Walgreens: Beverage Alcohol PowerhouseAugust 22, 2017
After exiting the beverage alcohol category in the 1990s, Walgreens, the nation’s second-largest drugstore chain, has returned with a vengeance. Since reentering the drinks business in 2010, Walgreens has built its annual beverage alcohol sales to $1 billion, spread across 8,200 stores. Wine and spirits generate $300 million each, while beer brings in $400 million.
Tim Turner, a 30-year drinks industry veteran, has been Walgreens’ category manager for wine and spirits for the past seven years, based in Chicago. Turner recalls that overall conditions were tougher—and margins slimmer—for beverage alcohol when Walgreens abandoned the category two decades ago.
Today, amid a more hospitable environment for the industry, Walgreens runs a highly efficient beverage alcohol unit. It stocks just 150 SKUs for wine, 50 for spirits and 35 for beer. The buying must be absolutely targeted, with not a single underperforming brand, Turner says. On new products, Walgreens generally lets a label perform in independent channels first before stocking it. “We’re what we call fast followers,” he explains. “We can be very quick to hop onboard when something has proven itself.”
Distributors say Walgreens is challenging them for more and better information. “Tim is constantly asking for analytic feedback,” says Ryan Sass, a Chicago-based vice president of national accounts at Southern Glazer’s Wine & Spirits. “He wants to take advantage of the right trends, not trends that will fizzle out in a few months.”
The approach has been paying off. “Seven years ago, the Bourbon category at Walgreens would top out with a Knob Creek at perhaps $24 or $25 a 750-ml.,” notes Rob Stevo, national account manager at Beam Suntory. “Now the selection goes all the way to Basil Hayden’s at more than $40. That’s helped the company widen their appeal and reach more millennial shoppers, in my opinion.”
Turner maintains gross margins that range from 20%-25% on his wine and spirits sales overall. To achieve those numbers, he aims “to price my everyday items within 10% of the market leaders. If it’s above 10%, shoppers will walk.” If a brand is consistently offered by rivals below that 10% gap, “that brand won’t be in our set six months later,” he says.
When Walgreens exited alcohol in most states in the 1990s, it held on to 200 licenses spread throughout Arizona, Florida and New Mexico. Today, these “legacy stores” are still selling from the old format of 1,500 square feet, with far bigger assortments than the typical Walgreens. In an experiment that started in 2012, not long after the company acquired New York–based drugstore chain Duane Reade for $1.1 billion, Walgreens built some 20 so-called flagship stores in high-end urban settings in downtown Chicago, New York City and a few other markets that offer impressively upscale assortments.
Walgreens has also developed its own national spirits label, Coulsons—supplied by Sazerac—and a Gallo-sourced proprietary wine brand called Looking Glass. Each is positioned at opening price points, though Turner is careful not to become overly dependent on them. “They give us better margins and a point of difference, but we limit them,” he says. “In a national chain like ours, customers want to see a broad selection of national brands.”—Lee MurphySubscribe to Shanken News Daily’s Email Newsletter, delivered to your inbox each morning.