Discount Drug Mart hones niche

Chain Drug Review, April 23, 2007

MEDINA, Ohio -- Home health care continues to flourish at Discount Drug Mart, according to chief financial officer Tom McConnell.

Expanded home health care departments helped the company's revenues (including mail-order pharmacy sales) grow more than 7% to some $605 million in the fiscal year ended March 31.

The gain was all the more striking considering a decline of about 6% in cigarette sales and a similar drop in photofinishing. To recapture photo sales the chain has added one-hour minilabs for digital processing in 24 units.

"The sales growth is going to come from home health care," says McConnell. "That's our major thrust."

With its focus on health care it is only fitting that the chain will open in-store clinics this year. It has inked pacts with two clinic operators--one, a start-up and, the other, Quick Clinic--to have six of the units up and running in 2007. Quick Clinic already operates clinics in supermarkets in the Akron/Canton, Ohio, market south of Cleveland, notes McConnell.

Discount Drug Mart is also looking for front-end growth from expanded wine departments. To publicize the expanded assortments the chain has conducted in-store wine tastings that McConnell says have been well received.

The chain debuted two stores last year and plans to open two or three in fiscal 2007. Two are already under construction. The chain's newest unit was unveiled in the south end of Elyria, Ohio, giving it two stores in that city.

Major renovations are being undertaken for three older stores, and a couple of smaller projects are also under way. "We have quite a bit of remodeling activity going on," McConnell comments. "So we're slowing down on new stores a little in order to refinish older ones."

On the pharmacy front, Discount Drug Mart continues to benefit from Parata Systems LLC robotic units. The dispensing units fill more than half of the prescriptions in the stores where they have been deployed, freeing up pharmacists for patient counseling.

The company will probably in stall another three or four units this year. "In high-volume stores we think they really help," McConnell remarks. "And errors are almost nonexistent. Paratas have just been a very positive thing for the pharmacy."

While Medicare Part D has cut into pharmacy margins, the chain is working with pharmacists and technicians to drive sales of over-the-counter products that can enhance prescriptions. A particular drug might lead to depletion of a vitamin, notes McConnell, so a purchase of the vitamin would be a natural accompaniment to the filled script.

This year Discount Drug Mart executives are very concerned over the Centers for Medicare and Medicaid Services' plan to cut pharmacy reimbursements for generic drugs. "That's the challenge for 2007," observes McConnell.

The generic fill rate at the chain is around 52%, and McConnell would like to see it increase. Wal-Mart Stores Inc.'s $4 generic pricing affected Discount Drug Mart to some extent "but not as much as some people think," he says, adding that patients became a little upset when they found out that the price did not cover scripts for two or three pills a day.

Also, the pricing minimizes the value of the pharmacist, he says. "From a professional perspective there has been some flak" over the program, he notes.

Discount Drug Mart did answer Wal-Mart from the marketing perspective with its own $4.50 pricing for older generics (with senior discounts bringing the price down to virtually $4 for older patients).

Meanwhile, the chain is selectively filling 90-day prescriptions. "If it's a matter of someone going to mail order or filling a 90-day script at retail we'd prefer to have it filled at retail," McConnell says. "But our preference, obviously, would be to fill a 30-day script."

The company's own mail-order operation, Immediate Pharmaceutical Services Inc. (IPS), has posted rapid growth. After seeing sales decreases for two years, IPS' volume was up 30% in January over the same month in 2006. And contracts with major accounts took effect in April.

"IPS has worked out for us because most of the scripts are being filled from outside of Ohio," McConnell says. "The people served by these accounts never would have walked into our drug stores."

On the subject of store ex pansion, McConnell says Discount Drug Mart will focus on filling in small markets in Ohio.

Helping raise the chain's profile in the Buckeye State is its sponsorship of the Cleveland Air Show and the Columbus Marathon and sponsorship of events for the Medina County branch of the American Red Cross, of which McConnell is treasurer.

The chain also raises funds for the Muscular Dystrophy Association, the American Diabetes Association's Tour de Cure, the Susan Komen Foundation and the Osteoporosis Run/Walk for Stronger Bones.

The chain also is a sponsor of the Cuyahoga County Board of Health 5-kilometer run/walk Run for Your Life! program, which promotes increased physical activity for children.

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