DUANE READE INC

DUANE READE INC

Previous company name
DUANE READE HOLDING CORP
Name change date
3/28/1994
Company Overview
Duane Reade Inc. is engaged in the operation of drug store chain. The company started in 1960 and is named after the two streets where its first drugstore was opened, Duane and Reade Streets in Manhattan. Since its establishment, the company became the most recognized and largest drugstore chain in metropolitan New York. It has more than 230 stores operating in commercial and residential across New York.
Duane Reade’s non-prescription portion is called the front-end sales since the sales are processed through the front, main check-out sections of its stores. This portion include over-the-counter medications, health and beauty care items, food and beverages, tobacco products, cosmetics, house wares, greeting cards, photo finishing, photo supplies, seasonal and general merchandise. The pharmacy operations has a center fill facility that receives orders through the Internet, phone or fax from customers and physicians and forwards the filled prescriptions to the local stores.
In 2004, Duane Reade was acquired by Oak Hill Capital Partners LP, a private equity firm engaged in investment activities.
Business Summary
Duane Reade Inc. operates a drugstore chain in New York City. The Company’s business consists of a variety of health and beauty care products, convenience-oriented food and general merchandise items (together, the front-end products), and a pharmacy operation managed to supply customers with their prescription needs. The front-end products consist of over-the-counter medications, health and beauty care items, food and beverages, tobacco products, cosmetics, housewares, greeting cards, photofinishing, photo supplies, seasonal and general merchandise. During the fiscal year ended December 27, 2003 (fiscal 2003), the Company operated 125 of its 241 stores in Manhattan’s high-traffic business and residential districts. On December 23, 2003, Duane Reade entered into an agreement to be acquired by Duane Reade Acquisition Corp., an affiliate of Oak Hill Capital Partners, L.P., a private equity firm. The transaction was completed in August 2004.
Description and history
Duane Reade Inc., incorporated in 1992, operates a drugstore chain in New York City. The Company’s business consists of a variety of health and beauty care products, convenience-oriented food and general merchandise items (together, the front-end products), and a pharmacy operation managed to supply customers with their prescription needs. Duane Reade refers to the non-prescription portion of its business as front-end sales because most of these sales are processed through the front, main check-out sections of the Company’s stores. This portion of its business consists of over-the-counter medications, health and beauty care items, food and beverages, tobacco products, cosmetics, housewares, greeting cards, photofinishing, photo supplies, seasonal and general merchandise. During the fiscal year ended December 27, 2003 (fiscal 2003), the Company operated 125 of its 241 stores in Manhattan’s high-traffic business and residential districts. In addition, it had a total of 116 stores in New York’s outer boroughs and in densely populated New York suburbs, including the Hudson River communities of northeastern New Jersey. On December 23, 2003, Duane Reade entered into an agreement to be acquired by Duane Reade Acquisition Corp., an affiliate of Oak Hill Capital Partners, L.P., a private equity firm. The transaction was completed in August 2004.

Front-End Operations

The front-end portion of the Company’s business represented 56.4% of sales in fiscal 2003. The Company’s overall merchandising strategy is to provide the broadest selection of branded and private-label drugstore products available in metropolitan New York. To further enhance customer service and loyalty, Duane Reade attempts to maintain a consistent in-stock position in all merchandise categories. In addition to prescription and over-the-counter drugs, the Company offers brand name and private-label health and beauty care products, food and beverage items, tobacco products, cosmetics, housewares, greeting cards, photofinishing services, photo supplies, seasonal and general merchandise and other products. Health and beauty care products, including over-the-counter drugs, represent the Company’s highest volume product categories. In addition to branded products, Duane Reade also offers its own private-label products.

Duane Reade offers next-day, photofinishing services in all of its stores, and during the year ended December 28, 2002 (fiscal 2002) and fiscal 2003, it increased the number of stores with one-hour photofinishing departments, from 33 to 107 stores. The Company also complements its product offerings with additional customer services, such as automated teller machine machines, sales of lottery tickets and money transfer services.

Pharmacy Operations

Sales of prescription drugs represented 43.6% of total sales in fiscal 2003. During 1999, Duane Reade launched its central fill facility, a service initiative aimed at improving customer service at its higher volume pharmacies. The central fill facility, which receives orders via Internet, phone or fax from customers and physicians, determines which prescriptions can be filled centrally and forwards the balance to the local stores. The selected prescriptions are filled and then delivered to the appropriate store in advance of the scheduled pickup, thereby reducing waiting times during peak periods. Dispensing accuracy can also be improved through the central fill facility because it permits the utilization of large, automated dispensing machines, which would be too expensive for use in individual stores.

Another important component of the Company’s pharmacy growth strategy is the continued acquisition of customer prescription files from independent pharmacies in market areas served by existing Duane Reade stores. In fiscal 2003, Duane Reade purchased the prescription files of seven pharmacies. When appropriate, the Company will retain the services of the corresponding pharmacist, whose personal relationship with the customers generally enhances the retention rate of customers associated with the purchased file.

All of the Company’s pharmacies are linked by computer systems that enable them to provide customers with a range of services. The pharmacy computer network profiles customer medical and other relevant information, supplies customers with information concerning their drug purchases for income tax and insurance purposes and prepares prescription labels and receipts. The computer network also expedites transactions with third-party plans by electronically transmitting prescription information directly to the third-party plan and providing online adjudication. At the time of sale, online adjudication confirms customer eligibility, prescription coverage and pricing and co-payment requirements and automatically bills the respective plan.

In fiscal 2003, Duane Reade piloted an in-store pharmacy kiosk system that enables customers to interact with a pharmacist located at its central fill facility. These kiosks also contain a digital scanning device designed to transmit customers’ prescriptions to the Company’s central fill facility for processing and delivery to the customer’s store of choice, or directly to the customer through the Company’s home-delivery service. The kiosks result in reduced store-level wait times, while providing a cost-effective means of servicing customers during peak activity periods.

The Company competes with CVS, Rite Aid, Eckerd and Walgreens.

Named after the two streets where its first drugstore was opened, Duane and Reade Streets in Manhattan

Business Line
Engaged in the operation of drug store chain
Subsidiary

Advisor
PRICEWATERHOUSECOOPERS LLP
IPO date
2/1998
US SIC Code
5912
Company Address
440, Ninth Avenue

City province or state postal code
10001, NEW YORK, NY
Phone: +1 212 273 5700
Fax: +1 212 244 6525
Country address: UNITED STATES OF AMERICA
Website url: www.duanereade.com