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South Carolina Board Of Pharmacy

What do Stop & Shop, Giant Food, Bi-Lo, Tops Market and Bruno's Supermarkets have in common? They all are part of Ahold USA, one of the nation's largest and fastest-growing supermarket and food/drug combo store retailers.

With quiet determination, Ahold USA's Netherlands-based corporate parent, Royal Ahold NV, is building a retail food and pharmacy powerhouse in the eastern and southeastern United States. The company now operates through six regional supermarket chains up and down the Atlantic seaboard and numbers 1,600 supermarkets, including 759 with pharmacies.

Thanks to ongoing store construction efforts and a steady drive to upgrade and enlarge its older supermarkets, Ahold continues to dense up its pharmacy network in the Northeat, mid-Atlantic and Southeast. And with a green light for expansion from its corporate parent, Ahold USA is also adding to its pharmacy network through a steady campaign of buying up regional supermarket chains in the eastern United States.

The Latest example is Bruno's Supermarkets, which Ahold USA acquired in December 2001. The purchase of the Birmingham, Ala.-based food chain pushed Ahold into the deep South and added another 57 in-store pharmacies to the company's total.

Total retail sales for Ahold USA rose 10.8 percent to $23.2 billion in fiscal 2001, ended Dec. 31. Same-store sales rose 2.6 percent--modest, by Ahold standards, and due in large part to the retail slowdown following Sept. 11--and operating earnings came in at $1.3 billion, up 16.7 percent. The solid rise in operating income came despite the slowdown, and in the face of a $27.8 million outlay for remodeling 56 Grand Union stores acquired last year by two Ahold chains, Stop & Shop and Tops. That deal also included eight undeveloped retail sites for Grand Union stores still on the drawing board.

"Stop & Shop had a lot on its plate in the conversion of the Edwards Super Stores [a former Ahold division integrated with Stop & Shop] in 2000 and 2001 and Grand Union early in 2001," said John Fegan, vice president of pharmacy for Quincy, Mass.-based Stop & Shop. "We went from one project right to the other, and converted more than 100 stores in roughly six months."

Some of those Grand Union stores had pharmacies; more were added in the conversion process. That purchase and makeover effort maintained Stop & Shop as Ahold's leading pharmacy operator in the United States, with 233 in-store prescription centers operating in the New England region as of March 1. But Ahold's vitality as a fast-growing, multi-regional pharmacy power is reflected in its other divisions, as well.

Among them: Giant Food of Landover, Md., with 154 pharmacies as of year's end; Bi-Lo, which operates 147 in-store pharmacies in North and South Carolina and Georgia; Buffalo, N.Y-based Tops, with 98 pharmacies at the end of 2001; and Giant Food of Carlisle, Pa., with 75 pharmacies.

On the radar screens

Together, those five regional chains grew their pharmacy outlets by a healthy 11 percent last year. Since then, however, Ahold has grown even more rapidly with the addition of another 61 supermarket pharmacies, including the 57 acquired in the Dec. 12 purchase of Bruno's.

Combined, Ahold USA's 759 supermarket-based pharmacies likely will exceed $2 billion in prescription sales this year as the company's half-dozen regional chains stake out a growing share of the pharmacy market in New England, the mid-Atlantic region and the deep South. That growth, said Fegan, is giving the company added leverage with managed care prescription benefit plans as it boosts buying clout with vendors. Now, he said, it's up to the company to exploit economies of scale.

"While we're still regional--and hopefully someday we'll be bigger than regional--we're starting to spread, and our sheer number of stores and presence in markets helps us to negotiate better programs and better reimbursement rates," Fegan explained. "We're now beginning to use the leverage of the size and market penetration of each company as we deal with the third party plans. And that has helped us to secure rates that are economically sound for us.

"It's no different from Walgreens, CVS and Albertson's, which have several thousand stores. We're working our way up, and we're on their radar screens."

Ahold USA already has consolidated its pharmaceutical purchasing for all divisions through a subsidiary, Buffalo-based American Sales Co., and operates a centralized pharmacy distribution center in Baltimore. Further moves to exploit synergies are in the works, Fegan said--including efforts to coordinate store fixturing and back-end administrative support functions. Ahold also is developing a next-generation computer system, supported by TechRx, that will provide a common technology and communications platform for all U.S. pharmacies for the first time.

"You can't have five operating companies doing the same thing in pharmacy," he said. "We can coordinate our efforts."

More and more, Ahold's U.S. regional chains also are sharing their expertise in new pharmacy care programs for diabetic patients and other groups. A prime example is the recent launch of a new wellness center concept by Giant Food of Landover. Russ Fair, vice president of pharmacy operations for Giant, said the chain will open as many as 40 of the centers in its stores over the next year in partnership with U.S. Wellness.

Fegan and other regional pharmacy chiefs are watching that effort closely. "What Giant of Landover is doing is the alpha test, the lead group in putting in those testing centers," Fegan told Drug Store News. "For the long term, this could be a very feasible Ahold USA project."

Similar efforts also led to the companywide rollout of Internet-based prescription refills and IVR, for prescription orders, following their initial test by Stop & Shop. "Each of the initiatives that we initiate locally are meant to get the project rolling, with the idea that we expand it to the other operating companies," Fegan said.

A proven growth strategy

Zaandam, Netherlands-based Ahold is no stranger to retail muscle wielding. With operations in 28 countries in Europe, Latin America, Asia and the United States and sales last year of more than $60 billion, the company is the world's fourth-largest food retailer. It's also one of the savviest at building a strong operating base in foreign countries and applying its vast experience to integrating those operations.

In a presentation in March, Ahold chairman and chief executive officer Cees van der Hoeven said the ongoing development and integration of the company's U.S. retail operations had built a "knowledge network" that was proving crucial to Ahold's ability to ride out tough economic times and squeeze higher margins from ever-shrinking revenue growth. "Throughout the company the benefits of economies of scale, inter-company and cross-border synergies, as well as exchange of best practices, have become very apparent," he said. "The benefits translate into higher sales, better margins and lower costs. For the same reason we also have been able to integrate newly acquired companies very quickly and smoothly."

Nevertheless, said van der Hoeven, "In the current environment, Ahold foresees a slowdown of acquisition activity."

Ahold's chairman predicted a "slow" improvement in the U.S. retail environment this year and "somewhat stronger growth rates in the second half."

Integration efforts among the six U.S. food store and pharmacy chains will continue, said Fegan, as Ahold exploits its growing market penetration and seeks economies of scale and a reduction in operating expenses.

Nevertheless, said Fegan and other company officials, Ahold will maintain its strategy of building customer loyalty through the patient cultivation of well-known local brand identities, individual chain logos and locally customized store formats and merchandising.

"We don't want to change the name of Giant or Stop & Shop or Bi-Lo, for instance, because those are all readily recognized in their markets," Fegan told Drug Store News. "Our challenge is, how do you get across the fact that we have all these operating companies to the traveler or the shopper on vacation and that we can transfer their prescriptions?"

"We are entirely comfortable with our multi-channel, multi-brand, multi-format and multi-regional approach," added van der Hoeven. "It provides us with the best possible opportunities to develop close customer relationships and to capture a greater share of our customer's food expenditure."

With that approach--and a willingness to invest in new acquisition opportunities and new store construction--the same could be said for Ahold USA's pharmacy business. "We see excellent further growth potential in the United States," said van der Hoeven.

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