Bartell joins 2 other regional chains in succumbing to changing landscape of business
More than a decade ago, writing in another venue, this columnist profiled three regionally based locally owned retailing chains and discussed with their executives how those companies had managed to remain independent in the face of competition from much larger entities and a continuing trend toward consolidation.
Those companies were the Bellingham grocery chain Haggen Food; the Renton-based hardware retailer McLendon; and the Seattle-based drugstore Bartell.
The three went their separate strategic ways. Readers will remember the Haggen saga of the fast, ambitious, private-equity-backed expansion to increase the number of stores nearly ten-fold and to expand its operating territory to California and other states, followed quickly by the sudden and even more dramatic collapse, followed by a Chapter 11 filing and eventual sale of the remnants to Albertson. It’s still operating, although not as an independent.
McLendon, meanwhile, was acquired in 2017 by Central Network Retail Group, an operator of 90 stores in 11 states. McLendon continues to operate under that name with seven stores.
Now the last of the trio is about to surrender its independence.
In a deal announced last week, Bartell (with 67 stores in three Western Washington counties) is to be acquired by retailing giant Rite Aid (2,400 stores in 18 states) for $95 million.
The big question about this deal is not so much “why?” or even “why now?” but “how did it take this long for the inevitable to happen?”
“Over the past few years, it has become increasingly difficult for a mid-sized drugstore chain to operate independently,” Bartell executives said in a letter to customers. “Changes in the pharmacy world, business tax increases and the pandemic created very strong headwinds for us. We knew we needed to do something to re-shape Bartell’s future.”
Asked if COVID-19 was the prime motivator in the decision, or whether a deal would have been done eventually whether there was a pandemic or not, chairman George Bartell said, “The answer to your question is not either/or but ‘yes’ to both.”
Bricks-and-mortar retailing was in serious trouble long before COVID-19 showed up, and in the drugstore subsector things were even worse. The three big national chains — Rite Aid, Walgreen and CVS — had to fight it out not only with each other and with small regional chains like Bartell, but with even bigger retail operations like Costco and Walmart. Whatever advantages Rite Aid might claim from its size in purchasing power or marketing leverage, those bigger companies had an even stronger case to make.
Then, as with everyone else in retailing, there was Amazon, which had already carved significant slices of the drugstores’ business even before the pandemic made home delivery not just an interesting option but a necessity. COVID-19 has left the traditional drugstores with a lot of expensive and underperforming real estate, and with the even more expensive prospect of having to match Amazon in delivery (a service which, by the way, most haven’t been able to operate on a consistently profitable basis).
Those challenges are compounded for operations of the size of Bartell, which makes it unsurprising that both it and Rite Aid went looking for partners. Rite Aid, in fact, has just come off its own recent effort at consolidation, having attempted a combination with Walgreen in 2017.
Whether a Rite Aid-Bartell combination delivers what each needs to survive financially will depend on how and how well that merging is executed, and what remains afterward. A badly run takeover, or one in which a heavy-handed acquirer comes in and wipes out everything that people like about the acquiree, can drive away loyal customers.
Haggen had a good reputation as a small regional grocery chain before the disastrous foray into frenzied expansion. We’ll leave it to longtime shoppers to describe whether the current Haggen measures up to the former.
McLendon Hardware, too, had a strong reputation for selection and service. That the company has been through an ownership change would be hard to discern, at least at the point it counts most, on the customer sales floor, but again that’s an evaluation customers themselves will render.
As for Bartell, executives are promising that the acquisition won’t hurt the local company.
“We expect you, as well as our 1,700 employees, to see little or no change in our 67 stores for some time to come,” Bartell executives reassured customers.
We’ll see. Just from the aspect of physical locations, some changes are likely. When McLendon was acquired, the closest store operated by its new owner was in Portland. Bartell and Rite Aid, by contrast, have stores in some instances right across the street from one another. That’s not likely to stand even if Rite Aid sticks to its pledge to maintain the separate Bartell brand and operating philosophy. The drugstore sector is already overpopulated, and operating a lot of physical stores isn’t considered an asset at a time when many shoppers are limiting their visits to them.
It might turn out that the whole notion of local ownership and orientation (which Bartell emphasized) mattering to customers is overblown anyway. Consumers say they like local, but that’s not often how they shop, as the boxes from Amazon Prime pile up on the doorstep.
The drugstore of a decade from now could well look significantly different from the drugstore today, never mind 10 years ago. Chains like Bartell have themselves been pushing the transformation by installing mini clinics to dispense basic medical services.
Pressure to evolve will continue to come from outside, in the form of Amazon and Walmart and everyone else looking to claim market share. The owners of Bartell, as with ownership of so many other small, local, independent companies, took a look at those trends and pressures, evaluated whether they had the resources to resist, keep up or get ahead of them, and made their decision.
This story was originally published October 10, 2020 at 7:00 AM.