Walgreens announced yesterday that it had signed an agreement to acquire privately-held Duane Reade from Oak Hill Capital Partners in a cash transaction valued at $1.075 billion.
With 257 locations in the New York metro area, Duane Reade is the largest drugstore chain in the city. Walgreens currently operates 70 Big Apple locations.
"Duane Reade is a compelling strategic acquisition that will immediately provide Walgreens with a leading position in the largest drugstore market in the U.S.," said Greg Wasson, president and CEO of Walgreens, in a press release. "In addition, Duane Reade's recent initiatives in urban retailing, customer loyalty and private brand products support and accelerate Walgreens' strategy to enhance the customer experience in our network of more than 7,100 stores across the country."
Walgreens plans to continue operating stores under the Duane Reade banner at least initially after the deal closes. "With Walgreens currently operating 70 stores in the New York City metropolitan area, decisions will be made over time as to the best, most effective way to harmonize the Walgreens and Duane Reade brands," read the press release.
Duane Reade has undertaken a major initiative over the past couple of years to remodel stores, launch a beverage and food line under the Dr. Delish label and better serve customers with its FlexRewards program. The chain has also had some success with in-store clinics manned by doctors instead of the nurse practitioners found in Walgreens' Take Care sites.
The Duane Reade deal follows other recent moves by Walgreens to build its numbers through acquisitions. The company recently completed deals to acquire chains including Eaton Apothecary in Boston and Drug Fair in New Jersey. It is also in the process of finalizing a takeover of the Snyder's chain in Minnesota.
Walgreens' expansion through acquisition continues a trend in the drugstore channel seen for many years. The chain's primary competitor, CVS Caremark, has achieved major store count gains by purchasing Longs Drug Stores (2008) and Eckerd (2004). The struggling Rite Aid chain has also gone the merger route to grow store count.
A piece by Dow Jones Newswires suggested that further acquisitions of regional chains are likely to happen in the next couple of years. Among those chains considered most likely to be acquired include Kinney Drugs, Kerr Drug and USA Drug.
Discussion Questions: What is your
reaction to Walgreens' purchase of Duane Reade? Separately, do you have
any concerns about the effects of consolidation in the drugstore channel?