News

SUPERMARKET AISLE

Wild Oats pursues Stop & Shop, PeapodBOULDER, Colo. — Wild Oats Markets has reached an

agreement to test two new alternative retail concepts.The first, which will begin in late 2004 or early 2005, is a

three- to five-store test of a Wild Oats branded store-with-in-a-store boutique with northeastern food retailer Stop &Shop, a division of Ahold USA.

In addition, in the fourth quarter of 2004, Wild Oats willinitiate an online retailing test of Wild Oats private labelproducts with Peapod, a leading U.S. Internet grocer.

"By pursuing other, non-traditional retail channels, ourbusiness would be more diversified to drive improved val-ue for our shareholders," stated Perry Odak, president andchief executive officer of Wild Oats Markets.

In addition to expanding through partnership, the com-pany intends to accelerate organic growth by opening upto 20 stores in 2005 and 40 stores in 2006.

Survey: Theft, fraud still vexes grocersWASHINGTON — Shoplifting, employee theft and

check fraud remain a big source or concern and the great-est sources of annual losses for food retailers and whole-salers, according to a recently released report from theFood Marketing Institute.

The report, released under the 2004 Security and LossPrevention Issues Survey in the Supermarket Industry, re-veals that supermarkets apprehended an average of nearly23 shoplifters per store in 2003 and that the average valueof merchandise recovered rose $6.41, to $51.71. Nearly 3-out-of-4 suspects were adults. Among the top categoriestargeted: health and beauty care, meat, analgesics, babyformula, razor blades and cigarettes-

Theft by insiders also plagued the industry last year. Al-though food retailers reported a slight drop in the numberof detected employee thefts—which averaged 615 percompany—the average value of merchandise recoveredjumped to $622.90 from $452.10 in 2002.

Illinois anti-abuse law limitsOTC cough-cold purchases

SPRINGFIELD, 111. — Legislation signed late last month es-tablishes Illinois as one of the toughest states in the nation incurbing access to key ingredients used to n:iake speed, ormethamphetamine. Retail pharmacies may feel the effect, asthe law signed Aug. 24 says retailers cannot sell more thantwo packages of cold medicine at a time and that the pack-ages cannot have more than 3 grams of a targeted metnam-phetamine-manufacturing chemical. The law also createsstandards for how drugs containing ephedrine and pseu-doephedrine, found in over-the-counter cough-cold products,can be packaged and sold.

Drug stores and other retailers caught violating the law willbe charged with a misdemeanor and, on second offense,charged with a felony. But also under the law, retailers canrefuse to sell cold remedies to customers if they believe it willbe used to make methamphetamine.

The highly addictive stimulant is known by various streetnames like 'speed," "meth," "crank" and "ice." Illinois Gov.Rod Blagojevich passed the law to cut down on clandestinelabs where illegal drug makers use legitimate, brand-nameand store-brand medicines containing pseudoephedrine tomanufacture the drug.

"This law takes an important new step in cutting off thesource of meth makers' ingredients for their deadly recipe/'said Illinois Attorney General Lisa Madigan.

"Meth use is rising throughout Illinois, putting our youngpeople and our communities at risk," said Blagojevich. "Thisnew law will make it harder for meth manufacturers to getthe ingredients they need to make the drug and, ultimately,may cut down on the number of dangerous meth labs thathave sprimg up around the state."

In July, the Consumer Healthcare Products Associationlaunched a national Meth Watch program that helps retailersand law enforcement agencies work together to deter the theftor suspicious sale of over-the-counter medicines containingpseudoephedrine and ephedrine. The program offers retailerstraining and information for managers anclemployees.

According to Virginia Cox, vice president of communicationsGONTINUED ON PAGE 31

Service drives IT spendingBY MICHELLE L. KIRSCHE

FRANKLIN, Tenn. — The top three chaindrug retailers collectively spend $900 millionon information technology systems, account-ing for half of the $1.8 billion combinedspend on IT by the 20 largest North Americanchain drug stores. Competition from big-boxretailers like Wal-Mart, with one-day salesvolume surpassing the gross domestic prod-uct of 38 countries, is forcing chain drug tocompete on a new level, with technologyserving as a platform for differentiation ana afacilitator for elevated levels of customer ser-vice. But while Wal-Mart has more dollars todevote to IT and is a trailblazer in the adop-tion of technology like radio frequency iden-tification, at the end of the day it is stillknown for its every day low prices and not itscustomer service.

"In this market, the key driver for changeand IT spending is 'service, service, service,'"said Greg Buzek, president of Franklin,Tenn.-based IHL Consulting Group and co-author of the newly released report "IT andthe North American Drug Store.'

