Navigation

Eckerd Drug

NEW YORK -- By sometime next month, it should be official. Rhode Island will be the new, unofficial capital of the chain drug store industry.

It is now expected that the CVS/Brooks/Eckerd deal will finally close in July, CVS announced earlier this month, a move reflecting the timing of the anticipated close of the Brooks transaction. But when federal trade regulators finally do sign off on the deal, two of the top four drug chains in America will have headquarters in the smallest state in the Union--CVS, soon to be me new No. 1, in WoonsocKet, R.I., and Eckerd-nee-Brooks 20 minutes southeast in Warwick, R.I., controlling more than $44 billion in sales and more than 7,000 stores between them.

To be sure, when that day comes--"C Day," as in closing day, as Brooks president and chief executive officer Michel Coutu referred to it in a Drug Store News interview earlier this month--these two companies will be on decidedly different tracks as each cycles through the process of integrating the former Eckerd stores it acquired in the deal. For one thing, the 1,500-plus stores throughout the Northeast, mid-Atlantic and into the South that Brooks is picking up are going to stay Eckerd.

More significant, as previously reported by Drug Store News (see "By any other name, the Eckerd deal not as sweet," Drug Store News May 17, 2004, page 16), the company's existing Brooks stores in New England will be recast under the Eckerd brand, Coutu confirmed. The future is one company under one banner, he explained, organized into four operating regions: New England, Northeast, mid-Atlantic and South.

Meanwhile, CVS plans to spend about $300 million to $350 million to convert the stores it plans to keep. We re going to change everything--the look, the merchandise, the fixtures, the shopping baskets, the rug on the floor, CVS chairman, president and chief executive officer Tom Ryan told investors at the company's May 12 annual shareholders meeting. And when that's all done, CVS will change the name on the stores, too. Until then, the company will pay a fee to Brooks, which acquired Eckerd's former Largo, Fla., headquarters facilities, where all the systems that run the former Eckerd stores are housed. Until CVS converts the systems in the stores it acquired, all communication in those stores will continue to run through Largo.

Although the company acquired a total of 1,260 stores in the deal, CVS executives announced last month that it would shutter somewhere between 200 to 225 marginal performers. About half of those closings will resemble the average pharmacy-file buy, with those files being transferred to a better-performing store in the area and CVS likely retaining a significant amount of that business. The other half will be regular store, closings. Either way, not running the underperformers through its conversion process will save CVS about $70 million.

Indeed, the integration of Eckerd was a key topic of discussion at CVS' annual meeting. Ryan provided shareholders some detail on the company's near-term plans for converting the stores, which, he explained, should take about 12 months to 18 months. CVS will focus first on Florida, where it picked up more than 600 new stores--and where, company executives believe, CVS already commands relatively high name recognition, given the large number of seniors who have retired to Florida from markets up North where the CVS brand is well known. CVS expects to have completed integrating the Florida stores in six to eight months--"hopefully, by the time some of you get back down there," Ryan kidded Snowbird-shareholders in attendance.

For Brooks, "the plan right now is to support CVS" as it transitions its stores from the Eckerd network, "as well as work our transition from Largo to Rhode Island and continue to operate our stores as efficiently as possible," Coutu told Drug Store News. Brooks has dedicated a team of about 50 people to its transition team in Eckerd's Largo offices. At any given time Brooks could have anywhere from six to 20 people there, Coutu explained, including information systems specialists and operations teams.

And while the Brooks team has worked very closely with CVS executives over the last two months, the larger focus for Brooks has been what to do with the more than 1,500 stores it acquired. "If CVS is going to close 250 stores, that's their business; I'm going to operate 1,500 stores ... [and] our plan is to make sure that every store delivers."

Not only does Brooks plan to keep all of the stores, Coutu also dismissed reports that it is considering selling to Rite Aid the Eckerd stores it picked up in Maine.

First on Brooks' agenda, Coutu said, is creating a data bridge to link the Eckerd stores into its own systems so that come "C Day," as he calls it, everything will be in place for it to make "more informed decisions on product, promotion and purchasing," he said.

Timing will be key. Certainly, given the timing, the Eckerd deal and the added heft it provides both CVS and Brooks will be a key topic of conversation during the chains' vendor meetings at this month's NACDS Marketplace show. Merchants for both chains plan to work the show aggressively. CVS has been down this road before and understands the extra attention 1,000 or more stores will command from the vendor community.

But for Brooks it means at least five times more leverage with suppliers, having gone from a $1.8 billion to a $10 billion company. Coutu believes the negotiations won't require much, arm-twisting. "Vendors are looking forward to Eckerd performing the way Brooks has on a per-store basis," he said. Certainly, Coutu has been looking forward to it.

--Molly Prior contributed to this story.

COPYRIGHT 2004 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.
COPYRIGHT 2004 Gale Group