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Kings of the coasts make waves

BY Antoinette Alexander

NEW YORK —Duane Reade continues to master the metro New York City area and is further tightening its grip on the market through a new convenience store format, Diabetes Resource Centers and in-store health clinics—initiatives that are spelling solid front-end sales growth and greater customer convenience.

Industry observers have been keeping their eye on the 240-plus store chain as chairman, president and chief executive officer Rick Dreiling, who took the helm in November 2005, forges ahead with the company’s no-frills turnaround plan. The initiative, unveiled in March 2006, is all about returning to the fundamentals of the business, and the results are paying off. This is especially true for the front end where the company has achieved its fourth quarterly record front-end same-store sales increase in the last six quarters. For its latest quarter ended Sept. 29, front-end same-store sales rose a record 9.9 percent.

Like many in the industry, Duane Reade executives know, however, not to rest on their laurels amid heightened competition and industrywide pharmacy pressure. For the year-to-date, Duane Reade noted that there were 11 competitor openings, but did not discuss additional details.

As reported in the Top 10 Markets special report in the June 25 issue of Drug Store News, Chain Store Guide, a leading provider of retail research intelligence, found that CVS, Rite Aid and Duane Reade are the top three chains in the New York/Northern New Jersey/Long Island market. This market, according to CSG, generates nearly $8.5 billion in pharmacy sales and more than $3.8 billion in front-end sales—the most out of the top 10 markets examined in the June report.

Contributing to Duane Reade’s success is not only its back-to-basics approach and an understanding of the New York real estate market, but also its understanding of the needs of New Yorkers. This need can largely be summed up in one word: convenience.

“For several quarters now our front-end offerings remain the primary driver of our business. Our goal continues to be to fully optimize the front end’s contribution,” Dreiling told analysts during its third-quarter conference call in November. “To that end, we are purposely leaning our stores more and more toward convenience.”

The approach to optimizing its convenience offering, according to Dreiling, is twofold: First, it will continue to focus on the basic fundamentals of retailing, which include improving customer service, focusing on faster introductions of new items and improving its in-stock position, especially for higher-turning items. Second, it continues to expand and refine its mix to better meet the needs of customers.

Duane Reade now is taking convenience to a new level with a new convenience store format that opened its doors in Manhattan in November.

The retailer is testing the new concept, dubbed Duane Reade Express, at 52nd Street and Broadway.

The 3,000-square-foot store consists of a condensed store format specifically designed to meet the front-end convenience needs of shoppers. It carries a limited assortment of its most frequently purchased items in convenience, general merchandise and health and beauty.

The new concept does not have a pharmacy, but it has a kiosk enabling shoppers to request prescriptions they can pick up at a nearby Duane Reade or have delivered to their home or office.

“We are excited about this test concept and believe it will provide an improved level of convenience, and will be a natural complement to our larger, full-service stores,” Dreiling told analysts.

In addition, Duane Reade expects to open three additional DR Walk-in Medical Care clinics by the end of the year. Through its partnership with Consumer Health Services, Duane Reade has, as of press time, four such physician-staffed clinics in operation.

Recently, the company expanded the service offering at its Diabetes Resource Center, a training and educational facility that debuted in Manhattan earlier this year, to include monthly support groups and additional class schedules. And now, the retailer has opened the doors to its second center in Brooklyn. Brooklyn is an important market for the center as the borough is Duane Reade’s second-highest in terms of the total number of people with diabetes served at its pharmacies. In addition to diabetes, the new center also addresses obesity and hypertension.

Meanwhile, the retailer continues to see improvements in pharmacy amid the ongoing downward pressure of prices and margins on branded and generic drugs that is sweeping throughout the industry. According to Dreiling, pharmacy—perhaps more than ever—depends on generating additional volume to offset such pressures.

“The leading indicator of our success in pharmacy is the continued growth of same-store scripts, which has had positive increases for the past four quarters,” Dreiling said. “Our same-store script growth has been driven by increases in the prescription business of our current customers, as well as the number of prescriptions transferred into Duane Reade versus the number of those transferred out.”

