresh food deliveries are reportedly made daily to the store.

In addition to the fresh food, the store is offering more than 500 SKUs of frozen convenience items such as boneless, skinless chicken breasts, hamburger patties and appetizers. Duane Reade's recently introduced DR Delish exclusive food and beverages brand is also being featured in the Chelsea store. And there is also self-serve Starbucks coffee in-store.

"Customer feedback to our select fresh food program has been superb," a Duane Reade spokesperson told CSNews. "We're not surprised at the positive reaction though, because we based our program on direct customer feedback from the start. Our sandwiches and yogurt parfaits have been among the most popular of our fresh-food items, as we have found that many New Yorkers have adopted them as a quick, quality meal-on-the go."

She added the development of the fresh food program will be a gradual process. "As with many aspects of our recent business transformation, we test new concepts in certain stores so that we can make adjustments and determinations before deciding on chain roll-out."

Not to be left out of the sprouting food trend in its channel, CVS is also reportedly testing healthy prepared foods in selected urban stores.

Phil Lempert, the "Supermarket Guru," recently stated in The Lempert Report that these drugstore efforts are "added threats to supermarket quick trips."

But what about their effect on convenience stores? Can the drug channel truly compete in the fresh food realm?

"In many ways, drugstores are c-stores on steroids, and fresh food solutions is a way for them to close the loop on health and wellness," stated Don Stuart, COO of Kantar Retail in Wilton, Conn. "So what seems outlandish at first is actually a reasonable possibility."

But Stuart is also quick to point out that c-stores are well ahead of drug stores in offering fresh, healthy meal solutions. "Take Wawa, they have a phenomenal system — computerized fresh-baked/to-order products — and I treat that as a destination, not just to pick up packaged items, but to pick up fresh, healthy foods," he said. "Overall, c-stores have redefined the set and put themselves into play for fresh, easy meals; some are doing it with co-branding relationships with chains such as Subway, but others are doing it on their own."

Drug stores' disadvantage, at least in suburban locations, is their drive-thru service, according to Jon Fleck, category manager for the 66 CHS-owned company stores operating under the Cenex-Zip Trip Stores banner. "They can try to compete on fresh, but too many of their customers come through the drive-up for the drug purchases," he said. "Only those who go into the store will have access to this product."

Fleck does see the sense in carrying fresh food in Duane Reade in New York City, however. "There are a lot of taxis, people using mass transit, etc. It's similar to London where people do a lot of their food shopping multiple times a day at smaller stores."

The drug trade is "doing what every other trade channel is doing — trying to capture more dollars per customer," according to Matt Paduano, vice president of information at Nice N Easy Grocery Shoppes. "They are very aggressive with beer pricing, and we consider the drug channel our biggest beer competition."

However, Paduano believes getting into fresh foods is "a real stretch" for drug stores. "Fresh produce, along with foodservice, is the most time-sensitive category and needs constant attention and labor hours devoted to this," he said. "Also, they will need to factor refrigeration and display needs, and I really can't see much more than shelf-stable fruits/ vegetables being available. This is not part of the traditional drug store's make-up."

Maria Caranfa, foodservice analyst with Chicago-based Mintel agrees the "fresh" aspect of fresh foods is imperative to get right for any channel venturing into the concept. For both c-stores and drug stores, "fresh grab-and-go is a smart move," she told CSNews. "Consumers do not want to sacrifice taste and flavor for convenience — and freshness conveys good taste and flavor.

Mintel found 42 percent of consumers associate freshness with a healthy meal.

"It was the No. 1 attribute two years in a row for selecting a healthy meal," Caranfa said. "But I think it's important for retailers to look at the shelf-life of a product and how long it stays on the shelf. It would be interesting to know what your customers consider fresh — is it an hour, a day, or 10 minutes? So I think for any channel, where the food comes from, and how long it's been on the shelf is an important consumer message."

Cenex-Zip Trip is one convenience store, like many others that is forging ahead, regardless of what drug is doing. "We are very committed to fresh foods at our stores," Fleck stated. "We are currently testing a fresh six-day [a week] sandwich and pastry program in all of our stores. We have an assortment of fresh salads. In the 57 stores that we get product from Coremark Spokane, we are also currently testing a fresh oriental box meal with combo meals containing either noodles or rice, along with pork. We are also looking at upgrading our hot dog program."

As far as the "fresh" terminology is concerned, "we need to get the consumers to understand that fresh does not necessarily mean it has to be made right in front of them," Fleck explained. "Fresh can be a product that can have a short shelf life but has consistent taste."

For comments, please contact Renée M. Covino, Contributing Editor, at reneek @aol.com.

The Bottom Line

• Drug stores are finding success with fresh foods.
• Fresh is often associated with healthy by consumers.
• Stores need to determine and meet their customers' "fresh" needs.