GIANT SEEKS SITES FOR NEW DRUG STORE CHAIN

JENNIFER OWENS

LANDOVER, Md. -- Giant Food here has become possibly the first supermarket chain to announce plans to open a new drug store chain, but both analysts and company officials say the business should bring the retailer few changes.

That's because even as the region's largest supermarket chain begins scouting sites for 10 to 20 new freestanding stores, company officials say the new Washington and Baltimore units will be served by an existing drug store division currently operating 134 pharmacies in 177 traditional 55,000-square-foot food stores.

"We feel this is a natural, local extension of what we're already doing," explained Russ Fair, Giant's vice president of pharmacy operations. What Giant is already doing includes operating three freestanding drug stores in Maryland and Virginia, all located across the street from existing Giant supermarkets. It also includes maintaining an advertising and merchandising staff under a separate logo for its pharmacies, both internal and freestanding.

"We already have the infrastructure in place, so it's just a matter of buying more products for our little stores," Fair said. "It's not anywhere near to starting something from scratch."

Fair said, however, that the new stores will prompt Giant to revisit its current drug store product lines to determine which may be broadened. He predicted that cosmetics will probably see the greatest growth. Still, it will take more than mascara for Giant Discount Drug to compete with the ubiquitous CVS Corp., Woonsocket, R.I., and Rite Aid Corp., Harrisburg, Pa., both with units found on nearly every Washington corner.

Together, the two chains control the metropolitan market, owning more than 50 units in the District of Columbia alone. Giant plans to open its new drug stores -- each ranging in size from 7,000 to 10,000 square feet -- during the next two years.

Fair said Giant isn't worried about competition, pointing out that the chain already knows its markets well and has high name recognition. Said Fair, "There's room for Giant pharmacies."

Some analysts agree, saying that while competition will be fierce, Giant has the capital and the management in place to be successful. "It's not like they don't know pharmacies," said Kurt Funderburg, an analyst with Ferris Baker Watts in Baltimore. "I think their big challenge will be a real estate challenge."

That's because Giant will have to find locations combining either high urban foot traffic or easy suburban parking with enough distance from existing Giant supermarket-pharmacy units not to compete, he said.

At Giant, Fair said the company is currently scouting such sites, on which it plans to build from the ground up. "Convenience is the competitive strategy that drug stores are using today," Fair said, adding that Giant will open its first new drug store "as soon as we find a location we like."

Analysts said those locations should help Giant regain some of the urban market it has seemingly bequeathed to supermarket competitors in recent years, most notably Safeway, as well as attract food dollars now going to drug stores. Said Funderburg, "Over the last 10 years, drug stores have started selling a lot more food products, so there's probably a little bit of a revenge factor there."