Byline: Faye Brookman

NEW YORK — The rampant mergers and consolidations in the drugstore industry over the past few years have drastically changed the face of the business.
The long list of regional players that existed only five years ago has been cut and snipped to the extent that the business is close to being dominated by only a handful of behemoths.
In 1992, the top 10 drug chains, in order, were Walgreen Co., American Drug Stores, Thrifty Corporation, Jack Eckerd Corporation, Rite Aid, Phar-Mor, CVS, Longs Drug Stores, PayLess Drug Stores and Revco D.S.
Now the complexion has changed. (See sidebar on page 8 for more on the relevant events.)
American Drug Stores has been surpassed by a new entity created with the merger of Rite Aid and an already combined Thrifty/PayLess. Meanwhile, J.C. Penney’s Thrift Drug purchased Eckerd, but the new chain is being run out of Eckerd headquarters, and stores will bear the Eckerd logo.
Phar-Mor has been pared back from 271 stores to under 120 units, and its long-term health hangs in the balance. Longs has also been usurped by the larger and bigger chains as a result of acquisitions, notably the recent purchase of Revco by CVS.
Many in the industry believe that the buying spree is far from over. Regional strongholds such as K&B, Harco, Genovese and Arbor are often mentioned by industry sources as potential takeover candidates.
Many equate the drugstore arena of today to that of discounters five years ago, when an abundance of retail chains were purchased or merely closed shop. Today, there are really only three big discount players — Target, Wal-Mart and Kmart.
One chain is bucking the trend of consolidation, however — a newly formed company being built upon the skeleton of Kerr Drug. Kerr, based in Durham, N.C., was acquired by Thrift in 1995, along with some Rite Aid units that Rite Aid had put on the block.
Thrift, however, was then ordered by the Federal Trade Commission to divest drugstores in two states after its merger with Eckerd. As a result, former Thrift executives Tony Civello and Rick Johnson are buying 164 stores, including 34 Kerr and 130 Rite Aids. With its acquisitions, the team is starting up a regional chain — even as the heat of consolidation overtakes most of the once-thriving regional stores.
Along with the industry’s series of purchases and acquisitions has come the abandonment of characteristics that the individual players were known for with regard to the beauty business.
PayLess, for example, was associated with very large cosmetics departments with glass counters and cosmeticians. Now that Rite Aid has purchased the chain, it will be putting in its own design for a beauty department — which doesn’t include cosmeticians.
Revco has long been linked with the keen marketing savvy of its senior cosmetics buyer, Judy Wray. But until the merger with CVS is complete, responsibilities remain undetermined for Wray as well as for other Revco employees.
Thrift Drug has a unique strategy for beauty that groups its stores into different formats based on the markets they serve. For example, Thrift Drug stores in upscale neighborhoods such as Princeton, N.J., have a premium cosmetics presentation that includes brands such as Ultima II and Color Me Beautiful.
Many industry sources wonder if Thrift Drug’s strategy will be shoved aside as Eckerd puts its stamp on the chain.
While chains eat each other, many independents have also been gobbled up by chains, and that trend continues. CVS, for example, recently purchased at least five independents in northern New Jersey which now sport the CVS format.
The demise of these independent drugstores could put a crimp in the mass market beauty environment. A lot of independents sell prestige products and feature beauty advisers, which may no longer be the case when they are owned by larger chains who have different strategies.
As the big get bigger, many industry experts wonder if drugstores will begin looking more alike. And, with point-of-sale-data determining what to stock rather than a buyer’s gut instincts, there is concern that eventually, all drugstores will carry the same merchandise priced at similar tags.
With cosmetics’ low inventory turns under the microscope, many experts also wonder if the cosmetics department will get squeezed and downsized as big chains seek larger returns on their space investments.
When chief financial officers have crunched the cosmetics category’s numbers, the story hasn’t always been pretty of late, and some chains are looking to turn space over to more productive departments such as convenience foods and vitamins.
