Eckerd Drug Store Locations
Retail space abounds as Steel Town reinvents itself: the Pittsburgh drug store market has been a lesson in smash-mouth retail. The gloves came off before the ink was even dry on the Eckerd deal that brought Brooks into the marketMichael Johnsen Pittsburgh is not necessarily the future urban ghost town everybody makes it out to be--a fate the old Steel, Town is supposed to have suffered ever since Pittsburgh's steel mills began shutting down in the early 1980s.
And there is concern that U.S. Airways, Pittsburgh s No. 4 employer in the region with 4,603 employees, may move its operations as part of any merger agreement with America West--or worse, that the airline may never emerge from bankruptcy protection at all.
Yet there is a stubborn optimism among the Pittsburgh faithful that its economy rooted in a steeled blue-collar work ethic will work itself out of any setbacks. Same as it always has.
"Pittsburgh has been able to reinvent itself," commented Tim Burger, group vice president for Brooks-Eckerd in the Northeast. "A lot of the riverfront, old steel mills are coming down, and condominiums, apartments and shopping areas are coming in. [Pittsburgh] really has cleaned itself up quite a bit."
That could be a bit of an understatement. In keeping with the tradition of the famed Pittsburgh Steeler Steel Curtain defense of the 1970s, the Pittsburgh drug store market has been a lesson in smash-mouth retail. Indeed, the gloves came off before the ink was even dry on the $2.15 billion Eckerd acquisition deal that brought Brooks into the market, going from zero to the clear-cut market leader.
As Brooks executives assembled the team that would drive the integration of the two companies, its biggest competitor in the market wasn't exactly waiting to feel out the newcomer. Rite Aid came out swinging, canvassing Pittsburgh neighborhoods where the two chains competed with flyers that played off one of customers' worst fears: change. "We heard stories about flyers being put on people's cars that said, 'Come to Rite Aid; Eckerd's changed,'" Brooks-Eckerd executive vice president of marketing David Morocco told Drug Store News last fall.
Brooks-Eckerd responded with full-page ads in the Pittsburgh papers and local radio spots--which the company repeated in many of the markets throughout the Northeast in which it suddenly found itself competing directly against Rite Aid--about what the deal really meant for customers: a stronger Eckerd store.
Tim Lazor, president of Pittsburgh-based Lazor/Yost Marketing & Design, personally watched that turf war unfold. "The faster that Brooks responded to Rite Aid, the better," Lazor explained. "They came back with a roundhouse punch, which you have to do when the market is in turmoil. It does make sense for a competitor to go after [Brooks-Eckerd] ... that's the way you keep your customers."
Meanwhile, as Rite Aid and Brooks-Eckerd smashed heads, Walgreens was pulling the old end-around, quietly opening its first store in the Pittsburgh suburb of Crafton, Pa., just before last Thanksgiving. It was one of the last of the major cities in the United States in which Walgreens had been absent. The plan is to ramp up quickly and develop critical mass in the market within a few years--the same way Walgreens enters every other market.
"If you look at the largest metropolitan areas of the country that we are currently not in, Pittsburgh would be near the top of the list," explained Walgreens spokesman Michael Polzin. "There is a lot of opportunity there and a lot of population to serve. And we think the sites are available for us to be successful."
In addition to Brooks-Eckerd and Rite Aid, Walgreens also has the likes of CVS, the No. 3 chain in the market in terms of share of pharmacy sales, a most formidable player to say the least. With 10 fewer stores operating in the area in 2004, CVS drove 15.5 percent of local pharmacy sales versus Rite Aid's 13.5 percent share. And while Pittsburgh may not always have been a major priority for CVS, that is starting to change, noted James Kelly, vice president of investments and retail at Grubb & Ellis, a major commercial real estate advisory firm.
Still, many believe that not only is there more than enough business to go around at present, there's more still on top of that. Pittsburgh is a growing market. "We are underretailed still, apparently to the tune of about 4 million square feet in this market," Kelly explained. "The retail dynamics are excellent right now."
Framing that opportunity, Kelly said is a large senior population and a mass influx of young professionals and new families--something the area hasn't seen in quite some time.
"We had a perception of young people at one point leaving [Pittsburgh]," Kelly said. "A lot of that had to do with [Pittsburgh's transformation] through an industrial ]economy] to a service economy."
But younger people are coming back into the area, he said, crediting the region's strong university system for attracting a more youthful vibe to the area.
And as interest in the market has grown, so, too, has the value of commercial real estate in Pittsburgh in the last few years. The city has attracted the interest of several real estate investment trusts, a trend that is expected to continue, according to Grubb & Ellis. "[Since] Walgreens came in, the prices [for retail real estate] have gone through the roof, and the competition for the best sites is wild," Kelly said.
