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Drugstores see growth potential in upscale services

Upgrades including sushi chefs, expanded liquor selections and glossier stores aim at competing against big-box retailers and online merchants.

March 14, 2013|By Shan Li, Los Angeles Times
  • At a Walgreens flagship store in Hollywood, sushi chef Soe Than prepares a rainbow roll. The store, which also features a juice bar, is one of six such locations to open, and 10 more are being built nationwide.
At a Walgreens flagship store in Hollywood, sushi chef Soe Than prepares… (Barbara Davidson, Los Angeles…)

At a spot on Sunset Boulevard and Vine Street in Hollywood, visitors scoop up sushi, taste frozen yogurt and order lattes.

But this isn't a restaurant or even a fancy supermarket. It's that Main Street staple: Walgreens.

"It's like an amusement park," gushed West Hollywood resident Brent Leonesio, 30, as he eyed the line of people waiting to pick up caffeinated drinks to go. "They've kind of made this into a destination. It's actually fun to come here."

Once mainstays for late-night snack runs and toilet paper emergencies, drugstores are shaking off their stale image and going upscale.

Walgreen Co., for example, is opening glossy stores that feature sushi chefs and enormous alcohol selections. CVS stores have added fresh sandwiches and produce. Rite Aid Corp. has been revamping its locations and bringing in packaged organic and gluten-free food.

"Drugstores are trying to figure out what their role is," said Ken Martindale, chief operating officer of Rite Aid. "We're in a new environment where everyone is selling everything."

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Drugstores aren't just competing with one another, they're also taking on brick-and-mortar retailers of all sizes, analysts said.

The $220-billion industry is up against big-box chains such as Wal-Mart and Target, which are expanding their grocery sections. Even dollar stores are offering steak and fresh fruit.

On yet another front, drugstores are fighting online merchants that cater to tech-savvy customers who are comfortable ordering mouthwash and prescription medication over the Internet.

"Shoppers are just getting more savvy and into buying things online, so drugstores have to evolve to keep customers just like other traditional retailers," said Dane Leone, a senior research analyst at Macquarie Bank.

"They're also learning that in places like L.A. and New York, people want the option of picking up high-end fresh food when they go fill their prescription."

In an earlier time, of course, drugstores such as Schwab's Pharmacy and five-and-dime chains such as Woolworth's employed waitresses to dish up ice cream to teenagers on dates and quick lunches to working stiffs.

Now they have morphed into cafes catering to on-the-go customers who expect gourmet fare made before their eyes.

But not all forays into fancy pan out.

Last year, CVS Caremark Corp. pulled the plug on its high-end Beauty 360 stores, an experiment conceived in 2008 to carry more prestigious brands and offer spa-like services such as express facials and hand massages for the "time-starved woman." Industry watchers say those women never took a liking to getting plucked and rubbed under fluorescent lighting.

To succeed, chains have to dedicate time to changing shoppers' expectations of drugstores, said Judson Clark, an equity analyst at Edward Jones & Co.

"There is an adjustment period," he said. "But back in the 1950s, Walgreens had full-blown restaurants where our grandparents ate, and as they went away entire generations forgot about them. But 10 years from now, people could very well think 'How could CVS not have sushi?'"

At the Hollywood Walgreens, which opened in November as the chain's West Coast flagship store, shoppers can pick up $300 bottles of tequila and consult a "virtual bartender" (a touch-screen panel in the liquor section) that dispenses cocktail recipes to aspiring mixologists. The fresh food section offers luxe fare such as octopus salad and green olives with hummus. There's also a juice bar whipping up smoothies.

Hollywood resident Alisa Taylor, 24, is a fan. Initially a skeptic of "fancy" drugstores, she now stops by the Walgreens almost daily to stock up on wine and pick up sushi and other meals when she doesn't feel like cooking.

"I just like to say I had dinner at Walgreens, and no one understands what I'm saying, or they just think I ate chips and soda," said Taylor, who works as an assistant at a talent agency.

"You can make a nice meal out of stuff you find here, and no one knows you didn't go to Trader Joe's," she said, adding jokingly: "The convenience is a little dangerous."

Bryan Pugh, a Walgreen vice president, said the chain has six so-called flagship stores open and 10 under construction in dense cities including San Francisco and Miami. Walgreen also owns the New York-based Duane Reade chain, which has debuted locations with salad bars and shoe shining services.

"The main thing is it makes us more relevant," he said. "If we are more relevant to customers, that makes us more successful."

At rival Rite Aid, a serious remodeling effort over the last two years has changed the look of 800 locations, adding more spacious layouts, better lighting and lower shelves. Kiosk machines, where shoppers can order contacts and eyeglasses, have been plopped down near the pharmacy, while organic and gluten-free snacks can be found in the aisles.

"There is definitely a move within the [drugstore] channel to upgrade stores," Chief Operating Officer Martindale said. That was a sharp departure from the chain's previous strategy for growth, which entailed opening new stores and spending little money keeping current locations up to date, he said.

For now, Alex Marx, 40, wrinkles his nose at the idea of raw fish from the neighborhood drugstore. He sticks to buying toothpaste and shaving gel on his runs to Walgreens.

"Walgreens sushi? No," the Silver Lake cook said. "I would not eat that."

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