By David Pinto
NEW YORK — A primary concern among many attendees at the recent National Association of Chain Drug Stores Annual Meeting in Florida was the stature of the chain drug store industry in America. The discussions were not pleasant — nor were they frequently voiced aloud. Rather they were primarily limited to whispers, innuendos and speculation. And the overriding theme was not a pleasant one. Mainly, these off-the-record discussions revolved around one question: What has gone wrong with the chain drug store industry in America?
The subject is not a new one. Indeed, both retailers and suppliers have been discussing and debating it for some time now. With good reason. The two largest drug chains in the United States have been struggling for some considerable time, while the third-largest has been flirting with bankruptcy for at least as long. Moreover, while local and regional drug chains have discovered a new lease on community life, the talk among industry people more often — and more appropriately — focuses on non-drug retailers (such as supermarkets and discount stores) that have largely taken the spotlight once reserved for the likes of Walgreens, CVS and Rite Aid.
The editors of Chain Drug Review have not been unaware of these developments, nor of their possible outcomes going forward. Thus, we have privately raised the subject with industry people for some considerable time. More specifically, we have frequently discussed the situation with both current and retired industry people on both sides of the buyer-seller relationship. Sadly, though most of the truly informed people agree that the chain drug industry, at least in part, is indeed facing difficult days, they see no happy ending.
However, those truly in the know, in a sincere effort to enlighten our editorial staff, have repeatedly emphasized five factors that have combined to put the major chain drug retailers into their current precarious position. Here then, in no particular order (and adhering to our promise of declining to name individual respondents), are the five:
• Refusing to understand the emerging pharmacy power of supermarket and discount retailers. In recent times, both these trade classes have discovered the consumer attraction of prescription drugs. Indeed, it is an attraction that major drug chains have understood and capitalized on for some considerable time. But as recent converts to the weight prescription (and nonprescription) drugs carry with consumers, they have brought a third factor to this equation, one against which drug chains have no effective defense: traffic.
As one now-retired chain drug store executive put it recently: “The one maxim that’s as old as mass market retailing is this: Customers visit supermarkets and discount retailers about once a week. By contrast, they visit a drug store an average of once a month. Given that arithmetic, is it a surprise that customers turn first to a grocery or discount store to drop off or pick up a prescription or nonprescription medication? Not to me. Not to most people who grew up in our industry. Why, then, do chain drug retailers, especially major ones, continue to disbelieve or downplay an event which has changed the nature of prescription drug shopping in America?”
This belief or certainly is one shared by virtually every former chain drug executive. Put another way, it is phrased as a question for which there are few answers: Why does this industry continue to ignore, against all reality, this basic change in mass market retailing?
• Where have all the leaders gone? Once upon a time, or the day before yesterday, the chain drug industry’s top managers were routinely present — and available — at industry events. No longer. Now it seems there are more important calls on their time. Result: Few people know the leaders of such retailers as Walgreens, CVS or Rite Aid. More to the point, these executives appear not to care very much. Here again is the view of one recently retired chain drug store manager: “Once upon a time — or the day before yesterday — the NACDS Annual Meeting was the place to be if you toiled as a senior manager for a major drug chain. Today, retail attendance at the Annual Meeting is dominated by Kroger and Publix and H-E-B, and Costco and Walmart. To ask the obvious question: How can you find out what’s going on if you don’t bother to show up?”
That is a question so-called old-timers ask ad nauseam. They recall that once upon a time — or the day before yesterday — an NACDS event was characterized by the attendance of industry leaders. Indeed, not only did they attend, but they knew — and, in the main, liked each other. More importantly, they shared ideas, interests and concerns — even when speaking to a competitor. No longer.
• The art of the deal has disappeared from the chain drug dictionary. Once upon a time — or the day before yesterday — drug chains routinely acquired or divested themselves of stores that no longer fit their long-term strategies. No longer. Today, drug chains looking for answers to diminishing performance make the obvious — if ill-considered — decision: Let’s close some stores.
Industry people, past and present, who once never considered closing a store now marvel at the false assumption that closing a store will somehow solve their problems. Do supermarket operators close stores? Do discounters? Do regional drug chains? Indeed, speaking of regional drug chains, most people our editors have spoken to marvel at the creative ways regionals are using to transform their stores by offering services and patient-friendly options that larger competitors are only now beginning to consider. Which is why, they say, regional drug chains are stronger today, in the main, than they have yet been.
• Chain drug merchants have forgotten how to merchandise — if they ever knew. Virtually without exception, old-line (yesterday’s) merchants deplore the idea of selling merchandise behind locked cases to keep vandals away — and asking customers to ring a bell for service. And by the way, hiding behind the false expectation that a clerk is on the way. Moreover, this basic misbelief that locked merchandise will increase sales while deterring theft is indicative of a larger failing; An inability to offer products that consumers are looking for.
To support this larger misconception, industry veterans unfailingly mention Vern Brunner, the legendary merchant who once functioned as the Grand High Exalted Mystic Ruler of chain drug marketing. Indeed, Brunner would annually travel to the Orient in search of one item. Having found it, he would return to Walgreens’ Deerfield, Ill., headquarters and watch as it became the newest best-seller. Where, say these industry veterans, have all the Brunners gone? There is no satisfactory answer.
• Finally, those who have come to doubt the future viability of the chain drug community ask this obvious question: What has happened to the ability to communicate? Once upon a time — or the day before yesterday — Sid Dworkin, head of Revco, and Alex Grass, cofounder of Rite Aid, could hardly wait to meet, renew old friendships and share ideas. Today, their successors don’t even know each other. Nor do they appear anxious to correct that situation.
Today, the two people who are most excited to catch up at an NACDS Annual Meeting, likely as not, are Martin Otto, former chief operating officer of H-E-B, and Randy Edeker, recently retired from his position of president of Hy-Vee. Never mind that the two retailers they once (yesterday) led are fierce competitors in the field of groundbreaking ideas, these two industry legends can’t wait to share their thinking — because they like and trust each other.
This is, by necessity’s short and glaringly incomplete list. Each individual our editors spoke to was only too eager to supplement the list with their own ideas, their own suggestions, their own rules, their own criteria. At bottom, however, they all shared one emotion: frustration. They are frustrated because the retailers that are currently struggling today are the same retailers that once kept them up nights, vainly trying, not very successfully, to dream up ways of competing with them.
The times they are a-changing.
