Duane Reade fills ‘Prescription for Change’ with recent transformation

5/25/2009

NEW YORK —It has been just over a year since John Lederer joined Duane Reade as chairman and CEO, and the chain’s transformation is gaining momentum—a nod to what could be characterized as his first major stamp on the chain since coming aboard in early April 2008.

“Since that time, we have made some tremendous progress in identifying opportunities for improving Duane Reade, and we’ve also developed and begun implementing our transformation strategy, which we are very excited about as we believe it will enable us to better serve New Yorkers,” Lederer told analysts during the company’s May 5 conference call to discuss first-quarter results.

With the findings of consumer research conducted last spring/early summer among more than 1,000 New Yorkers serving as the underpinnings, Duane Reade’s management continues to forge ahead with its “Prescription for Change” turnaround plan aimed at improving pharmacy, fixing the customer experience and developing a relative, urban drug store box.

One location that Lederer, in an earlier call, brought to the attention of analysts is its recently renovated Penn Station store, which, according to Lederer, “serves as a proxy for the opportunities within the company.” This store features a larger pharmacy that has been repositioned from the back corner, wider aisles throughout the front end, improved lighting, a raised ceiling, added hours and a fresh food case with daily fresh-delivered sandwiches and salads.

In this most recent call, Lederer also discussed plans to open a new 14,000-sq.-ft. store in Manhattan’s Herald Square during the summer.

“It is in a very hustle-and-bustle area, and we are going to show some new innovation in that store in terms of categories. And we are going to show the consumer where this brand is headed,” Lederer said.

In 2008, the company opened 15 new stores, seven of which are new concept stores. By the end of the year, there will be about 30 stores that will either be new or renovated stores.

The company also has revamped its Web site to reflect the new look and feel.

Behind the scenes, Lederer and his team have been working to enhance pharmacy, supply chain and store operations.

Since former Longs Drug Store executive Frank Scorpiniti joined Duane Reade in December as SVP pharmacy operation, he has decided to close the chain’s central fill operation, which had been a part of the business for a number of years. Scorpiniti’s decision not only resulted in a cost reduction for the company, but also better in-stocks for stores and less wait time for pharmacy customers.

Meanwhile, the supply chain team has been able to drive service levels up to industry-leading stats, and warehouse inventory is down significantly, Lederer said. The store operations team has been working to improve the customer experience through reduced wait times and cleaner stores.

Looking ahead, the company is planning to revamp its private-label program. By year-end, it expects about 1,000 new brand entries within private label.

To enhance customer loyalty and provide even greater benefits to suppliers, Duane Reade will further leverage its loyalty program and will relaunch the program in late summer/early fall to transition it into more of a database-marketing business.

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