CVS Sees Service as Prescription for Success

Perhaps it’s nothing a little Valium couldn’t cure.

As drugstore giant CVS Corp. looks to reenter the Southern California market, harried shoppers have delivered an unmistakable message: Have our prescriptions ready on time -- and don’t make us wait in long lines to get them.

In one focus group after another, “what we heard a lot is how time-starved” Southern California shoppers are, said Helena Foulkes, senior vice president of merchandise and marketing for CVS, which exited the Golden State 12 years ago and this month plans to open the first of 25 stores in the region.

“There’s not really another market where we heard that in such a loud and clear way,” Foulkes added.

As a result, the Woonsocket, R.I.-based retailer will offer some 24-hour locations here and others that open early enough so that people can pick up their prescriptions and other items on the way to work in the morning.

CVS’ strategy is hardly unique. What the retailer learned in its focus group sessions, other major drugstore companies have already figured out: Convenience sells in Southern California, the nation’s third-largest market for drugstore sales, as measured by trade publication Chain Drug Review.

And that doesn’t just mean long hours of operation. With products ranging from Viagra and vitamins to milk and mascara, drugstores are remaking themselves to be as customer-friendly as possible. Some even have drive-up windows.

“Almost everything you can get in a 7-Eleven, you can get in a drugstore,” said Marshal Cohen, chief industry analyst for NPD Group, a market research firm. “Other than a Slurpee.”

To be sure, prescription drugs are still the industry’s biggest seller, accounting for 64% of $164 billion in total revenue last year, according to the National Assn. of Chain Drug Stores.

Yet non-drug sales are becoming increasingly important. So-called consumables -- things to eat and drink -- are now the industry’s fastest-growing category, the association said.

Sav-on, owned by Boise, Idaho-based Albertsons Inc., is one of many drugstore chains expanding their consumables. Sav-on now has “food marts” in 30 of its nearly 300 Southern California stores, where customers can grab a sack of potatoes and a pound of hamburger along with their monthly medication refills.

For its part, CVS last year began offering European cosmetics brands such as Vichy and Lumene along with an in-store beauty advisor. Meanwhile, the company is adding more products in Southern California to appeal to Latino consumers, including brands such as La Bella and Vitacilina.

Even independent drug retailers are trying to carve their own niches. Laguna Drug opened in Laguna Beach in April, selling home decor items and custom printing. The store employs full-time “designers” who will make house calls to show people how to set the table or decorate for a special event, said manager Brenda Laninovich.

Such lines of attack are necessary in an industry whose core business -- the pharmacy -- has become a standard feature at supermarkets, warehouse clubs and discounters such as Wal-Mart Stores Inc.

“There are so many more choices where customers can get the products and services they need,” said Karen Ramos, Sav-on’s director of public affairs.

Drugstore operators will also face other challenges in the coming years as the industry grapples with changes in Medicare reimbursement rates on name-brand drugs.

Still, these are sweet times for drugstore companies as aging baby boomers help boost demand for such expensive blockbuster drugs as antidepressant Paxil and cholesterol-lowering Lipitor. Also popular are a mushrooming array of “lifestyle” drugs, such as anti-balding tonic Rogaine and sexual potency medications Cialis and Viagra.

Such purchases have made drugstores one of the best- performing sectors in retailing, with sales rising 36% during the last five years.

Southern California -- home to more than 900 chain-operated drugstores -- is particularly fertile ground.

CVS’ reentry to the area comes as industry leader Walgreen Co. is stepping up its push into Southern California. (CVS will soon eclipse Walgreen as the largest drugstore chain nationwide, with more than 5,000 locations, when it completes its purchase of the Eckerd chain this month from J.C. Penney Corp.)

After initially focusing on the Bay Area, Walgreen plans to raise its store count in Southern California this year to 150 from 130. The Deerfield, Ill., company then hopes to open 30 additional outlets here annually “for the foreseeable future,” spokeswoman Laurie Meyer said.

To support its expansion, Walgreen this spring opened a 685,000-square-foot distribution center in Moreno Valley in Riverside County.

CVS and Walgreen will be squaring off against Rite Aid Corp., which has about 450 stores in the region, and Sav-on -- the two biggest players here.

As the drugstore war builds, the smallest of the chains, Walnut Creek, Calif.-based Longs Drug Stores Corp., has been streamlining operations, upgrading technology and remodeling locations. It’s midway through a revamping of its business that will cost $50 million to $60 million over a four-year period, a spokeswoman said.

CVS was well aware of the intense competition as it considered its return to California. Still, the company decided that the exploding population of the Southland, in particular, would make for more than enough business to go around.

Indeed, some areas of Southern California are so densely populated that a company could plant more than 15 drugstores within a 50-mile radius and not cannibalize sales from other locations, said Tom Goetzinger, an analyst with Morningstar.

CVS declined to say whether such an extensive expansion was part of its long-range plans, or even where all its new stores would be located. But spokesman Mike DeAngelis made this much clear: Southern California is ripe with possibilities.

“We see a lot of opportunity in these markets to grow and be successful,” he said.