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For bare-knuckled competition among top pharmacy competitors, it's hard to beat the show going on in Raleigh, N.C.

Selected by Money as one of the nation's most livable cities and tapped by the U.S. Census Bureau as one of the fastest-growing areas of the country with some 1.3 million total residents in 2000, the Raleigh-Durham-Chapel Hill region has drawn a slew of top-drawer pharmacy competitors into the drug store arena. Among them: market leader Brooks, via its purchase last year of Eckerd's North Carolina stores; CVS, which has a strong second-place presence; locally based Kerr Drug, one of the industry's top regional drug chains; and Walgreen Co., the market's newest superpower entrant. Raleigh also is host to pharmacies operated by Wal-Mart, Target, Kmart and BJ's Wholesale Club, as well as more than a dozen strong independents.

"It's a very competitive market," agreed Tony Civello, chairman, president and chief executive officer of Raleigh-based Kerr Drug, which operates 106 stores overall and 26 in the Raleigh-Durham-Cary, N.C., market. "There are four chains operating here--CVS, Eckerd, Walgreens and Kerr--and there is continual growth on all parts ... with additional stores.

"It's based primarily on this accelerated growth rate in the population. North Carolina as a whole, and the Raleigh [Research] Triangle area, has become very popular with Northeasterners who move midway between the snow in the Northeast and the heat of Florida. It's one of the fastest-growing areas of the country--therefore, lots of [new] rooftops, both residential and commercial."

As for Kerr Drug, said Civello, "We have the good fortune of having the Kerr name, and even though we're a different management group, the Kerr name has been here since 1951," when Banks Kerr opened his first drug store in the region.

Civello said Kerr's managers saw the coming growth trend in Raleigh-Durham in the late 1990s, after assuming control of the chain in a leveraged buyout. And, he said, they've done their best to gear up for it.

"To prepare for the onslaught of continual competitive growth and the entry of Walgreens, we touched every store in the marketplace," with the exception of one or two Kerr units still undergoing renovation, Civello told Drug Store News. That means either a relocation or full remodeling, he added, as well as the addition of Kerr Health Care centers.

Even "in light of the competitive nature of the market," Civello added, "our stores in this market are updated and fresh, with new merchandising concepts on the health side of the business. And we really did all that in preparing for new competition coming to the market. And No. 2 is the continual growth of residential rooftops in this market."

Kerr's newest bid to differentiate itself as Raleigh's homegrown drug chain came in late May with the opening of clinical weight-loss centers, operated by Medifast, in one of its drug stores in Raleigh and one in Greensboro, N.C. The Hi-Energy Weight Control Centers are the first clinical weight-loss centers in a regional chain drug store under a pharmacy program, according to Medifast.

Under the new program, Medifast counselors will work with Kerr patients on weight-loss efforts and meal plans.

While the area is going through a major revival, there was a time a couple of decades ago when investing in Raleigh-Durham may have seemed a bit more visionary--and certainly more risky--than it is today. The Raleigh-Durham region suffered through a sweeping and painful shift in its economic underpinnings in the 1980s and 1990s with the loss of thousands of jobs in bedrock North Carolina industries, such as textiles and furniture. But the rise of computer chip making, pharmaceuticals, biotech and other high-tech industries--fueled by big investments in science and research and the growth of the Research Triangle Park that lies among Raleigh, Durham and Chapel Hill--helped restore prosperity for a time.

Employing some 40,000 people, the 6,800-acre park draws on the research capabilities, faculty and graduates of three major universities: the University of North Carolina in Chapel Hill, which also houses a major school of pharmacy; Duke University in Durham; and North Carolina State University in Raleigh.

But like other areas that depend on high tech for jobs and growth, the Raleigh market suffered through a long downturn in technology spending after Sept. 11 and the bursting of the tech bubble in the late 1990s. Still, signs of recovery are apparent.

"A long-awaited rebound in the region's economy, even in the battered tech sector, has led to an increase in activity" among industries moving to or growing in the Raleigh area, noted a recent report from real estate development firm Grubb & Ellis. Indeed, noted the firm, high-tech companies are again snapping up office space in both Research Triangle Park and at the newer Keystone Tech Park.

The resurgence in the business cycle mirrors the strong population growth. And, said one market observer, that growth tide may be strong enough for the next few years to float all boats in the drug store marketplace.

