Wednesday, January 12, 2011

Walgreen's Shopping List: Band-aids and Beer

In the middle of last year, there was an announcement from Walgreen's that they would start selling alcohol in some of their stores.  I was a bit puzzled about the move until the nice people at WSJ showed me the way.  Here are some nice data points from that article:
  • When they did sell alcohol, it was one of the nation's largest liquor retailers with liquor and other beverages comprising about 10% of total sales.
  • CVS and Rite Aid, Walgreen's competitors sell alcohol in most of their outlets.
  • Deutsche Bank predicted a 2% same store sales increase when beer and wine are included in the product mix.  Both DB and Credit Suisse think it's a great idea to sell booze at Walgreen's.
  • Walgreen's also predicts a low single digit sales represented by alcohol.  If you take their $63.3B 2009 FY sales into account, 2% would be...  a lot.  Kidding.  It's about $1.3B assuming sales are completely flat.  They didn't provide guidance as to how cross shopping would be impacted to generate incremental sales.
  • Some categories are laggards for Walgreen's: cosmetics, cereal and OTC drugs.
Their ledgers say that it may be smart to offer those products to help bolster where they are hurting.  I've got to think that, given the proliferation of alcohol buying options at major supercenters and warehouses (e.g., WalMart, Costco, Sam's), they've baked their assumptions with the stiff (drink) competition.  

 I think their ledgers have gotten everyone very excited about the opportunity to sell alcohol again and it's gotten the nice private label brand people at Walgreen's giddy.  I subscribe to My Private Brand and yesterday, I received news that Walgreen's would offer private label beer.  Here's a picture (source:


As you can see from the label, it's called "Big Flats 1901 Lager" and produced by the Genesee Brewing Company in New York. The $2.99 price point is comfortably priced below than other lagers.  Okay, great.

The thing that we learned in this new economy, is that 60% of us "traded down" to private brand to save money.  I did and maybe you did too.  The interesting bit, extrapolating the data, is that this trading down to save money phenomenon cut across incomes.  But what did that trading down mean across store categories?  That same article showed that for YE July 2010, store brand until sales had a 22% share across all departments...

With only less than 1% in alcohol which means that though we traded down to store brand beans, we didn't do it for beer.  Hmm.  Let's do some math with this 1%.  I guesstimated that the total alcohol sales, as a percentage of Walgreen's sales, would be $1.3B.  If private, or store brand, is less than 1% (let's say .75%), that is $9.75MM.  But that assumes Walgreen's would have private brand across all of its alcohol offerings so $9.75MM is a rather high estimate. 

We can continue making assumptions to break the $9.75MM into smaller parts to get to what the percentage of sales would be that would come from Big Flats 1901 Lager and figure out the rest of its P&L.  It makes we wish I paid more attention in Finance class at Stern.

The long and the short of it is that many resources (time, dollar and people) went into the idea, the manufacturing agreement with Genesee (which had to include production guarantees), branding, advertising, store education, store promotion, logistics, demand planning, etc.  I'm sure I've missed some obvious ones.  So, I've got some questions:
  • What is Big Flats 1901?  What's the relationship of that brand to Walgreen's?
  • At $2.99/six pack, and in grocery less than 1% of sales come from alcohol store brand overall (and not a subset as would be in this case), exactly what benefit is Walgreen's getting from all of this effort?  
  • Why couldn't they have stayed content with the (estimated) benefit from adding alcohol to the product mix (as encouraged by DB and CS)?
  • Why didn't they allocate the time, dollar and people resources instead to bolstering up where they were lagging and where they can really compete with CVS and Rite Aid?  
  • Did Walgreen's asked their customers if they wanted private label beer generally?  
  • Did Walgreen's ask their customers if they would buy private label beer from a drugstore?
The list isn't exhaustive - I invite you to add more.  I just wonder at all of that effort for what, to me as a shopper and marketer, seems to be an uncertain outcome.  If it was truly important for them to help sales and be more competitive, why invest in something iffy?  I'm a bit confused by this move.

Parissa Behnia
Idea Chef


  1. Interesting. I agree that people have been trading down in this economy, depends on the category, but beer. Sorry, I hardly drink beer so when I do I have to go with a brand I a familiar with that will deliver the taste I am familiar with.

  2. Hi Jim - Agreed! And that's why I thought it so funny that they exerted time, effort and dollars especially when anecdotally and factually people do not seem to cotton to store brand alcohol. I've got to believe the opportunity cost is high especially given their poorer performance of late vis a vis CVS and RiteAid.

  3. Beer and BandAids? I heard a stat that the most common purchase with diapers is beer. Assuming the convenience store model, if you run in for anything, why not add some alcohol to the purchase? 7-11 did and they still have the section. Target and grocery stores have widened the liquor aisles. Its known that depression and drinking go hand in hand, and it's a down economy. Walgreens has to do something after all cancelling all those planned store openings; why not do something easy, that will add incremental revenue, but is easy to talk up (hey, we even have our own brand!). Speaking of which, why the change to your blog page.. the teal was kinda catchy. :-)

  4. Publius,

    Diapers and beer may be a great combo but as the data suggests, less than 1% of alcohol purchases are private label. They may be buying beer but it won't be the Walgreen's brand.

    Yes - part of Walgreen's strategy to improve revenues is to reintroduce alcohol as part of the in store offerings. My point had to do more with the opportunity cost of developing and marketing a private brand product which few, according to data, are interested in buying.

    Re blog page change: variety is the spice of life.