"[Drug store] retailers are faciri^ relentlesscompetition ... [and] are using IT dollars tofortify supply chain and pricing solutions,and to support increased customer service so-lutions to improve pharmacy effectivenessand customer reach.'

Currently chain drug retailers spend about1.5 percent of their previous year s revenueson IT systems, according to the IHL report.Walgreens, CVS and Rite Aid lead the pack inIT spending, with Eckerd—based on sales es-timates prior to its divestiture from J.C. Pen-ny—ranking a close fourth.

Integrating IT systems in mergers and ac-quisitions can be a costly proposition. But inthe case of CVS and Fckerd, both for instance,use an IBM platform at the point of sale, whichshould facilitate a smoother IT integration andcreate a homogenous look at the point of sale.

A big portion of IT spending is earmarkedfor propositions like RFID. It's also ear-marked for capital outlay for new store sys-tems that work within newly built or upgrad-ed drive-through services and updated mer-chandising programs that manage and sup-port an increasingly wider array of perishable

as well as traditional drug-related products.Infrastructure designed to meet future

needs, and hardware, software and in-storesystems, also are included in IT spending. In-store systems can directly touch a customer,such as self-checkout units, or they can in-clude employee-facing technology thatserves, for instance, store employees that donot have a company e-mail account throughwhich he or she can receive correspondencefrom headquarters.

CONTINUED ON PAGE 31

Top drug storeinvestors in technoiogyAccording to a recent report, drug chainstypically spend about 1.5 percent of prior-year sales on IT—^which means the top 20chains will spend about $1.8 billion this year.

ChainWalgreensCVSRite AidEckerd*Longs DrugShoppers Drug MartKatz Group**Jean Coutu GroupMedicine ShoppeBrooks Pharmacy***Duane ReadeLondon DrugsKerr DrugUniprixSnyder**PharmasaveDiscount Drug MartHappy Harry'sKinney DrugsBartell Drug

'Projected in millions'Eckerd's figures are estimates calculated prior to divestiturefrom J.C. Penny."Snyder is a subsidiary of Katz, and revenues are reportedlyseparately here. Revenues for both are estimates.'"Brooks is a subsidiary of Jean Coutu. and revenues arereported separately fiere. Revenues for both are estimates dueto fiscal year ending after the report was published.Note: Exchange rate of 0.773 was used for Canadian companies.Source: IHL Consulting Group

2004 IT spend+$487.7

398.9249.0227.168.067.867.157.039.630.220.819.413.212.311.09.68.36.45.93.6

Retailers aid Floridians in storm's wakeNEW YORK — As

Hurricane Charleyripped through Floridalast month. Killing atleast 21 people, destroy-ing homes and business-es and causing hillionsof dollars of damage,many retailers in thearea did their best toserve customers in atime of crisis.

Walgreens' 620 pharmaciesin the state filled emergencyprescriptions for residentswho were displaced, losttheir homes or were unableto get medication at theirusual pharmacy. In addition,several locations in hardest-hit areas received truckloadsof water that were donated toconsumers, said spokesmanMichael Polzin.

He added that none of Wal-greens' stores was damaged tothe extent of not being opera-tional. Those Walgreens stores

that did lose power operatedon generators.

' Customers are coming toour stores with no cash, nocredit cards—they've losteverything," stated Wal-greens district manager MattMcLaughlin just days afterCharley pummeled tfie area.

At C VS, the integration ofits newly acquired Eckerdstores was evident already asboth CVS and Eckerd deliv-ery trucks were on hand topass out bottles of water toFlorida residents. A testa-

Shawn Sloan (ieft) of Winn-Dixie Stores' witii JoeBecker of the American RedCross, atWinn-Dixie'sSarasota, Fta., warehouse,which was donated as aRed Cross disaster reiiefdistrihution center. Winn-Dixie provided residentsand workers with truck-loads of water.

ment, according to CVS chair-man, president and chief ex-ecutive officer Tom Ryan, ofhow smooth the Eckerd tran-sition has been since the dealclosed last month.

Also, the Red Cross dis-tributed $10,000 worth ofcoupons, redeemable at allFlorida Eckerd and CVSstores, for such essentialitems as water and toiletries.

CVS, which operates 698pharmacies in the state—in-cluding the stores it recently

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6 • September 13, 2004 www.drugstorenews.coiii Drug Store News

News

States defy the FDACONTINUED FROM PAGE 4

"More tlian a million Ameri-cans buy their medicationsfrom Canada ... every year be-cause they can't afford theprices here in the UnitedStates—ai"id not one person hasbeen injured or killed as a re-sult/' Blagojevich stated in apress release last month. "TheFDA and the Bush administra-tion know this, yet they contin-ue to raise the safety issue in or-der to avoid making a changethat would be unpopular withthe pharmaceutical industry."