"The demographics are very strong here, and that may allow [pharmacy retailers] to make some mistakes and not have to be terribly innovative for the time being," noted Bill Campbell, a pharmacy educator at UNC's pharmacy school who was instrumental in Kerr Drug's early pilot projects in clinical care.

Beyond its booming population growth in suburban cities, such as Cary and Wakefield, the Raleigh market has been roiled by another external factor: the decision in 2003 by IBM, one of the region's largest employers, to shift its employee health benefit program to a mandatory mail order prescription plan.

That move hurt. But local retailers, including homegrown Kerr Drug, appear to have recovered. "We have weathered the storm of the mandatory mail contract that IBM signed," said Civello. "We're more than 18 months into that, and we see a very nice growth in prescription units again."

One to beat

The traditional leading player in the Raleigh drug store arena still goes by the name of Eckerd Drug. But since its purchase of more than half the old Eckerd empire from J.C. Penney last year, it's Rhode Island-based Brooks Pharmacy that owns and operates the stores.

Brooks operates some three dozen units in Raleigh and its big suburban sister city, Cary, N.C., and more than a dozen in nearby Durham. But CVS appears to be growing faster, with 56 stores in the Raleigh-Durham region, according to CVS spokesman Mike DeAngelis.

Brooks' competitors appear divided on the chain's early success in North Carolina via the Eckerd purchase. Tim White, owner of Hayes Barton Pharmacy in Raleigh, sees opportunity. "Brooks is in a transition mode that seems to benefit us," he said. But Kerr Drug chairman, president and chief executive officer Tony Civello said that under Brooks' management, "The Eckerd stores here are much more shoppable."

One to watch

While CVS remains the area's clear-cut No. 2 with its rapid incursion and ramp-up in the region, Walgreens quickly has become the X factor roiling the Raleigh market.

Lured by the region's rapid population growth, resilient economy and favorable drug store demographics, the industry's top chain returned to the area, after an absence of more than a decade, with a grand opening in February 2003 on Kildaire Farm Road in Raleigh. In the two years since, said company spokeswoman Carol Hively, Walgreens already has expanded its foothold to six stores in Wake County and nearly a dozen in the region.

That includes two stores in Raleigh itself and two in fast-growing Cary, as well as seven in other nearby communities.

"We are continuing to expand there" said Hively. "It fits into our overall expansion with ... aging population, people going to North Carolina to retire, tourism--all those factors are good for drug stores."

One for the books

The independent pharmacy sector in Raleigh has been hit hard by the downturn in third party reimbursements and the aggressive growth of big-chain competitors. But Tim White, who owns and operates Hayes Barton Pharmacy in the city and holds a stake in three other independent drug stores, is finding hard-won success as a niche health care specialist with a strong focus on diabetes care and patient counseling.

White is putting his money where his mouth is. He's employed a Pharm.D. and certified diabetic educator to deliver diabetic care services even though current Medicare regulations allow nurses to bill for CDE-based patient services, but not pharmacist CDEs. "We can't bill anybody. And that's what's got to change," he said.

"I've had my fair share of frustration and loss of dollars over the last couple of years," White acknowledged. "But am I giving up? No, I'm not."

RALEIGH: WHO'S WINNING *

                        2004 Rx      2004 front-end    Total stores
                      market share   market share **       w/Rx

Brooks-Eckerd            32.5%            43.8%             33
US                        21.6             26.5             20
Kerr Drug                 12.2             13.6             17
Wal-Mart ([dagger])        8.1               NA             11
Kroger                     7.7               NA             12

Source: Chain Store Guides 2004 Drug Industry Market Share Report

* Market defined as Raleigh, Durham and Cary, N.C.
** Reflects drug stores only

([dagger]) Includes Wal-Mart discount stores, supercenters and
Sam's Club stores

RALEIGH: THE STAKES *

Population                                     886,872
No. of households                              340,306
Median disposable incomes ([dagger])           $45,966
Total Rx sales **                               $766.9
Total front-ends ([dagger][dagger]) sales **    $299.2

THE SIDES

Supermarkets                                       132
Drug stores                                        126
Mass merchants                                      99
Warehouse clubs                                      6

Source: Chain Store Guides 2004 Drug Industry Market
Share Report

* Market defined as Raleigh, Durham and Cary, N.C.

** 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