Classic Pharmacy
Suburban sprawl promotes competition in Twin Cities: No. 1 ranked Target and the area's third-largest company, Best Buy, have set their sites on expanding in the world of pharmacy and health-related retailingLaura Heller Minneapolis may not be the sexiest of cities--although the likes of Prince and Janet Jackson may disagree--but it has given rise to many of this country's largest companies, with world-class retailers among them. It's no wonder, then, that the area's consumers are savvy shoppers strong loyalties, traits that are playing out in the store arena even as new players are poised for entry.
Statistically, the region ties with Atlanta as the ninth-largest in the United States. But Minneapolis also has a young population base--the average age is just 35--and a high per-capita income, thanks to a family-friendly community and booming business environment. Residents of the Twin Cities boast an average household income of more than $73,000 and a low cost of living that allows those households approximately $48,000 of disposable income a year.
The Twin Cities play host to some of the nation's biggest corporations, including General Mills, Northwest Airlines, U.S. Bancorp and 3M, making the region a magnet for recent college graduates in the upper Midwest and young executives willing to relocate for solid job opportunities.
Of the top five companies with headquarters in the region, two of them--Target and Best Buy--are retailers. Another one, SuperValu, is a supplier to the retail industry. Health care provider United Health Care ranks as the second-largest company in the area, according to the Minneapolis Chamber of Commerce. And while the region's fourth-largest company, SuperValu, plays only a supporting role in the retail world as a distributor, No. 1 ranked Target and the area's third-largest company, Best Buy, have set their sights on expanding in the world of pharmacy and health-related retailing.
The Minneapolis drug store business is dominated by national chains with Walgreens as the market leader, controlling a 37.2 percent share of the prescription market. Of the company's 97 stores in Minnesota, 77 are located in or near the Twin Cities. And while Walgreens has long had a major presence here with a store on practically every corner, the company has continued to open stores and remain fiercely competitive, adding nine new units and increasing front-end and total market share by more than 3 percentage points in the past year.
While the Twin Cities might be Target town in a broader retail sense, Walgreens' pharmacy sales track about seven times higher than Target's generated from only twice as many pharmacy counters in the market, according to Chain Store Guides data.
Said Mindy Thompson of Simply Retail, a health care retail consultancy: "Do people here fill their prescriptions at Target? Yes. Do they use their pharmacy? Yes."
And given some recent initiatives, it's clear that the chain aims to capture even more share, both locally and nationally. "We view it as an initiative with a large potential," said Target Stores president Gregg Steinhafel. "Recent feedback has been positive from both consumers and the surgeon general."
In April, Target launched Clear Rx, a new packaging style that not only changed prescription bottles to the company's signature red, but implemented colored ring tabs that allow families to differentiate medications easily, as well as dispensers for easier administration of children's liquid medicine.
It's an initiative that will play especially well in the company's hometown, where families reign supreme and often are overlooked by an industry steeped in tradition and largely focused on an aging population. And by partnering with MinuteClinic, another local business, Target is adding even more value for its core shopper: women with children.
MinuteClinic operates in seven local Target stores (and three Cub Foods outlets) and expanded to eight additional Target locations in Maryland this year. The onsite service helps consumers to diagnose and prescribe for common ailments and infections, alleviating costly and time-consuming visits to the doctor.
"They are tapping into the ultimate trend right now," said Thompson. "Who is really focusing on chronic diseases and compound health problems for women? Target and MinuteClinic have really tapped into the working, busy mom. What's better than going into Target and getting your ears checked with your groceries?"
MinuteClinic recently announced it would open three facilities inside CVS stores, as well, with two of them Minneapolis. CVS currently has just 10 stores in the greater Minneapolis-St. Paul area, but has identified the market as one with growth potential, vowing to add 25 to 30 new stores there in the next year.
Still, despite Target's heightened focus on pharmacy and CVS' recent entry into the area, Snyder's Drug Stores has retained its lock as the No. 2 pharmacy provider in the market with 56 stores and an 18.5 percent share of local pharmacy sales.