Will these feared scenarios actually come to pass? There are two sides to the story.
Beth Kaplan, executive vice president of marketing for Rite Aid Corp., thinks the consolidation will lead to greater differences between the remaining powers.
“It used to be that drug retailers owned their particular markets. There was always one competitor, but they were a weak number two,” said Kaplan. “Now with consolidation, there are four or five big guys left. I don’t believe cosmetics will evolve into sameness. It will be more important to offer something that makes shoppers come to your stores instead of the competition.”
She said Rite Aid is encouraging vendors to come to them with proprietary programs that will help Rite Aid stand out from the competition. Kaplan does agree, however, that most chains will be stocking similar merchandise.
“In the end, about 99 percent of the merchandise is the same; the difference will be the shopping atmosphere,” Kaplan said. “We have to find the way to deliver a superior shopping experience.”
Gerald Heller, president and chief executive officer of May’s Drug Stores Inc. and current chairman of the National Association of Chain Drug Stores, thinks there are still opportunities for regional drug chains to shine — even as they face stepped-up competition from the big four of Rite Aid, CVS, Eckerd and Walgreens.
“We’ve been operating in the shadow of Wal-Mart for years, and we’ve managed to keep our identity and a loyal customer base for cosmetics,” Heller said. “I think there will always be room for strong retailers who won’t let their departments look like everybody else’s.”
Scott Gorley, senior director of health and beauty aids for Phar-Mor Inc. in Youngstown, Ohio, agreed that chains will take different tacks.
“We have very large stores, and we’ve made a decision to have a large selection of cosmetics that can’t be found in all of the competition — and at very sharp prices,” he said.
Gorely claimed that, in general, Phar-Mor scores lower on a “market basket comparison” in beauty than Wal-Mart, meaning its cosmetics prices are lower. Obviously, he said, that would make price a reason for customers to seek out Phar-Mor.
The flip side to these retailers’ arguments, however, is that the mega-chains will merely stamp out cookie-cutter stores — which is producing trepidation among vendors.
“You betcha, every one is going to look more alike,” said Sean Greene, president of the sales division for Dana Perfumes.
Kristin Penta, vice president of marketing for Fun Cosmetics, agreed, but said the similarities will actually benefit suppliers.
“It isn’t such a bad thing because, that way, we don’t have to have as many separate programs for each firm,” she explained.
The uniformity that might creep into the market is welcomed by many smaller chains, such as Navarro Discount Pharmacies in Miami. The chain prides itself on stocking imported fragrance brands not found elsewhere.
“That’s something that differentiates us from competitors,” said Jose Navarro, president of the chain.
Others think that the potential sameness among drugstores will bring an even bigger opportunity for category killers such as Ulta3 to grab a bigger portion of the market.
“We definitely think more people are coming to us looking for something different and for the variety of brands we can offer, both mass and prestige,” said Bob VonderHaar, vice president of merchandising for Ulta3.
Consolidation isn’t limited to just the retail side of the mass market beauty equation. Manufacturers are also continuing to merge.
Renaissance Cosmetics, for example, has grown exponentially via acquisitions of older fragrances such as Navy, Chantilly and Tabu.
AM Cosmetics, an up-and-coming brand, is the result of mergers with the Arthur Matney Company and R.H. Cosmetics. At press time, the firm was close to purchasing the Cutex nail product range from Jean Philippe.
These mergers also raise questions about whether beauty suppliers will lose creativity, choosing template marketing and product approaches instead of individualized projects.
Tom Bonoma, chairman of Renaissance Cosmetics, quashed that thought.
“We may take similar approaches — for example flanking,” he said, referring to offshoot products like Chantilly and White Chantilly. “But we won’t just make copies. We’ll also use synergies between our cosmetics, nail and fragrances businesses.”
Whether or not mergers and acquisitions are making for better or worse stores and product ranges is a matter of debate. But all parties agree on one statement: The consolidation isn’t over yet.

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