Illinois' plan is open only tostate residents and is expectedto save as much as 50 percent

on certain pharmaceuticals,the state claims. The programwould be managed by an as-yet-urmamed Canadian phar-macy benefit manager.

President George W. Bushhas, in fact, endorsed the ideaof importation, so long as drugsafety could be ensurecf."What I don't want to do is bethe president that says we'll al-low for importation, and all ofa sudden, drugs that are man-ufactured somewhere elsecome in over the Internet, andit begins to harm our citizens,"Bush said on the campaigntrail in Wisconsin last month.

"The president says it

makes sense to import drugs ifit can be done safely. It's al-ready being done, and theFDA nas done notliing to helpmake it safer," Blagojevicrisaid. "That's why Illinois istaking the step of establishingand inspecting its own net-work of foreign pharmacies.... I urge the president to stopstudying and to start helping.'

However, the inclusion ofIreland as one of the countriesfrom which Illinois will im-port medicines raised ques-tions into the extent of Illi-nois' own import research.Following the announcement,news broke that Ireland couldnot, in fact, participate in anysuch program. It is illegal tosupply prescription drugs

through mail order in Ireland.In Vermont, the state for-

mally filed suit last monthagainst the FDA in the U.S.District Court in Burlington,Vt., hoping to accomplish onthe offensive what Rx Depotcould not on the defensive.

"Vermont will not sit backand watch as the cost ofhealth insurance and pre-scription drugs continues torise," Gov. Douglas stated. "Itis our hope and expectationthat Vermont's leadershipwill result in a legal prece-dent that benefits every Ver-monter and every American."

Previously, Vermont hadsought unsuccessfully a tem-porary statewide importationwaiver so the state could con-

duct a pilot test on importing.Vermont is hoping to imple-ment that pilot through thecourts, if not the FDA.

According to Vermont, theMedicare Prescription Drug,Improvement and Moderniza-tion Act requires the federalgovernment to create rulespermitting the importation ofprescription drugs by whole-salers, pharmacists and statebenefit programs. AlthoughVermont pointed to inactionon the part of the FDA, theDepartment of Health andHuman Services formed animportation task force earlierthis year that met six timeswith assorted stakeholders. Arecommendation is due fromthe task force in December.

Bartell plans new prototypeCONTINUED FROM PAGE 4

In the grocery aisle at several Bartell stores, shoppersalso will rind an assortment of Asian foods to serve thelarge Asian community in the Seattle area. According to theU.S. Census Bureau, of Seattle's 563,374 residents, 13 per-cent are Asian. At Bartell, food and drinks account forabout 7 percent of sales

"Bartell Drugs is a neighborhood drug store, and theyare catered to the neighborhood they are in and are notcookie-cutter stores," McMurray added. "We have a lot ofdifferent locations, and it is hard to really talk about a stan-dard in our company."

It may be difficult to put "standard" and "Bartell" in thesame sentence now, but that could change if the companydoes come up with a new prototype as plaruied.

The 114'year-old chain, which draws between $250 mil-lion and $300 million in annual sales, has been facing in-creased pressure from competition—such as Rite Aid,Walgreens, Fred Meyer and^ Safeway—mandatory n:iailorder and the sluggisn economy. However, Bartell, recog-nizing that it must continue to evolve in order to remaincompetitive, is hoping that a fresh store prototype will re-verse that trend.

Illinois anti-abuse lawCONTINUED FROM PAGE 6 .and strategic initiatives for CHPA, the organization isworking with the Illinois Retail Merchants Association, andinitiated a Meth Watch training program in the state inJune. Cox said CHPA would continue to work with drugstore retailers in the state to work through nuances of thenewly passed law.

Walgreen Co., with its corporate headquarters in Illinois,is very supportive of the law, said Cox.

The National Association of Chain Drug Stores also is apartner in the Meth Watch program and has providedfunding to implement it.

The Meth Watch program first began in Kansas as a co-operative effort among the law enforcement, retailers, gov-ernment and the drug prevention community. Over thepast several months, CHPA has been working in partner-ship with Kansas to design a uniform Meth Watch programfor other states interested in participating. Twelve statesparticipated in Meth Watch training in July.

While the Illinois law is restrictive, it is not as strin-gent as legislation in Oklahoma. In that state, productscontaining pseudoephedrine are stored in locked casesand/or are sold behind the pharmacy counter, and pa-tients must show identification and sign a log verifyingtheir purchases. The law does not apply to liquid or gel-cap forms of pseudoephedrine because those formula-tions cannot De broken down for the production ofmethamphetamine. However, the law may have the un-intended effect of suppressing sales of tablets containingpseudoophedrine, sucri as Pfizer's Sudafed or Schering-Plough's Claritin-D.

