Drug Store News: Super-regionals evolve as tech-savvy players

Regional pharmacy operators have known for a long time they don't have to wield the biggest store network to thrive locally. But they do have to offer something the big chains can't, and that is often personalized customer service at which smaller, more nimble drug store operators can excel.

To cope with the national retail powerhouses, the biggest and best regional operators are pulling out all the stops in creative niche marketing and merchandising; they're devising a battery of highly focused, hands-on patient care programs for pharmacists that are, in some cases, difficult for large-scale national operators to replicate; and they're revamping stores--often in lieu of building more than a handful of new ones--using some of the latest concepts in retail design, display, color and departmental signage.

In some cases, they're even sending their most people-oriented clinical pharmacists out of the stores and into workplaces throughout their communities. Raleigh, N.C.-based Kerr Drug is one big proponent of the practice. It fields a clinical pharmacist and health care team that provides on-site patient screenings and other services for local employers. Another regional chain, Farmington, Conn.-based Familymeds, has taken the concept a step further, opening its first worksite pharmacy at a casino operated by the Mohegan tribe in December.

Ed Mercadante, co-chairman and chief executive officer of Familymeds' parent company DrugMax, said plans are in the works to expand the worksite pharmacy format to other companies, including some Fortune 500 firms.

Certainly, as more large health care payers like Toyota, General Motors and others go looking for alternatives to rising prescription drug coverage costs, the ability to work with payers to find solutions will keep regional chains that make that commitment from being cut out of that business.

For many of the larger regional chains, store renovation now takes precedence over expansion and unit growth in new or existing markets. Snyder's Drug Stores, for instance, has shelved new-store construction for the time being while it concentrates on upgrading its store formats. The chain is basing its remodeling efforts on the new drug store prototype unveiled last summer in Edmonton, Alberta, by its Canadian parent company, Katz Group, in a bid to spark shopping excitement and consumer appeal with brighter colors, a roomier pharmacy and front end and a more upscale appearance.

"We have six or eight stores we're planning to remodel or relocate in 2005," said Snyder's president David Schwartz, but "no new stores on tap."

Stung by the rapid incursion of Walgreens and CVS into its traditional California stronghold, Longs Drug Stores also has put expansion on the back burner in favor of an all-out store-remodeling effort that should encompass half the chain's 472 stores by 2008. Longs hopes to convert up to 40 stores this year to its new Total Visual Appeal format, while holding store expansion to 10 units or fewer.

Perhaps surprisingly, many of the top regionals are doing these things while wielding some of the latest and most expensive state-of-the-art technology at the pharmacy and front end. Believing the investment to be worthwhile--particularly because some of their pharmacies rank among the highest-volume prescription dispensing outlets within their markets--even companies that field no more than a few dozen stores are adopting robotics, prescription label bar code scanners, electronic signature capture and other technology in their busiest pharmacies. Notable examples include:

* USA/Super D Drugs, which just renewed its commitment to ScriptPro pharmacy robotic systems in the May's drug stores it purchased last year.

* Snyder's Drug Stores is converting all cash registers and its point-of-sale data platform to a fully integrated system that will give its merchants and department heads a real-time window into sales and item movement.

* Sav-Mor Franchising is testing new turnkey software programs that will allow its 80-plus franchisees to participate in the new Medication Therapy Management initiatives proposed under Medicare Part D. The chain also is working with the Michigan State Board of Pharmacy on electronic-prescribing guidelines and already is using one of its Ohio stores as a test site for e-prescribing.

The pharmacy isn't the only focus for regional players, however.

* Community Distributors, which operates Drug Fair and Cost Cutter stores, has held its own in New Jersey, in part by sticking to a long-held niche strategy as a purveyor of a massive front-end assortment of nontraditional drug store merchandise, including such seasonal categories as lawn and garden and pool supplies.

Beyond its niche merchandising strategy, however, Community Distributors exemplifies the kind of hands-on, personalized service that has allowed regional drug store operators to maintain market share in the face of megachain competition. Vice president of pharmacy Barrie Levine attributed much of the chain's success to "our friendly, helpful, empathetic pharmacists."

Many of those pharmacists, he added, "have been serving the same patients for over 25 years."

Regionals
                                     2004 total
                                       retail         %
Chain                                 sales *      change

Longs Drug                           $4,610.0        1.8%
Duane Reade                           1,600.0        9.1
Discount Drug Mart                      565.0        1.6
USA/Super D ** ([dagger])               525.0       48.0
Kinney Drugs                            457.0       17.0
Kerr Drug ** ([dagger]) ([dagger])      450.0       -5.0
Snyder's ** ([dagger])
  ([dagger]) ([dagger])                 350.0      -52.0
Sav-Mor                                 340.0 *      0.0
Aurora Pharmacy                         300.0       11.0
DrugMax/Familymeds                      270.5 *      8.2
Community Distributors                  355.0        3.0

                                        2004          %
Chain                                Rx sales *   change **

Longs Drug                           $2,170.0        3.4%
Duane Reade                             815.7       35.2
Discount Drug Mart                      276.9        3.0
USA/Super D ** ([dagger])               289.0       47.4
Kinney Drugs                            329.0       16.7
Kerr Drug ** ([dagger]) ([dagger])      300.0      -15.7
Snyder's ** ([dagger])
  ([dagger]) ([dagger])                 228.0      -52.0
Sav-Mor                                 272.0        4.6
Aurora Pharmacy                         291.0        7.8
DrugMax/Familymeds                      239.4       12.4
Community Distributors                  178.0        5.0

                                        No.
Chain                                of stores

Longs Drug                           472
Duane Reade                          255
Discount Drug Mart                    62
USA/Super D ** ([dagger])            152
Kinney Drugs                          71
Kerr Drug ** ([dagger]) ([dagger])   105
Snyder's ** ([dagger])
  ([dagger]) ([dagger])               70
Sav-Mor                               83
Aurora Pharmacy                      140
DrugMax/Familymeds                    85 ([dagger])  ([dagger])
                                         ([dagger])  ([dagger])
Community Distributors                52

* Sales in millions

** Drug Store News estimate

([dagger]) Includes results from 61 May's and Med-X stores
acquired in July 2004--excludes 23 franchised units

([dagger]) ([dagger]) Reflects closing of seven Kerr Drug
stores and 10 remaining Smart Dollar stores

([dagger]) ([dagger]) ([dagger]) Reflects sale of 77 Drug
Emporium stores and 12 closed Snyder's stores

([dagger]) ([dagger]) ([dagger]) ([dagger]) 77 corporately
owned and eight franchise stores Results reflect end of fiscal
year 2004