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IRI poll shows customers seek value, affordability as economy struggles

BY Michael Johnsen

CHICAGO —Although a weakened economy may bode well for sales of over-the-counter medicines as consumers seek cheaper health-care options in the self-care arena, there will be significant purchasing trend shifts in the marketplace, according to a recent poll of some 1,000 consumers conducted by Information Resources Inc.

“This is an unprecedented economic environment,” Thom Blischok, president of consulting and innovation for Information Resources Inc., shared with Drug Store News following his presentation before the Healthy Foods International Exposition and Conference last month. “[Consumer Price Index] year-to-date is about 3.9 percent and will probably [climb] to the 5 percent to 6 percent range this year. Gas is up 18 percent; energy is up 12 percent. Consumer confidence is at an all-time low at 63 percent.…And commodity costs—wheat is up 64 percent, corn is up 38 percent, soy is up 48 percent, diesel is up 32 percent and packaging is up 21 percent,” he said. “The incomes people have don’t cover these cost increases, so they’re struggling with what to do.”

Consumers who entered January 2008 making $55,000 would have to figure a way to accumulate another $15,000 over the course of the year if they just wanted to maintain their standard of living, Blischok noted.

Accordingly, consumers are adjusting their channel preferences. By the end of 2007, consumers would shop across some five “primary” retailers based on a complex decision matrix of proximity, convenience, value, selection, etc. That should expand to some eight retailers before 2010, Blischok predicted.

The channel shifts include a planned trip to the super-center at the beginning of the month where consumers buy larger bulk items, but fewer of them, and toward the drug channel for end-of-the-month fill-in trips where they buy a few items that will fulfill their immediate needs. “That suggests that drug stores are picking up a slightly greater share of the traditional one-to-five-items convenience trips,” Blischok said.

“Because of these issues of economic pressures on the family budget, there is a movement toward self-care at home,” he added, with sales increases of first-aid kits, as well as analgesics, vitamins and sleep aids. “The drug stores, because of their pharmacies, will be better positioned to navigate this perfect storm [of economic pressures] because they’ll continue to provide the core health needs of the consumer,” he said, while at the same time picking up those just-before-pay-day fill-in trips.

That’s creating potential purchasing shifts, such as a move toward multi-symptom solutions versus single-symptom solutions because moms will be looking to buy a cough-cold product that’ll take care of her son’s sniffles today and her husband’s cold-related sinus pain tomorrow. “We haven’t seen that yet [replicated in the data],” Blischok said, “but the consumer is very smart and … will do everything they can to find ways to stretch that dollar.” In addition to doing their best to consolidate their healthcare purchases, people also are clipping more coupons or taking advantage of the buy-one-get-one offers.

That creates opportunities across all players in the OTC aisles, Blischok said. Part of the impact realized by a tougher economic climate is that consumers are making more of their purchasing decisions on their kitchen tables, as they’re putting together their shopping lists and ascertaining exactly what they can afford. That means suppliers and retailers may have less of an opportunity to communicate the value of their product on the shelf and more of an opportunity to communicate that value through the media. “The concept of ‘Let me tell you about my product,’ will probably fall on some deaf ears,” Blischok said. “The way that people are shopping today suggests to me that [they’re] looking for some great bargains.” That means it doesn’t matter whether the product is coming from a national supplier, the retailer’s store brand or a second- or third-tier manufacturer so long as the consumer gets that affordability message.

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CVS Caremark to expand headquarters, add positions

BY Antoinette Alexander

WOONSOCKET, R.I. CVS Caremark has announced expansion plans for its headquarters over the next two years, a move that will help support the company’s continued growth and current hiring expectations of more than 200 new positions on its corporate campus.

The nature of the new jobs was not disclosed. In Rhode Island, the company currently employs 5,800 associates.

The plans are to build two new 150,000-square-foot office facilities in the Highland Corporate Park in Cumberland, R.I. The company has been based in Highland Corporate Park, which is jointly located in Cumberland and Woonsocket, since 1982. The company significantly expanded its customer support center facilities in 1988 and again in 2000.

“Our company was founded in Rhode Island more than 40 years ago and we feel fortunate to be able to continually reinvest in our home state,” stated Tom Ryan, chairman, president and chief executive officer. “As the largest company in Rhode Island we are looking to further expand our base of operations to support our continued growth and, as a result, increase our workforce over the next few years.”

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A&P announces fiscal Q1 improvements

BY Antoinette Alexander

MONTVALE, N.J. A&P, which operates 446 stores under such banners as A&P, Pathmark and Waldbaum’s, announced on Friday improved results for the first quarter as it nears the completion of the Pathmark integration.

“The first quarter of 2008 clearly demonstrates our continuing progression in operating improvement with the achievement of our fourth straight quarter of comparable store sales of over 3 percent,” stated Eric Claus, president and chief executive officer. “Further, Pathmark is already achieving positive results with comparable store sales climbing above 3 percent for the first time in many years. The company is also well underway with the completion of the Pathmark integration, as many of the planned milestones have been achieved. As of the end of the first quarter, our annualized run-rate of synergies is approximately $100 million.”

Sales for the quarter totaled $2.9 billion compared with $1.7 billion in the year-ago period. Same-store sales rose 3.2 percent, which excludes sales for Pathmark stores acquired in December 2007. Same-store sales for Pathmark, measured during the same period, rose 3.1 percent.

Net income from continuing operations was $3.8 million, with a net loss per diluted share of 48 cents after adjusting for non-operating income related to fair value adjustments. This compares with income of $61.4 million, or $1.45 per diluted share, in the year-ago period.

The company did not break out pharmacy sales results.

As previously reported by Drug Store News, the company announced during the quarter an integral step in its transformation—the conversion of the majority of SuperFresh stores in the Philadelphia market to the recently premiered Price Impact format under the Pathmark Sav-A-Center banner and a number of SuperFresh locations retaining the Fresh format with significant upgrades.

Also during the quarter, the supermarket chain completed the remodel of A&P Fresh in Holmdel, N.J., to the updated Fresh format and began remodeling additional stores. The company also premiered its Price Impact format in the Irvington and Edison Pathmark stores.

“The remainder of fiscal 2008 will be focused on progressing the company further toward operating profitability by: moving forward our operating and aggressive merchandising strategies; maintaining cost control and reduction disciplines throughout the business. Integral to our drive to profitability is the continued and ongoing execution of capital improvement projects all geared for maximum return, and particularly weighted to value propositions,” stated Claus.

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