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Snyder Drug Store

The Chapter 11 filing of Snyder's Drug Emporium, while not a major surprise, is however, another reminder of the tenets of modern retailing. This failure also is another example not only of the challenges posed by an acquisition, but the importance of execution at store level.

Two years ago when Snyder's acquired the Drug Emporium deep discount format, there's no doubt that many chain drug execs quietly acknowledged that this deal was never going to work. There may have been a list of reasons why this sounded like a good deal at the time, but then again other failed acquisitions, such as Ames and Hills, were always positioned as so-called perfect marriages at the time. In fact, Snyder's is fortunate that it never acquired PharMor last year despite observations that it would have been a good addition to its portfolio.

Perhaps some industry observers believed that there was growth potential for the deep discount drug niche as was evidenced by the continuing explosion of price-driven formats in other retail channels including the dollar stores in mass and the no-frills concepts in the supermarket industry. But it just didn't work. Consider the following reasons.

* Differentiation. The Drug Emporium concept straddled a fine line from being an HBC superstore, a general merchandise discounter, a convenience solution and a pharmacy, and thereby failed to deliver a consistent and compelling message to consumers.

* The EDLP factor. In order to exploit a true low-price strategy effectively, products and prices must be consistent on a weekday basis and competitive with the recognized low-price leader in the marketplace. Drug Emporium struggled with product mix, price and in-stocks, thereby jeopardizing customer loyalty.

* The Wal-Mart factor. As Wal-Mart continued to expand into Drug Emporium's markets, it further eroded the deep discount drug chain's ability to compete effectively on price, selection and availability.

* The Walgreens factor. As Walgreens (and other drug chains), continued to expand into Drug Emporium's markets, it also impacted the deep discounter's effectiveness on the pharmacy side of the business. In addition, the drug chains have become more price competitive over the past several years

* Distribution. In order to establish a low-price concept successfully, the entire supply chain must be run efficiently from product procurement to flow-through to the store shelf Drug Emporium admittedly had struggled with warehousing and distribution, thereby resulting in higher costs and inventory problems.

Considering the analysis of these factors and other market conditions over the past two years, it appears that Snyder's valiant attempt to revitalize Drug Emporium was headed for trouble right from the beginning.

In the short term, Snyder's must deal with the tribulation of the bankruptcy and liquidation. In the long term, the retailer, part of the Canadian conglomerate Katz Group, likely will remain one of the nation's strong regional drug chains.

Furthermore, the demise of Drug Emporium marks the final chapter for the once fledgling deep discount drug format.

COPYRIGHT 2003 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.
COPYRIGHT 2003 Gale Group