Growing solid roots in Washington

Drug Store News, April 23, 2001 by Michael Johnson

Operating on a sort of yin-yang philosophy, Hi-School Pharmacy president Steven Oliva is working on reducing the size of certain departments throughout his chain. But if one department's contracting, that means another is expanding.

The best news, however, is that Hi-School is growing its core business. "The pharmacy business is up the most of any of our business," Oliva reported. As for the front end, Oliva maintained that if it wasn't flat across the board, it may even have dropped a percentage or two. Overall, the chain grew its sales by a little more than 4 percent last year to $167 million, the chain reported, with pharmacy rings making up 63 percent of that growth.

There are, however, bright spots at the front end. "We have 4,000- [square-foot to] 5,000-square-foot hardware sections in most of our stores [making up 20 percent of the floor space], which helps our overall growth in the out-front [and] nonprescriptions," he said. However, in preparation of intense competition from a couple of large home improvement chains that are moving into the area, such as Lowe's and Home Depot, Oliva is cutting back the size of Hi-School's hardware set.

Other departments that may face a reduction in size are cosmetics and housewares, but replacing that lost space will be seasonal and consumables. "We're continuing to enlarge our garden department, which is our No. 1 seasonal area," Oliva explained. "And [we are] increasing our grocery selection. ... There are other sets that are expanding, but mostly seasonal and consumables. Those are very strong departments for us."

Another department driving sales for Hi-School is the photo development business. The chain has overnight photo-processing capability in all its large-store formats and has one-hour processing in seven locations. "Store by store, it helps drive [sales], just like it drives the entire photo-processing business," Oliva noted. But more than that, in stores that have one-hour processing centers, sales for overnight processing also is increasing. "And this has been adding sales," Oliva said.

In many of its locations, Hi-School also has installed Kodak's standalone Picture Maker, an ATM-sized, self-serve unit that affords customers the ability to scan and print photos onto photo-quality paper. The Kodak Picture Maker also has the capability of accepting customer photos directly from their digital cameras.

Hi-School's primary market is in southern Washington, just across the Columbia River from Portland, Ore., an area named Money magazine's "Best Big City to Live In" last year. Building on a high-tech private sector, Portland is projected to have almost a 30 percent job growth in the next 10 years.

This may explain why a larger regional drug chain and a few pharmacy packing discounters and grocery chains also have claimed a stake in the local marketplace. "We've got three new Wal-Marts and a couple of Longs Drug Stores and one new Fred Meyer [owned by The Kroger Co.] since last year," Oliva said. There also are four new Safeway stores with pharmacies and two new Bi-Marts.

There were 35 Hi-School locations in 1999 and 36 last year, making for one new store opening the past two years. Still, the pharmacy chain manages to grow its 4 percent in sales not through adding bricks, but rather through increasing customer traffic. Oliva suggested that maintaining customer service, managing the bottom line and increasing total volume was the secret behind Hi-School's success.

Acquisitions: possible option

Although Hi-School has no plans to build any new stores this coming year, the chain is on the lookout to grow through acquisition. Oliva said that Hi-School has its eye on acquiring two or three independent drug stores over the next year. However, Oliva reserved making any hard acquisition assessments because of the current pharmacist shortage. In fact, Oliva is considering reducing the number of pharmacies without front-end support.

As it stands now, the chain operates nine pharmacies in medical clinics or grocery store settings. "We're looking at maybe consolidating some of our smaller pharmacy departments into some of our regular stores because of the lack of pharmacists," he said. "It will be a tweaking. We'll probably end up with the same number of stores, but hopefully better stores that do more volume."

Hi-School won't stop the tweaking there. Last year, the chain installed four new automated dispensing ScriptPro machines to ease the burden on pharmacists and increase their ability to better serve customers. "That's definitely helping in our busiest stores; it's not really cutting down on the number of pharmacists [needed on hand], but it's doing a better job of serving the customer," Oliva emphasized.

Hi-School also remodeled three pharmacies last year, adding drive-through windows to two locations. "The customers seem to like [drive-through windows]," Oliva said. "It's another selling point for them to choose you over a supermarket, discount store or mass merchandiser." As many as 15 percent to 20 percent of the customers patronizing each drive-through-equipped pharmacy take advantage of the service, Oliva added.