In May, U.S. Rep. Brad Carson, D-Okla., proposed feder-al legislation that would classify the tablet forms of pseu-doephedrine as a controlled substance.

Katz unveils flagshipCONTINUED FROM PAGE 1in Toronto and Rexall Place, home of the Ed-monton Oilers-and has replaced its private la-bel programs across all its Canadian retail di-visions with a new Rexall product line.

The prototype store is 12,500 square feet, but2,400 of that will be dedicated to a medical clin-ic, staffed by two doctors, slated to open behindthe pharmacy. The store features a redesignedand enlarged pharmacy under the company'sPharmAssist branding program, with lowercounters and a private counseling room. It alsosports widened^ aisles, improved sight lines, aredesigned cosmetics department and an en-hanced selection of convenience foods.

"This is our prototype, which we will be us-ing on a go-forward^ basis as we open storesthroughout Canada," said Katz Group NorthAmerica president and chief operating officerAndy Giancamilli.

"This is the growth vehicle for our corpo-rate-owned busmess," added Jerry Kuske, ex-ecutive vice president and chief merchandis-ing officer.

Kuske said the new format will expand un-der both the Rexall and Pharma Plus banners.

depending on location.'Our plan is for this look to appear across

Canada as Rexall, with the exception of theOntario province, where we have this look co-hranded with Pharma Plus."

Giancamilli and other executives acknowl-edged the format will provide the basis for fu-ture Snyder's drug stores in the U.S. Katz pur-chased Snyder's in the late 1990s, and installeda new management team under Giancamilli.

The new prototype is the culmination of re-design efforts under way in the months since Gi-ancamilli, Kuske and Shoppers Drug Mart veter-an Russell Cohen, Katz's executive vice presidentand chief operating officer, joined the companyand began a top-to-bottom overhaul of merchan-dising, store design and retail systems. "This pro-totype is Andy and his team's vision," said Katz.

'It's this management team's concepts ...bringing together what we believe is best prac-tice for merchandising a drug store," Kuske ex-plained. "Our strategy is convergence drug storemerchandising, focusing on health care needs. Idon't want to put as much emphasis on the cos-metics arena, but definitely make sure we havethe right solution in OTC and HBC and all yourhealth care needs and that we wrap a conve-nience umbrella around it to ensure we offer afull one-stop shop for the customer."

Drug's IT spendingCONTINUED FROM PAGE 6

According to Lee Holman, a co-author of thereport and vice president of product develop-ment for IHL Consulting Group, retailers likeStaples and Darden Restaurants (parent to RedLobster and Olive Garden) are using employeekiosks for human resources communicationpurposes. So is the U.S. Postal Service, which

also now offers customers the option to use anAuton:\ated Postal Center, a self-service kiosklocated in the post office lobhy. The kioskssoon may appear in other retail locations, in-cluding drug stores, said Holman.

Kiosks currently familiar to drug store shop-pers include those found in the photo depart-ment; however, Holman said kiosks of the fu-ture may be found in the cosmetics department,where customers can test different shades andcolors of makeup using a virtual mannequin.

Retailers aid FloridiansCONTINUED FROM PAGE 6acquired in the Eckerd deal—in all Floridamarkets, had most of its stores up and runningjust days after the storm hit. Generators werebrought in to the handful of stores that werewithout power immediately following the hur-ricane, according to spokesman Todd Andrews.

Overall, CVS came through in good shapeaside from a few missing roof tiles and flood-ing in one store, which has since been resolved.

Wal-Mart associates also pitched in, donatingmore than 300 truckloads of bottled water and 100truckloads of general merchandise to the impact-ed areas.

Hurricane Charley also muddied Wal-Mart'sAugust sales results.

Tne storm forced Wal-Mart to shut 73 storesand, in all, impacted about 200 locations—

some of which are the company's most prof-itable locations. As a result, Wal-Mart reducedits August same-store sales forecast to betweenflat and 2 percent versus its original guidanceof between 2 percent and 4 percent.

The revised guidance did not sit well withinvestors, as shares of Wal-Mart slipped about1.5 percent to close at $53.80 on Aug. 23, theday the news broke.

On Sept. 2, Wal-Mart announced that its Au-gust same-store sales rose 0.5 percent, comingin at the low end of its expectation.

In addition, numerous retailers—such asWinn-Dixie, Albertsons, Wal-Mart and Wal-greens—set up fundraisers as a way to raisemoney for relief organizations.

"Our neighbors face a long and difficultcleanup, and we want to do everything we can tohelp them," stated Joanne Gage, vice president ofadvertising and marketing for Jacksonville, Fla.-based Winn-Dixie.

Drug Store News www.drugstorenews.com September 13, 2004*31