ALBERTSON'S TO CLOSE 17 PHARMACIES

RAMONA G. FLOOD

SACRAMENTO, Calif. -- Albertson's will close all 17 in-store pharmacies in its 43-store Northern California division here.

The Boise, Idaho-based company cited intense competition in a very large market as the reason behind the closures.

The division began closing down its prescription drug operation this week and plans to sell both its inventory and prescription files in an open bid process.

Michael Read, director of public relations and government affairs for the chain, said that "with only 17 pharmacies, we didn't have a sufficient concentration of buying power to break into the third party contract market. We were not able to participate in HMO prescription plans and that inhibited our growth."

Read didn't comment on reports from industry observers that Albertson's also is considering closing its 35 pharmacies in Southern California. He said that the chain operates 453 pharmacies nationwide and has two major distribution warehouses to service them. "We are still a major factor in supermarket pharmacies. Albertson's is not getting out of the pharmaceutical business by any stretch of the imagination," he said. Read explained that the decision to close pharmacies in the northern California division was "purely and simply an economic decision." Read added that Albertson's has been putting pharmacies in most of its new stores in other divisions, and is building between 55 to 60 new stores a year.

Albertson's plans to re-merchandise the existing space from the closed pharmacies to accommodate more profitable categories, with the possible expansion of health and beauty care, said Read.

Analysts agreed that the move by Albertson's is isolated and not indicative of a turnaround in what has been a solid growth industry for supermarkets. Supermarket pharmacies are growing at a rate of 300 stores per year, according to SN's State of the Industry Report on Supermarket Pharmacy.

"Overall, pharmacies in supermarkets continue to be healthy," said Debra Levin, an analyst with Morgan Stanley, New York. "Albertson's has been very focused on pharmacies. They view them as a key in their operation. But lack of third-party plans would be crucial to their economic health. Third-party plans are increasingly the larger part of a pharmacy's business, and without market domination, it makes it very difficult to generate meaningful sales," she added.

According to Gary Giblen, an analyst with Smith Barney, New York, "Albertson's has had soft sales recently, especially in the competitive region of northern California. They've had to look very hard to find out how they could cut expenses and improve profits."

Giblen said pharmacy is a good place to look if you need to cut costs. He cited high fixed costs in maintaining a pharmacy operation; employing pharmacists, maintaining costly inventories, and the technology involved in tracking insurance and prescriptions.

Albertson's is the fourth largest food and drug retailer in the country, with annual sales of $11.9 billion. The company operates 720 stores in 19 Western, Midwestern and Southern states.