CVS, RITE AID FACE OFF
Byline: Faye Brookman
NEW YORK — With the rampant consolidation in the chain drugstore business, four chains — Walgreens, CVS, Rite Aid and Eckerd — now control more than half the sales volume in the entire drug industry.
Walgreens sits alone at the top of the sales ranking with annual sales exceeding $13 billion. The chain has flourished via internal growth — without acquisitions.
CVS and Rite Aid, the next two largest drug retailers, have mushroomed thanks to aggressive acquisitions. And, as these chains scoop up regional players, they are starting to lock horns in more and more markets such as New York, Philadelphia and Atlanta. For beauty manufacturers, getting into one or both is paramount for survival.
Since Rite Aid and CVS are on the road to becoming national powers — and competing in the same markets — the two chains are being compared and contrasted, especially in regard to beauty.
Both chains have fresh looks in cosmetics, and both are being singled out by manufacturers as willing to try new merchandising concepts. Also, the two chains are often battling each other for prime acquisitions. When Rite Aid’s deal for Revco fell apart two years ago because of FTC anti-trust rules, it was CVS that snapped up Revco. Many industry observers believe the two chains will volley for the remaining regionals left in the drugstore universe.
CVS nudged past Rite Aid in sales with the addition of Revco last year. CVS reported 1997 sales of $12.7 billion. CVS also added Arbor Drug earlier this year, bringing its store count to more than 4,100 units. A major part of CVS’s advertising campaigns, especially in markets where it assumed Revco stores, is to introduce shoppers to its large beauty assortments.
In select stores, CVS has added a more upscale beauty ambience, complete with counters and beauty consultants. CVS was one of the first drug chains to start, in select stores, to sell Ultima II. In other stores, CVS has been making a concerted effort to cross-merchandise beauty throughout the store. For example, signs in greeting cards encourage shoppers to visit fragrances. CVS is using several Arbor stores as experiments to learn more about nonpharmacy departments. Arbor was known for its expertise in the front-end of the store, especially cosmetics. “We feel we can learn a great deal from Arbor,” said Tom Ryan, chairman and president of CVS.
In nonservice stores, CVS has implemented a case for fragrances with a bell to summon help. The chain was one of the first to jump onto the trend toward body sprays last year. It has a special display created by Fragrance Impressions to house the several brands of sprays it carries including Body Kisses from Revlon, Fragrance Refreshers from Fragrance Impressions and Parfums de Coeur’s Body Fantasies.
The chain has been very aggressive in trying to boost productivity of beauty. Some manufacturers lament that CVS is implementing a pay-on-scan plan, especially in fragrances. By doing so, the manufacturer is virtually accepting a consignment format where it is paid only once the item is sold. Still, being in CVS is a major boost to any beauty supplier.
CVS is concentrating its growth in markets such as Detroit and Manhattan. Manhattan is a perfect example of where CVS and Rite Aid go head to head. In many areas in Manhattan, it is not uncommon to see a Rite Aid and CVS only blocks apart from each other. In the Chelsea section of the city, a Rite Aid sits on the south side of 23rd Street, a CVS on the north side. CVS plans to open 200 stores in New York City within three years with 75 of those in Manhattan.
Rite Aid likes the Big Apple as well. New York, Pennsylvania, Michigan and Ohio will be major growth markets for Rite Aid in 1998. Rite Aid is the third-largest drug retailer with annual sales of $11.4 billion, and is attempting to build its operation into a brand.
With that has come a whole new store look with cosmetics and beauty aids as a focus, said Beth Kaplan, executive vice president of marketing. During the last year, Rite Aid opened 412 stores in its new prototype design, including a number of those it purchased two years ago on the West Coast from Thrifty PayLess.
Kaplan said the new look drives sales gains. “We’ve accelerated front-end sales by getting higher transactions,” said Kaplan. Stores that were producing $3 million a year are up above $3.5 million. The new store is divided into boutiques such as beauty, photo, food, OTC and pharmacy. The beauty presentation merges hair care, skin care, hair accessories and bath and body.
To promote the new store, Rite Aid has a campaign that touts its stores as a solution to everyday problems. A woman who has forgotten her lipstick, for example, pops into Rite Aid and is pleasantly surprised with the selection. Further ads reinforce the guaranteed money-back promotion for those who don’t like a color once they’ve gotten it home.
Rite Aid has been effective at segmenting its stores for each trade area’s demographics. Donna Italiano, spokeswoman for Black Opal, said the chain has singled out 44 super ethnic stores, for example, where it has a large display of Black Opal. The chain has also participated in Black Opal events where makeup experts come into stores to demonstrate the products. Rite Aid uses its own special graphics to call attention to the ethnic offerings.
Teenagers are also a more important customer base than ever for Rite Aid. “Rite Aid has been very interested in putting in our Fetish line,” said Sean Greene, president of the sales division of Renaissance Cosmetics, Inc. Rite Aid has instituted using end-of-aisle displays in most of its stores to tout the new teen line.
Rite Aid has also been at the forefront of marketing programs including a test of a smart card called Rite Cash and a customer-rewards program called Rite Rewards. Rite Cash can be purchased in dollar amounts to be given as gift certificates to be spent in Rite Aid. All stores have been equipped with card readers. Rite Rewards is being tested in select stores. Shoppers use the card and accrue points and discounts. Rite Aid can also use the information collected from the cardholders for direct mailings. A frequent beauty customer, for example, can receive a notice about a new product launch.
The downside of the rapid growth of both Rite Aid and CVS, manufacturers said, has been the difficulties in digesting the new stores. Although they would not speak on the record, beauty manufacturers said that both chains have undergone growing pains.
“CVS has tremendous out-of-stock conditions and they can’t institute our programs,” said one source. For Rite Aid, the situation has been exacerbated by the distance of the Thrifty PayLess stores.
“But when both get their engines revved up, watch out,” concluded one beauty manufacturer. “They are going to do some very big things that will make even Wal-Mart shake.”
