ECKERD SOLD, CVS NOW TOP DRUG CHAIN 2004-04-19 (2)

LIZA CASABONA / Additional reporting by Dan Alaimo

WOONSOCKET, R.I. -- CVS Corp. here moved into the top drug store spot with the acquisition of 1,260 Eckerd stores from JCPenney, Plano, Texas, this month. The remaining Eckerd stores were acquired by Jean Coutu Group, Longeuil, Quebec, which operates Brooks drug stores.

With such a major drug store transaction, other retailers -- notably supermarkets -- began watching for opportunities to pick up customers, sources told SN.

CVS also acquired three distribution centers and the Eckerd Health Services mail-order pharmacy business from JCPenney. The sale makes CVS the leading U.S. pharmacy retailer with over 5,000 locations in 36 states, and nearly doubles the size of its PharmaCare mail-order subsidiary.

Stores included in the deal are located primarily in Florida and Texas, as well as in Louisiana, Oklahoma, Mississippi, Arizona, Missouri, Kansas and Alabama. Jean Coutu, which operates 330 Brooks drug stores in the Northeastern United States, as well as the third-largest drug chain in Canada, greatly increased its size by acquiring the remaining 1,540 Eckerd stores in the Northeast and mid-Atlantic regions.

As the transactions moved forward, supermarket executives' radar went up for the possibility of gaining business as a result of the changes, said retailers and industry observers. The precise impact on supermarkets remains to be seen because it depends on such factors as store closures, banner changes, and consumer perception of the new owners.

"If the name on the outside of the pharmacy changes, there will be some people who will decide to look for another pharmacy," said a pharmacy executive with a mid-Atlantic chain who requested anonymity. "Perhaps a bad experience at one of these companies' other stores may have soured a person on shopping at that store. It's amazing to me what some people will change stores over."

There is opportunity for supermarkets in the Eckerd sale, said Jon Hauptman, vice president, Willard Bishop Consulting, Barrington, Ill. Relationships with pharmacists, insurance concerns and other factors tie consumer loyalty to pharmacies, even though switching is not very difficult. The process overwhelms many consumers unless something triggers a second look at that relationship, he said.

"When a pharmacy switches ownership, that gives many consumers time to look into other alternatives with which they might be more familiar. Supermarkets would be at the top of that list," Hauptman said.

Retailers are waiting to see what strategies are put in place that might eventually change the retail landscape, but they said they are poised to take advantage of openings that may occur.

"The impact is going to depend on where the overlap is between Eckerd and CVS. Wherever they close one of their stores, there's an opportunity for us," said a pharmacy executive in the Washington, D.C., market who wished to remain anonymous. Asked if CVS would be a stronger competitor than Eckerd, which many observers said has underperformed recently, the executive said, "No, and that's a strong no." He declined to elaborate.

Some retailers said the sale will raise the same issues as any change in the competitive landscape.

"I think it is going to be a non-event for us," said John Fegan, senior vice president, pharmacy, Ahold USA, Quincy, Mass. "Although should we pick up any inkling that people are a little bit concerned about what is going on in their stores, we are prepared to remind them that we are here."

The sale will add to the competitive intensity in the retail marketplace, said Roy White, vice president, education, General Merchandise Distributors Council Education Foundation, New York. The strategic vision that Brooks and CVS apply to the stores they have acquired will be crucial in refocusing the Eckerd units, White added.