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KRIS HUNDLEYNew pharmacies are popping up all over. But analysts say there is plenty more room nationwide for drugstore development.
As J.C. Penney Co. tries to unload its Eckerd chain, the question arises: Has the market for chain drugstores reached the saturation point?
With consumers enjoying more options for purchasing prescriptions - from Wal-Mart to Web sites in Canada - do we really need a drug franchise on every corner?
Particularly in the Tampa Bay area, where high-traffic intersections often attract head-to-head competition from drug chains, it seems that cannibalization, rather than customer service, is the name of the game. Retail druggists seem to be racing to build stores just as their share of the drug-buying dollar is eroding.
No way, say industry analysts, who predict that there is plenty more room nationwide for drugstore development.
Richard Hastings, vice president and chief retail analyst with Bernard Sands in Charlotte, N.C., said Floridians, who have about 600 Eckerd and 600 Walgreens locations to choose from, have a skewed view.
"Florida is more the exception to the rule because there are so many more older adults," Hastings said. "You had Eckerd all over the place. Then Walgreens came in and opened on top of Eckerd, and now you have a bazillion chain stores. But I would welcome a good Walgreens or CVS down the street from me, though Eckerd will die when they hear me say that."
Erik Gordon, a marketing professor at Johns Hopkins University, agrees that oversaturation is a local affair.
"There are probably some areas where you don't need any more drugstores, but the industry as a whole is not oversaturated, like fast-food places or shoe stores in malls," he said. "I don't think the issue with Eckerd is oversaturation. It's that the competitive bar is very high, and they're not doing a good job of jumping over it."
Gordon and others say the chain drug business is robust because an aging population needs not only more prescriptions filled, but also more over-the-counter medicines and supplements. In a report in July, Sandra Skrovan of Retail Forward in Columbus, Ohio, predicted continued double-digit growth in pharmacy sales over the next five years, increasing at a rate of 11.4 percent annually. And though there are a growing number of alternative sources for filling prescriptions, the biggest share of purchases still takes place at a chain drugstore, her study found.
Of $182.7-billion of prescription sales in 2002, 40.1 percent were in chain drugstores, 20.1 percent were in independent drugstores, 18.3 percent were through mail order, 11.9 percent were in supermarkets and 9.5 percent were in mass merchants such as Wal-Mart.
That's not much of a change from five years earlier, when chain drugstores had 39.2 percent market share, while independents had 27 percent and mail-order sales accounted for less than 13 percent. Market share for supermarkets and mass merchandisers was virtually the same in 1997 as in 2002.
"Drugstores overwhelmingly remain the consumer's top choice in getting prescriptions filled," Skrovan wrote. "Strong pharmacy demand is creating the need for more pharmacy counters - or at least more productive ones."
Walgreen Co., which added stores at a pace of nearly one a day in 2003, is proof that the race goes to the fastest growing chain. The Deerfield, Ill., company ranked No. 1 in prescription sales in 2002, at $17.2-billion. The company could boast that 60 percent of the U.S. population lived within five miles of a Walgreens store, and that distance will narrow. By 2010, the chain expects to have 7,000 stores, up from 4,314 today.
"Walgreens just opened on top of Eckerd, and the outcome was that customers gradually came to prefer Walgreens," said retail analyst Hastings. "They're just one of the very best retailers in the world."
Nor does Hastings worry that Walgreen's business will be scooped up by giant Wal-Mart, which is expected to rank as the third-largest prescription seller in America last year, behind No. 2, CVS, when the final numbers come in. "How close is a supercenter going to get to everybody?" he said. "There is a difference between a chain drugstore which is close to you and a Wal-Mart Supercenter where you have to go to it. That's a big challenge for supercenters."
Craig Sher, president and chief executive of Sembler Co., the St. Petersburg developer responsible for hundreds of corner drugstores in Florida, thinks convenience will be key to ensuring that chain drugstores retain market share.
"Everyone takes a piece of the prescription business, but I still think the purchase of pharmacy and health and beauty is a convenience-type business," he said. "And nothing is more convenient than a corner drugstore with a drive-through."
Nor does Sher think drug chains have overdosed on development, even in Florida.
"Clearly, in America we love to overdo things," he said. "And the prospect of overbuilding is out there. But I'd say we're in balance now. And we're still growing in Florida on average by about 300,000 residents a year, so I think it merits increases in stores based on demographics."
- Times staff writer Mark Albright contributed to this report. Kris Hundley can be reached at hundley@sptimes.com or 727892-2996.