Walgreen Testing Fresh Foods

Walgreen to test chilled sandwiches, more this fall in as many as 50 stores

DEERFIELD, Ill. -- Walgreen Co. will be conducting a test of chilled foods at up to 12 stores this fall in a bid to become a bigger player in the growing fresh food sector, according to a Dow Jones report. Walgreen spokesperson Tiffani Washington confirmed the test and told the news agency that the fresh food initiative could help the drugstore chain be eventually seen as a "destination for tonight's meal."

Washington said Walgreen may sell sandwiches, fresh cut fruit, soups and wraps. While she said the test would be limited to 12 stores, several people familiar with the [image-nocss] matter told Dow Jones that the test is likely occurring in about 50 locations in September in the Chicago area.

These people also said Walgreen's offering is expected to lead to a much bigger push into the fresh food sector for the company. In turn, the people say Walgreen will likely be selling meals such as chicken Marsala, macaroni and cheese and General Tso's chicken.

Watchers say the retailer has yet to sort out refrigeration and distribution issueselements critical to any fresh food program's success.

Washington would not disclose the price range of items, but said quality and price are both important. She said the logistics of the program are also an important part of the test and are something that "any retailer getting into fresh [food] would have to address."

If executed properly, a successful rollout of a fresh program could mean a boost to Walgreen's same-store sales. That would be good news for the retailer which, like several of its competitors, has experienced lagging front-end results due in part to a downturn in consumer spending.

Drugstores sell items such a cereal, toothpaste and over-the-counter drugs in the "front-end" of their stores.

Walgreen and several other competitors including CVS Caremark Corp. (CVS) are boosting their food selections and retooling stores to better fit consumers' fast-paced lifestyles and need for one-stop shopping, said the report.

"Drugstores realize if they're going to survive in this marketplace, they can't be one-note songs. They need to have more things to offer consumers," said William Cross, vice president of restaurant and food brand licensing at Broad Street Licensing Group. He echoed industry sentiment that food, especially fresh and private-label packaged foods, are generally seen as a source of growth for drugstores.

Washington also would not confirm the length of the test, but said it will an important part of Walgreen's learning process in the fresh business. To that end, Walgreen hired grocery and convenience store veteran Jim Jensen in January as divisional merchandise manager of fresh food. Jensen left Tesco PLC's Fresh & Easy Neighborhood Market chain, where he held a similar position to the one he assumed at Walgreen. Before that, Jensen worked at convenience chain 7-Eleven as a category manager.

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Walgreen also completed its acquisition of New York City drugstore chain Duane Reade in April, which is partly known for its efforts in fresh food. Washington said while Walgreen was thinking about a fresh food before it acquired Duane Reade, it will take some "learnings" from the chain and likely apply them to Walgreen stores.

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Meanwhile, analysts are watching the company's fresh efforts and several say the company may have its work cut out for it, the report said. Walgreen may have to persuade some consumers to view the stores as a meal destination, especially if a deli or c-store is nearby and offering similar items at a competing price; however, Washington said customers are used to the convenience factor of a nearby Walgreen. In addition, if the company decides to roll out fresh food to all of its roughly 7,500 stores, it will likely face added costs partly to change store fixtures with proper refrigeration and signage.

Washington said the company has yet to determine how the test will "evolve."