Corner drug store feel works to capture loyalty

Drug Store News, Sept 26, 2005 by Michael Johnsen

Kinney Drugs may appear small when compared with the big four national chains--it has 74 stores primarily in New York and Vermont.

But Kinney acts big, a fact reflected as much by the programs and initiatives the chain currently is working on as by its dominance in the smaller markets throughout northern and central New York.

The key components of its successful strategy are a loyalty card with 275,000 members--which makes for 60 percent household penetration in the markets its serves--and a pharmacy benefit management division it has operated for more than a decade, with more than 145,000 lives covered. And the company continues to grow its store base roughly 8 percent a year.

Meanwhile, Kinney's sales continue to grow at a much faster clip, up some 17 percent in 2004 to $457 million. In the smaller markets up North in the heart of Kinney Country, as they call it, it is by far the No. 1 pharmacy retailer, accounting for almost 40 percent of pharmacy sales in the college town of Plattsburgh, N.Y., and more than 50 percent of the market in Ogdensburg-Massena. And as it expands into the larger markets further south, such as Syracuse, N.Y., where it has made a concerted push in recent years, Kinney is coming on strong, making up ground on the big chains. Currently, Kinney and Rite Aid rank at No. 3 in Syracuse, with roughly 12 percent of total pharmacy sales.

Driving the growth has been a slate of big-chain programs and initiatives that have kept the chain relevant, particularly as it targeted expansion in bigger, more urban markets like Syracuse, which is about six times bigger than Kinney's next-biggest market, with a full-time population of more than 650,000 people that gets even larger in semester.

It may be a bit unusual for a regional player to operate its own PBM. But for Kinney Drugs, it helps keep the chain a viable player in pharmacy. Kinney's PBM, called ProAct, was established to help small employers in the area. "We've had some sort of pharmacy benefit management in place for about 11 years," noted Dan Villa, ProAct president since February. ProAct was formally incorporated some six years ago.

While the chain also operates a mail order operation through its PBM division, having an in-house mail order operation doesn't necessarily rule out mail order as a threat. "There was some skepticism [some] years ago on how well a patient would adapt to mail order," Craig Painter, Kinney Drugs president and chief executive officer, told Drug Store News during an exclusive interview. "Well some of them are adapting just fine."

There are times when it makes sense, Painter acknowledged--especially considering the cost-sensitive nature of pharmaceuticals today and the money that can be saved directing chronic medications through a lower-overhead business like mail order. "Mail order is here to stay," he said. "The retail setting needs to come up with strategies that will allow them to survive in that market.... We have to find ways to make it economically feasible to provide 90 days at retail."

While the threat of mandatory mail programs exists for all pharmacy retailers, it is mitigated at least somewhat by the dynamics of Kinney's core markets: largely rural without many large employers. But that could soon change, Kinney executives fear--particularly as the chain continues its downstate expansion into larger markets like the Albany, N.Y., capital area, which is targeted for expansion. "We don't have a lot of those large employers, but [mandatory mail] is now filtering down to the mid-sized and smaller employers," observed Bridget-ann Hart, Kinney's chief operating officer.

The Kinney ValueCard loyalty program is another example of how Kinney uses its small-chain sensibilities and connectedness to its core consumers to act like a big chain. The program is primarily used to deliver in-store discounts, as well as create special "savings groups," such as young seniors ages 55 and older and "Kinney Cares for Kids" members, families with children younger than 6. Loyalty-card holders receive a 10 percent discount on all Kinney private label merchandise and are eligible for the chain's "Dollar Days" savings, a program that changes monthly.

The next step for the card program is mining the data, and Kinney currently is developing the systems it will need to make sense out of that transactional data, explained Mark Martinchek, Kinney's director of retail marketing. The goal is that within the next year, Kinney executives will have a better understanding of individual consumer needs.

Another contributing factor to its dominance in its core markets is its efforts to stay connected to the communities it serves. Major Kinney branding efforts include local "Kinney Nights" at minor league baseball stadiums, including programs with the Toronto Blue Jays' AAA-affiliate Syracuse SkyChiefs and the Washington National's A-affiliate Vermont Expos. Kinney also sponsors activities with minor league teams like the Syracuse Crunch, a farm team for the National Hockey League's Columbus Blue Jackets.