For the most recent quarter, Duane Reade posted pharmacy same-store sales growth of 5.3 percent.

These efforts are amid the retailer’s decision to strengthen its merchandising, store operations, human resources and real estate departments, and enhance internal control by bringing on board a chief compliance officer and director of financial reporting. It also is planning to hire a director of internal audit. The retailer also has implemented initiatives to reduce shrink, including the retraining of store managers, intensifying security in high-loss locations and protecting high-shrink merchandise through enhanced displays that limit exposure.

Also catching the eye of industry analysts is the company’s PBM business, dubbed Performance Script Network. In late 2005, Duane Reade announced that it had teamed up with pharmacy benefit administrator HealthTrans to co-market pharmacy benefit services to employer groups and unions in the New York metro market—a move that would help the regional player battle mandatory mail order and bolster pharmacy sales and profits. The PBM’s coverage has grown to nearly 100,000 lives.

Looking ahead, the retailer expects its full year total same-store sales increase to range between 7.5 percent and 8 percent given the success of its turnaround plan, as well as solid growth in same-store sales for the first three quarters of 2007. Full year front-end and pharmacy same-store sales growth are expected to range between 8.5 percent and 9 percent, and 6 percent and 6.5 percent, respectively.

“As I look back on the last seven quarters of our turnaround, I can say that we are truly pleased with our progress,” Dreiling said. “However, while pleased, we acknowledge that there is still much work to be done and many opportunities yet to conquer.”

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Stick Me Designs adds style to glucose meter bags

BY Michael Johnsen

VIRGINIA BEACH, Va. Stick Me Designs, an emerging accessory designer of diabetes glucose carrying cases for women, teens and children, announced the launch of their glucose meter bag collection Friday.

“While the medical supply industry is busy working on adding color, convenience and function to their meters, they’ve forgotten the most important aspect of their portability—the carrying case,” stated Rickina Velte, founder of Stick Me Designs. “We’ve taken on the task of infusing design, style and function that adds personality to an everyday necessity for people with diabetes.”

The new diabetes bags offer choices in color, fabrics, design and functionality.

The first collection features four contemporary designs created for the One Touch Ultra glucose meter and other more traditional larger-style testing meters. The bags have elastic placeholders for lancet devices, testing strips and glucose tabs or candy. They also feature interior open and zippered pockets for such everyday essentials as credit cards, identification, money, sanitizing wipes and an outside zipper pocket for other essentials.

Stick Me Designs’ introductory collection also features hand-selected faux suedes, designer upholsteries and cotton fabrics in retro and contemporary styles and colors.

Suggested retail prices will range from $32.99 to $45.99, the company reported.

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Continucare opens first clinic at Navarro

BY Antoinette Alexander

MIAMI Continucare Corp. has announced the opening of its first ValuClinic in-store health clinic within a Navarro Discount Pharmacy in Hollywood, Fla.

Similar to many other retail-based clinic models, the walk-in clinic will treat acute conditions and will be staffed by nurse practitioners and physician assistants.

According to Gabe Navarro, chief executive officer of the Miami-based pharmacy chain, Continucare was on the verge of opening a few locations in the recently acquired Sedano’s stores, so Navarro proceeded with the openings.

In October, it was announced that Navarro Discount Pharmacy would merge its operations with Sedano’s Pharmacy & Discount Store. Sedano’s is a Hispanic drug retail company with 11 pharmacies in the southern Florida market. Combined, the entity has more than 30 stores with annual revenues of more than $350 million. All of the stores are operating under the Navarro banner in the southern Florida market.

According to Navarro, plans call for Continucare to have three ValuClinics open in Navarro stores by the end of the year. It expects to have a total of 15 clinics in operation in 2008.

In late 2006 it was announced that Navarro had partnered with Express Clinics to introduce in-store health clinics to the southern Florida market; however, it is possible that partnership will come to an end.

“It is uncertain whether Express Clinics will continue to operate clinics in our stores,” Navarro told Drug Store News. “[We] should know more in the coming weeks.”

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