The American drugstore has long been a curious animal in the menagerie of the retailing scene.
Far more than just a pharmacy and purveyor of medicines and health-related items, the drugstore was an updated version of the general store, a cousin of the five-and-dime, a miniature version of old-fashioned department stores (minus the apparel) and a neighborhood convenience store before anyone thought of the concept. While much is made of contemporary drugstore chains selling food, that’s not an original idea; lots of drugstores once boasted sandwich counters and soda fountains. In the film-photography era, the drugstore counter was a common destination to drop off your roll of vacation shots for processing and printing.
The drugstore model has survived even as everyone else has encroached on its territory — discount department stores, groceries, warehouse clubs, online retailers — which seems only fair, since the drugstore has borrowed plenty from other retailing types. The model has changed — stores got larger, more suburban, more chain-owned — and developments this past week indicate it’s likely to change again.
Boise-based grocery conglomerate Albertsons announced it is merging with Rite Aid, creating a retailing behemoth with 4,900 locations and 4,350 pharmacy counters in 38 states. Getting an exact count of how many drugstores are involved is complicated; Rite Aid already has a deal to sell locations to Walgreen, some locations close to one another may be consolidated, and regulators may require divestiture of some stores to maintain competition in certain markets.
Albertsons is already an agglomeration of brands including its own, Safeway and — remember these guys? — Haggen. The Rite Aid deal — and just to add to the head-spinning nature of retailing upheaval, by virtue of the combination Albertsons will return to being a publicly traded company — adds another.
That’s in keeping with the pattern seen throughout retailing. Kroger lists more than two dozen brands on its website, including Northwest retailers Fred Meyer and QFC.
But why would Albertsons want to add locations in a line of business it already operates in, and one which a lot of very big companies are trying to hack their own market share out of?
Here’s one big reason, something you don’t see on the shelves.
Along with the retail locations, Rite Aid brings to the party what’s known as a pharmacy benefit management company — the people who manage the prescription-drug side of employer health-care insurance programs. Having that sort of affiliation should, in theory, drive more revenue to the overall retailing operation. Not only will customers come in to fill their prescriptions because that store is the recommended or preferred provider, while there they might also pick up a greeting card, some toothpaste, a brownie mix or whatever else catches their eye as they’re waiting.
The drugstore chains know they need to be proactive in adapting and changing, because the health-care system is changing and because of all the competition in the business. Walgreen tried building an online presence by buying Bellevue-based drugstore.com. CVS, the other major national chain, has a sizable benefits-management operation, as well as a pending deal to buy health insurer Aetna.
Drug stores have been getting back to their health-care roots by housing medical clinics in their stores, often in conjunction with local health-care institutions, as Rite Aid has done in Western Washington will MultiCare.
Allying with someone big — as Rite Aid tried to do in a full merger with Walgreen, as it’s doing now with Albertsons — to create something even bigger is yet another strategy, and that’s where to look for where the sector is heading.
Deals tend to beget deals. Acquirers figure they’d better keep up by doing a deal of their own. Those being acquired figure they need to find a partner lest they be left out and trampled by all the considerably larger participants. Walmart and Amazon have the resources and the demonstrated will to buy entry into or acquire market share in a line of business. And it needn’t be a retailer. Perhaps someone from outside the industry will decide to build a health-care company with a drugstore chain as a component.
That suggests the fate of regional chains like Bartell, and local independents, is a bit precarious. Regional chains have come and gone, as those who remember PayLess, Pay ‘n Save, Thrifty and Rexall will recall. But the regionals and locals are still out there. The National Community Pharmacists Association counts more than 22,000 independent community pharmacies, franchises and chains which, the trade group says, “dispense approximately 40 percent of the nation's retail prescription medicines.” They can continue to survive, but they, too, will have to figure out how they fit into the new realities of retailing and health care.
The corner drugstore might not be on a corner in your neighborhood these days. But the underlying concept has proven hardy, adaptable and popular enough to endure decades of change and competitive threats. If Albertsons et al still see value in the model, it might make it through the latest round of challenges as well.
Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at email@example.com.