Why DR Delish could disappoint at Duane Reade

October 23, 2009

Duane Reade is consistently near the top of the charts in drug channel sales per square foot.

Duane Reade is consistently near the top of the charts in drug channel sales per square foot. But the chain shouldn’t mislead itself and think consumers are so beloved of its marquee brand that it could succeed with DR Delish, its new private label snack and beverage line.

No matter how ‘politically correct’ the packaging (suggestive of green and natural) or ‘health formulated’ the product (gluten-free, multigrain, etc.), it’s hard to imagine why the smart merchants at this chain think this line could succeed. Why would they expect fast-paced New Yorkers to spend time pondering a private label line of cookies, chips, trail mix and more—25 items at its launch—when their favorite snack brands that always satisfy are readily available?

For millions of Manhattan residents and workers, location is the greatest asset of the ubiquitous Duane Reade chain. Not innovation. Not even health, for that matter. And certainly not food leadership. At Duane Reade, convenience counts most.

Which explains why DR Delish is an ownership wish we think will fall short of expectations, even if it is priced sharper than name brands in this economy. Better suited to the chain’s generally winning formula are its pre-packaged sandwiches, salads, breakfast yogurts and fresh fruits that bring speed to the meal solution.

By contrast, Walgreens enjoys a more robust image for healthcare excellence and complete one-stop shopping, including food for every daypart. After seeing positive results in its first 35 Customer Centric Retailing stores, Walgreens is rolling out the format to 400 stores in Texas this fall.

One component of that is the reintroduction of beer and wine to its shelves, a feature that will expand nationally (to about 70% of its 7,000 stores) over the next 12 to 18 months, the chain’s president and CEO Greg Wasson said in a recent earnings conference call.

The chain is positioning its stores to align with customer preferences. According to Gallup, about 4 in 10 American drinkers prefer beer, vs. 1 in 3 who say wine, and 1 in 5 who say spirits. Walgreens will no doubt assort stores to suit the differing regional demands, and will have yet one more traffic magnet in its mix.

This looks to us like a smarter approach to food and beverage that more naturally suits its customers’ tendencies than the private label push by Duane Reade.