While a strong senior population certainly provides for plenty of opportunity for chain drug, the prevalence of retired steel workers could be a bane as much as it is a boon. If the steel unions decide to go the way United Auto Workers went, moving members to mandatory mail order programs to stem the rising tide of prescription drug costs, that could place a significant crimp in the local pharmacy market.
Rite Aid currently is piloting its tentatively named Rite Care program, a structured clinical service providing personalized medication therapy in conjunction with the University of Pittsburgh School of Pharmacy, in four Pittsburgh-area stores. "The program ... offers patients a personal comprehensive review of their drug therapy by a trained pharmacist in a private setting," explained Phil Keough, Rite Aid senior vice president of pharmacy operations.
Rite Aid declined to comment further on the program. But if successful, it is expected that the chain will roll out the program to all of its stores to take advantage of the new medication therapy management services provision that is part of the Medicare Part D benefit set to take effect in January 2006.
One to beat
With more than twice the number of stores in Pittsburgh than any other pharmacy operator, Brooks-Eckerd has a pretty strong hold on the top pharmacy spot.
And the chain is defending its newly acquired share of that market proactively. For starters, Brooks-Eckerd is in its second year of partnering with Publix in a prescription file share program for area snowbirds. Because Eckerd no longer has a brand presence in Florida--CVS converted all those stores--the move creates a sense of continuity for seniors making the trip south.
The chain also is maintaining its presence in Pittsburgh with a vibrant new-store opening program. Brooks-Eckerd has opened as many as 12 new or relocated stores in the past 12 months.
For its part, Rite Aid now finds itself in an intense battle for No. 3 with CVS, with Walgreens also crashing the party. Taking a page from the Brooks-Eckerd playbook, Rite Aid in the last three months has added a new product endcap display at the front of its stores in the main pharmacy aisle, which features signage that heralds, "Here's What's New!"
One to watch
Walgreens may not have much pharmacy share today--the chain only opened its first store within the Pittsburgh area this past fall--but that's bound to change given the Chicago-based retailer's penchant for explosive growth in a new market.
Currently, Walgreens has almost a half-dozen new stores planned to open within the next year. Beyond that, a Walgreens spokeswoman would not specify the number of locations the chain has targeted for the market, "but we are aggressively expanding into that market," she said.
"Walgreens is paying incredible money for sites:' commented James Kelly, vice president of investments and retail at Grubb & Ellis, a commercial real estate advisory firm. As a result, Eckerd's dominance of the Pittsburgh market "may turn pretty quickly," Kelly said.
Walgreens is on the hunt for real estate opposite core competitors in what they call the "testosterone" site, Kelly noted, so called because the direct competition challenges Walgreens operators to outperform.
One for the books
First established around 1920 just five miles outside downtown Pittsburgh, Community Drug has just about outlived every independent within a five-mile radius, with the possible exception of Medicine Shoppe-claimed owner and operator David Hairhoger. "As an independent pharmacist, I'm certainly not concerned about what Walgreens is going to do to me," he said in response to Walgreens' robust expansion plans into the Pittsburgh market.
Community Drug is well-established within its community and has done a decent business serving a niche market in custom compounding. The 2,000-square-foot pharmacy also offers consultations on health and nutritional supplements and dispenses pet medicines, as well. In all, the store fills 1,200 prescriptions per week.
PITTSBURGH: WHO'S WINNING *
2004 Rx 2004 front-end Total stores
market share market share ** w/Rx
Brooks-Eckerd 29.9% 42.3% 97
Giant Eagle 16.9 NA 55
US 15.5 20.0 46
Rite Aid 13.5 22.1 56
Wal-Mart ([dagger]) 3.7 NA 16
Source: Chain Store Guides 2004 Drug Industry Market Share Report
* Market defined as Pittsburgh ** Reflects drug stores only
([dagger]) Includes Wal-Mart discount stores and supercenters
PITTSBURGH: THE STAKES *
Population 2,412,469
No. of households 1,001,369
Median disposable
income ([dagger]) $34,951
Total Rx sales ** $1,298.5
Total front-end ([dagger][dagger])
sales ** $452.3
THE SIDES
Drug stores 434
Mass merchants 256
Supermarkets 231
Warehouse clubs 7
Source: Chain Store Guides 2004 Drug Industry Market Share Report
* Market defined as Pittsburgh ** Sales in millions
([dagger]) Per household ([dagger][dagger]) Reflects drug stores only
COPYRIGHT 2005 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.
COPYRIGHT 2005 Gale Group
|
