Walgreens Acquires Duane Reade

Walgreens took a major dive into the New York metropolitan area last month by agreeing to acquire the Duane Reade chain from affiliates of Oak Hill Capital Partners.The cash transaction, valued at roughly $1.1 billion including the assumption of debt, is expected to close before the end of Walgreens' fiscal year on Aug. 31.Launched in 1960 and named after the first store's location on Broadway between Duane and Reade streets in Manhattan, Duane Reade is New York City's largest drugstore chain, with 257 locations. Walgreens previously had 70 sites in the market, including a flagship store in Times Square that opened in November 2008. (See "Store Check: Walgreens in Times Square" in Related Articles.) The acquisition includes Duane Reade's corporate office in New York and two distribution centers in Maspeth, NY, and North Bergen, NJ.The acquisition "will immediately provide Walgreens with a leading position in the largest drugstore market in the U.S.," Walgreens chief executive officer Greg Wasson said in a press release announcing the deal. Duane Reade's "recent initiatives in urban retailing, customer loyalty and private brand products support and accelerate [our own] strategy to enhance the customer experience."The stores will continue operating under the Duane Reade banner after the transaction closes. A decision will be made over time how best to mesh the two brands within the market, the company said. Walgreens expects to retain "many members" of Duane Reade's senior management team, although it will eventually consolidate corporate offices, it said. The company also plans to retain Duane Reade's store, pharmacy and distribution center employees.Duane Reade's sales increased 3.6% to $1.8 billion in fiscal 2009, and rose 4.0% excluding pharmacy sales. The chain has the highest average sales per square foot among retail drugstores nationally, according to the release.Over the last two years, Duane Reade has been undertaking a brand transformation that included the launch of new private labels such as the DR Delish food and beverage brand and an expanded loyalty program called FlexRewards.The initiative also includes a retail design program providing wider aisles, lower pharmacy service counters and a store-within-a-store beauty concept called "Look Boutique." Duane Reade had implemented the new format in 30 opened or converted stores, and had planned 30 more conversions for 2010 before the acquisition was announced. Walgreens, too, has been refurbishing stores with some of the same features through its "Customer Centric Retailing" (CCR) program. (See "Walgreens Remodels Around the Customer" in Related Articles.)The Duane Reade deal continues a recent spate of acquisitions for Walgreens, which for the most part has reached the 7,000-store level through organic growth. The company recently acquired Eaton Apothecary in Boston and Drug Fair in New Jersey. It also is finalizing a takeover of the Snyders chain in Minnesota. Primary rival CVS/pharmacy, in contrast, has grown in large part through major deals for Eckerd/Brooks and Longs Drug Stores.

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