The trend of providing on-site health services at retail locations is gaining momentum, particularly Park Nicollet Health Services, one of a handful of small local chains that continue to grow pharmacy share. Park Nicollet, which still controls about 3.5 percent of the Twin Cities pharmacy market--half a percentage point more than it had a year ago--has partnered with large corporations to provide on-site services and health counseling and has a strong presence in one of the industry's most talked about new concepts in the drug channel: Best Buy's eq-life store.
The health care/technology hybrid concept store opened in January in suburban Richfield. The company isn't releasing sales figures, but management claims to be pleased with the initial results and has plans for a second location in St. Paul.
Park Nicollet was tapped for its expertise in patient care and will have representatives available for in-store consultations and seminars. Meanwhile, pharmacy services at eq-life are being provided by PrairieStone Pharmacy, a local chain with 11 locations in the Twin Cities primarily in upscale grocery locations inside Byerly's and Lunds supermarkets.
Another small regional player that refuses to cede share to the big chains is Fairview Pharmacy, which operates 19 retail drug stores in the area. Anchored by a strong specialty pharmacy/home infusion business, the retail pharmacy division of Fairview Health Services--the region's largest health care provider--controls 6 percent of the local pharmacy market, a tribute to the chain's service-focused model. A major selling point: free delivery within five miles.
One to beat
Walgreens reigns supreme in the Twin Cities and shows no signs of quitting. With 77 locations currently in the market, the company has continued to boost its presence here with new stores and continues to grow its overall business, thanks to strong front-end sales--no easy accomplishment in a market dominated by discount department stores, one of which calls Minneapolis home.
When asked which drug chain rules the market, locals here typically respond with, "There's a Wal-greens on nearly every corner."
One to watch
Target may call Minneapolis home, but its strong presence and high customer loyalty in this market may have just lit a fire under competitor Wal-Mart, which has come into the Twin Cities with guns a blazing.
The discounter increased its store count here to 24 from 16 a year ago, taking advantage of the region's growing suburban sprawl. As a result, the retailer's prescription market share now totals 7.6 percent, up from 4.5 percent the year before. By comparison, Target's prescription market share growth was flat this year, measuring just 5.6 percent compared with 5.5 percent the year before. But Target's recent initiatives in the pharmacy category are clearly aimed at capturing a bigger share of the region's young, well-educated and high-earning population. It's a classic battle between the nation's top two discounters playing out on Target's home turf, with convenience and low prices versus style and added value.
One for the books
PrairieStone Pharmacy is staking out new territory in the drug channel. By implementing new technology, partnering with local retailers outside the drug trade and boasting of more consumer-friendly services, the chain's initiatives are garnering attention both from within and outside the drug store industry.
At just 400 square feet, compared with a typical pharmacy department of about 1,000-square feet, PrairieStone can fit conveniently into most existing store formats, thanks to the chain's high-tech drug storage and dispensing system. The system also allows prescriptions to be filled or overseen by technicians, freeing up the pharmacists for customer interaction and allowing them to come out from behind the counter to walk the aisles with consumers as they try to make sense of the many OTC choices.
According to PrairieStone management, the system is attracting pharmacists who are eager to work for the upstart--not to mention retailers looking to gain a slice of the pharmacy market--as well as customers who appreciate the higher levels of interaction with the pharmacist and more personalized service.
Whether PrairieStone ever grows into a powerhouse pharmacy operation, its innovations may forever affect the market.
PHOENIX: WHO'S WINNING *
2004 Rx 2004 front-end Total shares
market share market share ** w/Rx
Walgreens 37.2% 53.6% 77
Snyder's 10.6 28.1 56
Wal-Mart 7.6 NA 24
Fairview Pharmacy 6.0 1.6 19
Target 5.6 NA 38
Source: Chain Store Guides 2004 Drug Industry Market Share Report
* Market defined as Minneapolis-St. Paul and Bloomington, Wis.
** Reflects drug stores only
MINNEAPOLIS: THE STAKES *
Population 3,092,762
No. of households 1,190,247
Median disposable income ([dagger]) $48,401
Total Rx sales ** $951.4
Total front-end ([dagger][dagger]) sales ** $404.4
THE SIDES
Drug stores 351
Supermarkets 412
Mass merchants 123
Warehouse clubs 11
Source: Chain Store Guides 2004 Drug Industry Market
Share Report
* Market defined as Minneapolis-St. Paul and Bloomington,
Wis.
** 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
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