Combined strengths build future

Drug Store News, Jan 20, 2003 by James Frederick

A halting economic recovery, the long-term staffing crunch and government's increasingly heavy hand will continue to hammer chain pharmacy in 2003, said John Fegan, the Boston-based vice president of pharmacy for Ahold USA. But combo-store operators like Ahold and traditional drug stores, he predicted, will fare better than most trade channels in tough times.

"Food stores and free-standing drug stores are positioned very nicely," said Fegan, who heads up pharmacy marketing, purchasing, systems, third party relations and other pharmacy support functions for all six of the Dutch company's U.S. supermarket holdings.

"When the economy tightens up, drug stores tend to benefit because people are buying just the things they need. And people still need groceries," he observed.

Time spent shopping also will remain a key consideration, Fegan said. Thus, traditional drug stores, "where people can get in and out quickly" should do well in 2003, he predicted. So, too, should supermarkets, where consumers "will be able to accomplish many different things, especially in a superstore.

"You can get your film, your prescription, your groceries or your dry cleaning done. And that will continue to play a significant role in shopping patterns," said Fegan, who served as vice president of pharmacy operations at Ahold's Stop & Shop Supermarket Co. division until his recent promotion.

For Ahold, the new year will bring a continuing search for ways to capitalize on the combined strengths of its six U.S. operating companies, integrating back-end support and business functions without sacrificing each chain's relationship with its own consumers. Along those lines, efforts to integrate Ahold's sprawling U.S. supermarket divisions are moving ahead steadily. "It's coming together very nicely," Fegan said, adding that several new corporate positions that cut across company boundaries at Ahold's Giant Food, Topps Markets, Stop & Shop, Bi-Lo and Bruno's divisions were recently filled.

A companywide integration of all pharmacy and drug store marketing "will be another year or so" in development, Fegan said. But new central-office positions to oversee and coordinate managed care marketing and third party relations, pharmaceutical purchasing, pharmacy systems and professional services were recently filled, he added. The company also has hired a corporate clinical services manager to oversee the development and support of "wellness programs, nutrition initiatives--all the things that revolve around customers' health," Fegan said.

"We know we're in a position to do some clinical/nutritional programs," he told Drug Store News. "[Giant of] Landover has done some great things with U.S. Wellness, and we've done some great things here [at Stop & Shop]. Topps Markets has also done some [wellness programs] in Buffalo. We just need to get the other operating companies going and bring it all together."

Although some elements of Ahold USA's final corporate structure have yet to be determined--including, perhaps, the location of some central office activities--"the integration of buying, merchandising, marketing and operations will occur," Fegan added.

On the broader front, Ahold's nearly 700 supermarket pharmacies will continue to cope with the challenges common to all U.S. drug retailers, Fegan said. Among those lingering headaches, he said, is the staffing shortage. "We're very fortunate in our organization that we're OK ... but personnel continues to be an issue. Schools are opening, but it takes awhile for them to gear up. So there's going to be a continued shortage of pharmacists."

Another challenge this year, said Fegan, will come from increasing government involvement in pharmacy through the Bush administration's Medicare prescription discount card and other initiatives. "Government intervention is becoming more and more prominent--and specifically, I'm referring to the Medicare card, where retail is really not part of the decision-making process."

Fegan also remains concerned about further cuts in Medicaid prescription reimbursements. "There are budget constraints at the state level that could severely impact ... rates," he asserted. "There probably isn't a state in the union at this point that doesn't face some sort of economic impact that could trickle into pharmacy."

On the plus side, said Fegan, retail pharmacy will benefit from increasing prescription expenditures as health care relies increasingly on drug therapy. He also predicts stronger alliances between retailers and suppliers. "When the economy tightens up, both ides have to figure out how we re going to sell more stuff," he said simply. "So we'll find more willingness to work together."

Fegan also anticipates more promotional activity. "We will look at more creative ways to promote," he said. "And because of the economy, manufacturers may do some things that 10 years ago they might not have done in how they price and package their merchandise."

One continued pressure point, Fegan said, will be pharmacy margins. "Certainly there will be downward pressure, but we as retailers need to step up and be heard in a different way than we have in the past.