CVS plans 50 drugstores in Baltimore market Rhode Island chain challenging Rite Aid

September 25, 1996|By M. William Salganik | M. William Salganik,SUN STAFF

The CVS pharmacy chain plans a major push into the Baltimore market, with a target of 50 stores in three to five years, company officials said yesterday.

CVS already has seven free-standing pharmacies and three mall locations in the Baltimore area, with three more under construction and another two planned for next year.

The company is looking primarily at free-standing stores, and almost all will have a drive-through, Fred McGrail, director of corporate communications, said in an interview.

He said the chain is not planning more units in malls in the Baltimore market, but is considering some downtown stores that would not have the drive-through feature.

"This is a growing, expanding chain, and Baltimore's a key market for them," said Jonathan H. Ziegler, an analyst with Salomon Bros.

The Woonsocket, R.I.-based company said it enters an area only if it can be first or second in market share.

"We're not going to put five stores here and six stores there just to say we've got something in Denver and we've got something in Kansas City," McGrail said.

As far as being first or second in the Baltimore market, he said, "We'd more than like to -- we plan to."

That won't be easy, however. Its market share in the Baltimore area is 6.8 percent, according to CVS officials.

With nearly 200 stores, CVS already has the largest market share in the Washington market, according to McGrail.

Rite Aid Corp., the nation's No. 1 chain in number of stores with about double CVS' 1,380 stores, is the market leader in the Baltimore region. And it isn't standing still, either.

In July, it opened a 15,000-square-foot store in the old Hecht's building on Howard Street downtown, the first of a planned group of larger stores with wider selections, designed to fill a void left as department stores moved to the suburbs.

CVS is the fifth largest pharmacy chain in the country, with sales of $4.9 billion last year. Of the 29 markets it serves, CVS says it is No. 1 in 21 and second in four others.

CVS is opening its first nine stores in Atlanta next week and has announced plans to compete in Greenville, S.C.

Ziegler, the Salomon Bros. analyst, said the company's strategy of trying to capture a leading position in each of its markets is sound.

In retail pharmacies, "density makes the difference," he said.

With many stores in a market, he explained, chains save on advertising and distribution costs, and convenient locations are important to customers.

McGrail said the company will seek to maintain a 42/58 ratio of sales between pharmacy and "front-of-the-store" retail operations. Profit margins are higher in the front, he said, but "the pharmacy is the heart of the store. It's what defines us."

If CVS can gain market share in the Baltimore region, Ziegler said, it will not necessarily come at Rite Aid's expense.

"I don't know that they'd be taking market share from each other as much as from the independents," he said.

In general, independent drugstores have been losing market share to chain drugstores, large retailers such as Wal-Mart, and supermarkets such as Giant Food, which is a major pharmacy player in the Baltimore-Washington market.

CVS is a unit of Melville Corp., which is undergoing a major restructuring.

"Melville is a holding company with a half-dozen businesses, but it hasn't taken them very long -- just this year -- to close, divest or sell everything except CVS," said Steven Bergman, director of ,, research for New York-based Spin Off Report.

Melville, based in Rye, N.Y., announced plans yesterday to complete the spinoff next month of Footstar Inc., which will take over Melville's operations of shoe chains, including Thom McAn, Footaction and Meldisco, which operates leased shoe departments in 2,200 Kmart stores.

Since its restructuring plans were announced a year ago, Melville has also shed Marshall's, Kay-Bee Toys, Wilsons and This End Up.

Bergman said the strategy makes sense in the current climate: "The new religion is deconglomerization." He said companies in multiple businesses, such as Melville, are breaking up or spinning off units.

Pub Date: 9/25/96

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