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Walgreens buys Duane Reade for $1.1b

Customers walk out of a Walgreens store in Homestead, Fla.

TEXT OF STORY

Kai Ryssdal: Consider for a moment the old-time corner drugstore. Now put that image completely out of your head. Because in most parts of the country, drugstores are that -- drugstores -- plus a supermarket, and a card shop, and maybe a variety store thrown in for good measure. Today, Walgreens, the biggest drugstore chain by number of stores, said it's buying Duane Reade, that's a local chain that completely dominates the New York City market.

Marketplace's Alisa Roth reports now on how those stores make money when there are just so many of them.


ALISA ROTH: I'm standing in front our bureau in Manhattan, and I'm counting drugstores. There's one a block to the east of me. There's another one a block to the west. There's one three blocks downtown. And then another one on the next corner.

Jeff Jonas follows drugstores at Gabelli and Company. It's an asset management firm. He says New York needs them.

JEFF JONAS: Because we have so many fewer grocery stores and other big box retailers a lot of New Yorkers buy the majority of their goods at a drugstore.

And people in urban areas tend to shop close to home. Because who wants to push their way onto the subway with 25 rolls of paper towels?

Duane Reade is one of the biggest players in the New York metro area. It has more than 250 stores here. Walgreens only has 70. So this acquisition is an easy way for Walgreens to break into the New York market. And to take advantage of what Jonas calls Duane Reade's expertise in urban retailing. The chain has the highest sales per square foot in the country.

But there's no secret to the way Duane Reade makes money. John Long is a retail strategist at Kurt Salmon Associates. He says like all drugstores, Duane Reade catches customers when they come in for prescriptions.

JOHN LONG: They get a tremendous amount of add-ons as people head back to the pharmaceutical counter to pick up their prescriptions or drop one off, they are passing by a whole host of other products that are offered.

And he says it doesn't matter if there's a store on every corner. All the drugstore companies have been trying to build their inventories locally, which means that store over on Lex probably has something different than the one on Second.

In New York, I'm Alisa Roth for Marketplace.

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Groceries in drugstores may make sense in large cities. But in small towns and suburbs where we have lots of supermarkets and liquor stores nearby, why are chains like Walgreens, RiteAid and CVS dropping so many drugstore and and everyday household products that we really need? I wish they would look more at the community profile and less at national sales goals.

I used to work in one of the Walgreens stores in Queens, NY during late 90s. During 4-12Pm shift You have to stand at register nonstop ringing the customers. They had $1Mil target during Decembers back then. Its amazing to see Walgreens with the same settings inside in some other state, but business not even comparable to NYC. When I lived in NYC I used go buy there often, but now I rarely go there. I am sure its wise investment for them.

OK, it sounds like they make sense in the pedestrian-filled cities. Outside the major cities, Walgreens and CVS are on ridiculous building sprees, to the point that I can't imagine how they'll support having all of these stores.

Worse, should they fail, a freestanding drugstore is a horrible size: too small for a grocery, shaped wrong for a restaurant. I'm thinking we're in for some urban blight when the chain drugstore bubble pops.

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