A self-prescribed strategy for Rx: keep America healthy

Discount Store News, June 23, 1997 by Mike Troy

As Kmart stands poised to hit the airwaves this summer, consumers may soon be singing Kmart praises about pharmacy. Beginning in August, Kmart will kick off a TV advertising campaign aimed at attracting more customers into its stores for prescription drugs.

The message: value.

In addition, the retailer is expanding its dialog marketing, or telemarketing, efforts to drive more customers to the pharmacy department. The program, which started five months ago, was such a success it is being expanded, said Jerry Kuske, vice president, general merchandise manager, pharmacy and H&BC. The program centers around offering customers incentives, such as a free bottle of Tylenol or $15 off on the next prescription, for transferring the script to a Kmart pharmacy.

Further, Kmart is making its pharmacy services more visible with compare and save newspaper ads. One recently appeared in New York's The Village Voice which compared the prices on seven drugs to the prices offered at three local drug chains. The savings ranged from $3.90 to $24.10. The ad's headline: "Make a change for the better. Choose Kmart Pharmacy." The ad also featured a $10 coupon off the price on a customer's next prescription along with Kmart's statement of quality and service.

The ad reminds readers that Kmart has considerable experience, that the chain's pharmacists fill more than one million prescriptions weekly, that the store accepts most prescription insurance plans, and that the company has everyday low prices.

As an incentive at a Brooklyn, Ohio, (Cleveland market) Super Kmart Center, customers were offered with any new or transferred prescription one of two books, either Time-Life's "Self-Care Advisor" or "The Healthy Mind Healthy Body Handbook," authored by Dr. C. Everett Koop, the former surgeon general.

"The goal is to get new customers and to up the existing ones," Kuske said.

These efforts and others are designed to help build on Kmart's double-digit sales increase in 1996.

The in-store location of pharmacy and health & beauty care products, which under the new Big Kmart format is now strategically located near the Pantry department, is helping to pump up sales.

Pharmacy and H&BC have long been an important component of Kmart's business, but recent changes in Kmart's strategy and the market itself spell renewed growth for the nation's second largest discount retailer.

Kmart already has a nationwide base of nearly 1,600 pharmacies in its more than 2,000 stores. Its base of conveniently located outlets, is a positive the retailer is able to leverage with managed care customers that in less than a decade have become the dominant purchasers of prescription drugs.

"The pharmacy side handles that fairly aggressively by making sure we're on the maximum number of managed care programs and growing our pharmacy business," Kuske said.

To grow its prescription business doesn't mean Kmart will immediately add pharmacies to stores that don't presently have them. That would add overhead and the prescription volume at certain stores wouldn't cover that cost. Whereas previous management was focused on adding pharmacies to stores, Kuske's aim to is make them more profitable.

"I'm very driven to increase the profitability of the Kmart Corp. I could have pharmacies in all 2,106 stores if I chose, but I don't think that would be the correct decision for profitability," Kuske said. "What we are trying to do is lay the foundation and rebuild the [individual in-store] businesses so they stand on their own merit when exposed to the customer."

With the rollout of the high frequency format, the pharmacy and health care departments are being exposed to more customers. Kmart's challenge then becomes showing the customers the store has a strong story to tell.

"We know we have a lot of conveniently located stores and that we have some advantages. What we are challenged with is fixing the franchise and making it appealing to the consumer," Kuske said.

Also playing a role in appealing to the consumer is a revitalized and easier to shop health care department adjacent to the pharmacy. Kmart addressed the nagging issue of line extensions and me-too products (a major concern for retailers of nonprescription drugs) by reducing the number of skus it carries. To the extent possible, sku rationalization in the OTC department benefits consumers by making it simpler for them to choose from the diversity of symptom specific problems that exist in confusing categories such as pain relievers and cough/cold.

A recent chainwide reset of the OTC department saw Kmart pare its product offering and unify private label products under the American Fare name.

"We spent all of last year just getting organized and we redid every planogram in September," Kuske said. The concept is simple: "[to be] in stock all the time, to have national brands at aggressive prices, to be first to market with new prescription launches and to offer value to the consumer OTC and HBC products."

One of the biggest challenges in repositioning its health care and pharmacy departments will be chain drug store operators. Kmart contends its stores are convenient to shop, however, drug store operators say that convenience means different things to different people at different times. For a mother with two kids on a rainy day who needs a prescription filled, convenience probably means being able to use a drive through window or having access to a 24-hour pharmacy. The nation's leading drug chains, Walgreen, CVS, Eckerd and Rite Aid, all employ a strategy of opening freestanding stores with drive through windows. Kmart's not in that game--not yet anyway.