Altoona’s hometown drug store bets bigger is better
ALTOONA, Pa. —Nestled in a quiet mountain range just 96 miles east of Pittsburgh and about 30 miles from Penn State, the new Kopp Drug store here is reflective of the small regional chain’s recent decision to get a little bigger—or at least go to market that way. Kopp Drug executives hope its new prototype, at almost 10,000 square feet, gives it a better chance to compete with the big national drug chains in town, which include CVS and Rite Aid.
Kopp Drug currently is in the process of finding new, higher-traffic locations for its stores. As it secures the new locations, it will slowly introduce the chain’s larger footprint store. Today, the average Kopp Drug store measures about 5,500 square feet.
When Drug Store News caught up with Kopp Drug executives earlier this summer, the chain was relocating four of its stores. Earlier this year, the company completed the first two of its planned relocations. The new stores also feature a drive-through pharmacy window. The plan is to complete the store in Bellwood, Pa., by the end of the year and to have the store in Holidaysburg, Pa., wrapped up in early 2008.
“Our growth plan at this point is to make the stores we have bigger and better,” said Steve DeCriscio, Kopp Drug’s chief financial officer.
As part of the makeover, Kopp Drug is dedicating a 150-foot section to durable medical equipment. The one-stop home health shop features an assortment of bath safety items and fashionable canes and walkers, but nothing that requires reimbursement under Medicare Part B. That’s a business Kopp has decided to leave to specialty home care centers because of the additional labor resources required to process Part B claims. “This seemed like a cleaner way to get into [DME],” explained Kopp Drug president Morley Cohn. “It’s a good way to get started.”
Kopp’s DME offering does include some big-ticket items, however, such as a recliner/lift chair with a price of $584.99.
In just the first four weeks since introducing the new cash-only DME set, sales were ramping better than expected, and customer feedback was positive, company executives told Drug Store News.
The chain also is using the extra room in the new prototype to highlight its beauty offerings. The new-look stores feature track-lit cosmetics gondolas in the center of the store. Another new addition: an end-cap from NYX Professional Make-Up, a line of value-priced cosmetics with a premium look and feel.
The stores also feature a gift boutique—Kopp Drug actually owns and operates three stand-alone gift boutiques, called Isabella’s, named after one of Kopp Drug president Morley Cohn’s two granddaughters—which sports a selection of locally inspired sports memorabilia and assorted knickknacks, including a large Yankee Candle display.
“When I get done with this, I’ll have two stores that are 10,000 square feet; two stores that are 7,000 square feet,” noted Cohn, who currently is looking at a building with 10,500 square feet of selling space in Bellwood, Pa., for a third store.
Currently, Kopp operates 10 stores and is projected to reach total sales of $38 million this year—about $32.5 million of that in pharmacy.
Kopp Drug represents one more example of how a small-town pharmacy operator can dominate pharmacy market share in a town amid big-chain competitors. For three consecutive years, Kopp Drug has been named the region’s favorite hometown pharmacy by the local newspaper, the Altoona Mirror, and boasts a 35 percent share of the $80.2 million pharmacy market, according to data from Chain Store Guide, a leading provider of retail intelligence.
Kopp Drug accentuates that hometown pharmacy feel with an outdoor advertising campaign that showcases the local pharmacist in that particular area. On average, Kopp Drug pharmacists have about 20 years working for the company.
Under Cohn’s direction, Kopp Drug currently is exploring a central fill program for its 10 drug stores, which all are within a 30-mile radius. Central fill would enable the chain to automatically process refills—having them ready at the store of the customer’s choice every 30 days. If executed on a large enough scale, that could help bring a greater degree of predictability in terms of inventory management, cutting down on the costs of standing inventory and the need for.
Grocer sings new tune in community involvement
Meijer is taking another step in community relations, to the tune of promoting and selling CDs of local musicians.
The Michigan-based 176-unit grocery chain launched the Outside the Mainstream promotion in February with a solo CD from Josh Davis, a singer from Lansing, Mich., whose Fool Rooster CD was recognized by Performing Songwriter magazine for its lyric.
Each month, the chain is featuring a new performer in its circulars, which are sent weekly to 7 million households in Ohio, Michigan, Illinois, Indiana and Kentucky, according to company vice president of public affairs Stacie Behler. Meijer purchases 1,000 of the artist’s CDs and offers them for sale in all the chain’s stores for $7.49.
“The goal of the program is to bring some of the talent that we find in our own backyards to a wider audience than they can normally reach by themselves,” Behler said. “And by supporting this with a low price and a feature in our circular, hopefully it will lead people to gamble on the purchase of music that is worthy of discovery.”
Meijer, according to Behler, is trying to create regional loyalty to its stores by promoting local talent.
CDs chosen for promotion, according to the chain, must have a UPC and be professionally duplicated. Submitted CDs are sorted according to state and chosen on the basis of whatever state will be featured that month and how different the music is from the previous month.
Featured in April is Michigan-based Potato Moon with its CD “The Life of The Lonely Jones.”
CVS wins Caremark battles
WOONSOCKET, R.I. —The battle for Caremark Rx has finally come to an end. And, to the dismay of Express Scripts, CVS has emerged the winner, creating a $75 billion pharmacy benefit management powerhouse that is likely to serve as a benchmark for additional mergers within the industry.
