New technology, prototype first steps to regain share

Drug Store News,  August 18, 2003  by Doug Desjardins

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An aging store base and fresh competition from retail giants such as Walgreens have hurt Longs Drugs in recent years and hampered sales. But the retailer is making sweeping changes to modernize the chain and set it on a new course.

Longs will take an important step in that direction later this month when it unveils a new store design in the town of Danville, Calif., a few miles from its corporate headquarters in Walnut Creek. Longs executives have been tight-lipped about the new look, but at its annual meeting in June, chief executive officer Warren Bryant predicted the stores would "drive sales and draw people to key departments." Longs plans to open 20 stores with the new look this year and up to 40 in 2004.

In addition to updating the look of its stores, the retailer is in the process of upgrading technology behind the scenes. It's currently halfway through a $50 million project to overhaul its supply chain and make it more cost effective. Bryant said the process should be complete within 18 months and that benefits should begin to show in 2005.

Both projects are key to a five-point plan the Longs board of directors adopted 18 months ago to improve sales and make operations more efficient. Along the way, most of the old guard on Longs' management team have departed, starting with former president Steve Roath in February 2002 and ending with the departure of chief operating officer Terry Burnside six months ago. Former Safeway executive Richard Dreilling replaced Burnside in July.

The chain also has taken measures to cut costs and has shown that it's ready to close stores that don't show a profit. In March, the chain announced plans to eliminate 170 administrative jobs as part of an effort to cut down on overhead and put 25 under-performing stores on a "watch list" for potential closure.

Longs sent another signal that the times are changing last month when it notified its 463 store managers they were eligible for a voluntary separation program. The plan offers managers interested in leaving financial incentives based on years of service, as well as company-paid health insurance and outplacement service.

Chief financial officer Steve McCann explained the program was enacted to let managers Know their roles will be changing as Longs begins to centralize its decision making. Historically, Longs store managers have had an unusual amount of latitude in running stores.

"Their ability to make decisions at the store level is going to changes as the environment becomes more centralized," said McCann. "The changes will be substantial, and this provides them, with an opportunity to leave it they feel they can't accept those changes." The company will announce the results of the program at its next earnings call in late August.

Though the changes at Longs should help the chain become more efficient, it still faces a tough road ahead. Longs sales this year have been slow, with same-store sales through June down 1.3 percent. In its most recent quarter, front-end sales fell 6.1 percent, and pharmacy sales increased 3.5 percent.

But Longs does have its advantages. The chain has been around since 1938 and has fiercely loyal, customers, who commonly refer to the chain as "My Longs." The chain promotes its home field advantage with in-store signs that note Longs has "Been helping people live healthier, happier lives since 1938."

And Longs makes a point of going the extra mile to help its customers with discount programs such as "Senior Advantage," which offers discounts on prescriptions to uninsured seniors, and "TogetherRx." It also has a Diabetic Care Center and offers free 15-minute meetings with pharmacists to discuss diabetic needs.

Time will tell whether its new formula that blends small town customer service with a big business approach behind the scenes will turn the chain around.

12. LONGS AT A GLANCE

2002         2001        2002 % of    No. of stores **     % of stores
Rx sales *  Rx sales *  total sales   with pharmacies    with pharmacies

$1,949       $1,720         44%             463               100%

Source: Chain Store Guide/Drug Store News * Sales in millions
** As of April 2003

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