Walgreen Plans to Open 200 Stores in Southland

As part of an aggressive nationwide expansion plan, Walgreen Co. plans to open as many as 200 full-size pharmacy and retail stores in Southern California within the next 10 years, looking to take advantage, analysts say, of growing consumer demand for convenience and the changing competitive landscape in the region’s drugstore industry.

Southern California is already dominated by the likes of Sav-on and Rite Aid, which respectively operate 330 and 280 area stores. But retail watchers say Sav-on Drug’s aging stock of outlets and Rite Aid Corp.’s troubles absorbing the Thrifty Payless chain it purchased in 1996 give Walgreen a prime opportunity to steal market share.

Walgreen’s emergence as a competing player in the Southland’s drugstore market could have the effect of forcing down prices for prescription drugs, health aids and beauty products.

It could also cause some drugstore outlets to close as chains shutter underperforming stores and independents go out of businesses.

In addition, analyst Mark Husson of Merrill Lynch Global Securities said the pharmacy market is ripe for growth, with revenue expected to climb steadily an average of 11% a year.

Deerfield, Ill.-based Walgreen now has 42 regional outlets and none more than 5 years old, which analyst Derek Leckow said gives the company room to pick and choose markets while keeping its overhead low.

Leckow, an analyst with Chicago-based Barrington Research, added that the retail chain, considered the country’s sales leader, has been aggressive in designing more conveniently laid-out stores.

Walgreen spokeswoman Yvette Venable said the chain used Southern California as a proving ground for its roll-out of drive-through pharmacies when it launched its first outlet in the region in Anaheim five years ago.

All subsequently built local Walgreens offer drive-up service, and plans call for the feature to be included in all new outlets.

Eleven Sav-on stores offer drive-up pharmacy service, while only 10% of Rite Aid’s 3,800 outlets nationwide have the feature. The number in California is not available.

Camp Hill, Pa.-based Rite Aid had plans to launch its own expansion effort this year, looking to open as many as 500 new and relocated stores per year for the next three years. One hundred new stores were slated for the West Coast.

Since then, its quarterly earnings have dropped markedly, and last month the company sold 38 of its largest California stores to Longs Drug Stores Corp.

Rite Aid spokeswoman Sarah Datz said the retail chain is currently in discussions to sell off as many as 220 stores across the West.

In January, Walgreen, which operates 2,831 stores nationwide, announced its own expansion plan with a goal of hitting 3,000 stores by next year and doubling that number by 2010.

Currently, nearly all Walgreens in Southern California are small, pharmacy-only outlets of about 2,000 square feet, and Venable said they would eventually be replaced with newer, larger facilities on the order of 15,000 square feet.

In March, Walgreen opened its first full-size Southland store in Hemet, followed by a second outlet last month in Fontana. Plans call for three more stores to open in the Palm Springs area in November.

Venable said the company is focusing on the Inland Empire and Coachella Valley first because of the availability of large, commercially zoned lots in those areas.