“CVS/Caremark will offer end-to-end services, from plan design to prescription fulfillment, as well as the opportunity to improve clinical outcomes, which will result in better control over health care costs for employers and plan providers,” stated Tom Ryan, president and chief executive officer of CVS/Caremark, late last month when the deal closed. “The company will improve the delivery of pharmacy services and health care decision-making, enabling consumers to benefit from unparalleled access, greater convenience and more choice.”
With the close of the transaction—ultimately valued at $27 billion—CVS/Caremark has moved into a strong, competitive position. The combined company will be No. 1 in pharmacy sales, PBM-managed lives, specialty pharmacy sales and retail-based health clinics. It will be No. 2 in mail services.
That adds up to a lot of extra leverage for the retail health care juggernaut with suppliers, as well as insurers and payers.
In terms of synergies, CVS expects to realize between $800 million to $1 billion in revenue synergies in 2008, and significantly more thereafter. The company expects about $500 million in cost savings, largely related to better purchasing.
“We would like to note that every deal that both CVS and Caremark have done historically has yielded synergies significantly in excess of original guidance,” stated Citigroup analyst Deborah Weinswig in a recent research note. “We believe this deal will be no exception.”
Charles Boorady, also of Citigroup, believes that if the company achieves cost savings from the drug-procurement process, it likely will come from a combination of the following: manufacturers accepting the lower price or offering greater rebates, the wholesalers and distributors accepting lower prices and manufacturers bypassing the wholesalers and selling directly to the combined CVS/Caremark entity.
While many industry observers view the merger as a boon for the companies, it undoubtedly will have major implications on the industry, in general, as vertical integration is a new paradigm that—if successful—could clear the way for more mergers moving forward, with Medco and Express Scripts likely being the next targets.
“The fragmentation in the past may be the reason why vertical integration did not work, but the sheer scale of the CVS/Caremark company may be able to make it work,” Boorady said. “The only test will be whether customers buy into the concept or the concerns over the perceived channel conflict will outweigh it.”
Either way, Boorady sees it as a win-win for rival PBMs. “I see Medco and Express Scripts winning either way. If this integration works, they are likely to be the ones that are acquired next. If it doesn’t work then they could stand to gain customers that prefer a standalone [PBM] instead of a vertically integrated model.”
Another issue such a deal brings to the forefront is network restriction. If customers are willing to restrict the retail pharmacy so that employees can get their prescriptions filled at a single chain, or just a few chains in the market, then it will make the synergy from a vertical integration more obvious, according to Boorady.
However, this has been a concern for several years and has yet to materialize.
“I think most employers have concluded, and will continue to conclude, that the sheer hassle factor that you are putting on your employees by making them go to a CVS instead of a Walgreens, or vice versa, isn’t really worth what little savings you can get relative to other things you can do that present less of a hassle to the employee but can save a lot more money,” Boorady said.
However, prior to the deal, CVS Pharmacare controlled a provider network of more than 56,000 retail pharmacies. Meanwhile, Caremark’s network numbered more than 60,000 retail pharmacies, so it is unlikely that the combined company, post-merger, would suddenly pull back the size of its network—particularly, if the end goal is to remain attractive to insurers and payers and competitive with stand-alone PBMs.
According to William Blair & Co. analyst Mark Miller, the combined company is facing its first big test as it expects an announcement on the large Federal Employee Program contract—currently up for negotiation—as early as May. Three years ago, Caremark won this contract from Medco and it is likely that the two PBMs, among others, will bid for this business aggressively.
“While there are many moving parts to these types of negotiations, this will be the first big test for the new CVS/Caremark, and may provide some incremental perspective on the current state of the competitive environment,” Miller stated in a research note.
In related news, CVS/Caremark has announced the members of the company’s board of directors. As previously disclosed, the 14-member board was evenly split among designees from CVS and Caremark.
Former Caremark chairman and chief executive officer Mac Crawford has been elected chairman of the board of the combined company. Ryan will continue to serve as president and chief executive officer.
The following individuals named to the board from CVS are:
Ryan, president and chief executive officer of CVS/Caremark Corp.
David W. Dorman, senior advisor and partner, Warburg Pincus LLC.
Marian L. Heard, president and chief executive officer, Oxen Hill Partners.
William H. Joyce, chairman and chief executive officer, Nalco Co.
Terrence Murray, former chairman and chief executive officer, FleetBoston Financial Corp.
Sheli Z. Rosenberg, former vice chairman, president and chief executive officer, Equity Group Investments LLC.
Richard J. Swift, former chairman, president and chief executive officer, Foster Wheeler Ltd.
The following individuals named to the board from Caremark are:
Mac Crawford, chairman of CVS/Caremark Corp.
Edwin M. Banks, founder, Washington Corner Capital Management LLC.
C. David Brown II, chairman, Broad and Cassel.
Kristen E. Gibney Williams, former executive of Caremark’s Prescription Benefits Management division.
Roger L. Headrick, managing general partner, HMCH Ventures; president and chief executive officer, ProtaTek International
Jean-Pierre Millon, former president and chief executive officer, PCS Health Systems
C.A. Lance Piccolo, chief executive officer of HealthPic Consultants