Duane Reade -- the Big Apple of drugstores -- has been swallowed by a big fish: Walgreen. Named after the two streets where its first store was located, Duane Reade is the region's market leader with more than 150 stores (more than twice that of its nearest competitor) in densely-populated Manhattan. New York City's other boroughs and the surrounding New York and New Jersey suburbs account for another 100 or so. The stores sell prescription drugs, but more than 50% of the chain's sales come from items such as over-the-counter medications, food and beverages, and health and beauty aids. The stores vary greatly in size (500 to 12,700 sq. ft.). Oak Hill Capital Partners sold Duane Reade to Walgreen in 2010.
Walgreen paid about $1 billion ($618 million plus about $460 million in debt) for Duane Reade. The purchase came at a good time, as Duane Reade's former owner had struggled to keep the chain from defaulting on loans it used to take the company private in a $700 million buyout in 2004. The acquisition -- some would say rescue -- of Duane Reade made Walgreen -- already one of the top two drugstore chains in the US -- the market leader in New York City, where Duane Reade's ubiquitous presence qualifies it as a New York institution. Duane Reade has built a significant amount of brand loyalty among New Yorkers and Walgreen says it intends to maintain that image. As such, it has agreed to retain the Duane Reade name and keep the chain's store, pharmacy, and distribution center employees, as well as some of Duane Reade's senior management.
Indeed, with funding from its new owner's deep pockets, Duane Reade in July 2011 opened a 22,000-square-foot flagship store at 40 Wall Street, the heart of New York's financial district. The store, which replaces one destroyed in the World Trade Center bombing in 2001, is open 24 hours a day and boasts and in-store sushi bar and chef, a juice bar, and stock ticker. It also offers salon and shoeshine service, an in-house doctor ($158 a visit for self-payers), a large newsstand, and plenty of other amenities.The store is a lab where the company can innovate and transfer successful elements to other Duane Reade and Walgreen stores. No stranger to novel in-store services, previously Duane Reade introduced professional tooth whitening and diet planning at some stores. It's also experimented with ATM-like movie vending machines, coffee kiosks, and "Skin Wellness Centers" to boost sales.
Leading up to Walgreen's purchase of Duane Reade, the deep recession in the US and layoffs on Wall Street had conspired to slow same-store sales growth at Duane Reade stores. To cope, it had been cutting costs, but not at the expense of positioning the chain for the future. Indeed, under the leadership of former CEO John Lederer, who joined the company in 2008 from the Canadian supermarket chain Loblaw, Duane Reade completed an image overhaul. Changes included a new "urban drugstore box," exemplified by a renovated location at New York's Penn Station. The prototype -- which features a larger pharmacy at the back of the store, wider aisles up front, and fresh foods cases with sandwiches and salads delivered daily -- is the model for the firm's urban locations going forward. – less