Market share mindset drives Florida growth: Given the region's abundance of elderly residents, one of the most significant battles predictably involves the nation's two largest drug chains

Drug Store News, June 6, 2005 by Mike Troy

Strong population growth and favorable demographics have made the Tampa Bay region one of Florida's most hotly contested markets with a half dozen of the nation's leading retailers pitted against one another in a quest for sales.

The battleground in question is a sprawling, four-county region along the west coast of Florida that includes the major cities of Tampa, St. Petersburg and Clearwater--the former corporate home of Eckerd drug stores, the acquisition of which by CVS and Brooks Pharmacy serves as the major subplot in the market war story unfolding there.

After years of consistently rapid growth, approximately 2.5 million people call the area home, and by the end of the decade, that figure is projected to approach 3 million, thanks to a heavy influx of new residents. Faced with such an attractive growth record and favorable long-term trends, it is understandable that the Tampa Bay market is one retailers find attractive. Retailers operate some of their most productive stores in the market and are pursuing expansion and testing new concepts eagerly.

Given the region's abundance of elderly residents, one of the most significant battles predictably involves the nation's two largest drug chains. CVS and Walgreens each operate more than 100 stores and continue to open new units.

However, it was only last year that CVS gained equal footing and then surpassed Walgreens through its acquisition in August 2004 of the Southern half of the Eckerd chain, which allowed CVS to overtake Walgreens as the dominant player in the market. CVS' store count surged to 125 units from nine stores a year earlier, and its market share swelled to approximately 36 percent. By comparison, Walgreens increased its store count by about 10 stores, ending the year with 103 stores and a 31 percent share of the local drug store market, according to Chain Store Guides data.

Prior to CVS' acquisition of Eckerd, Walgreens was the recognized leader in the state and the Tampa Bay area, despite the fact that Eckerd had more stores. Walgreens operated 630 of its 4,579 stores in Florida at the end of its fiscal year Aug. 31, 2004.

Walgreens eventually could regain its leadership position as it continues to build new stores, while CVS' real estate development program remains focused on completing store conversions in the former Eckerd stores--with all of Florida now completed, CVS now is concentrating on the Texas stores, which it plans to wrap up by midsummer--and new-store construction in markets where CVS' presence is less developed, such as Southern California, Phoenix, Chicago and Minneapolis. Setting the tone for the rapid-fire integration process, Tampa was the first of the former Eckerd markets CVS completed. By the end of its current fiscal year, Walgreens' store count in Florida will be approaching 700 units, and more are on the way throughout the state and in the Tampa Bay area as the company moves toward its goal of operating 7,000 stores by 2010.

While CVS and Walgreens are expected to vie for choice locations at busy intersections in the future, two other major players creating interest in the market are Publix Supermarkets and Wal-Mart. About 20 miles east of Tampa Bay is Lakeland, Fla., and the headquarters of Publix Supermarkets. Publix enjoys a well-established reputation among Florida residents, especially those in the bay area where it has operated for more than 75 years.

Publix recognized earlier than other supermarket chains that the key to success would be to achieve a dominant market share position in pharmacy--especially as Wal-Mart ramped up construction of its supercenters, which tend to create pressure for any supermarkets with which they compete. That philosophy caused Publix to undergo a building boom in its home state even as it was entering new markets in Georgia, Tennessee, South Carolina and Alabama, and today it operates almost as many supermarkets in Florida as CVS and Walgreens do drug stores.

The prevalence of Publix Supermarkets, virtually all of which contain pharmacies, creates a unique competitive dynamic in the market because for many residents, Publix stores are more convenient than the neighborhood CVS or Walgreens, which don't sell as broad an assortment of food.

At the end of its most recent fiscal year, 626 of Publix's 850 stores were located in Florida, and 59 of those units with pharmacies were located in the Tampa Bay area.

Beyond simply saturating the state with new supermarkets, Publix aggressively experiments with new concepts. It began testing convenience stores in 2001 and today operates five units. It also recently became the majority owner of a 26-unit restaurant chain called Crispers. The attitude toward experimentation also includes liquor and health and beauty care. Publix last year began testing a liquor store concept and currently operates five units adjacent to its supermarkets. More recently, it opened a Hispanic store concept called Sabor near Orlando, and on the drawing board for next year are two stores in the Tampa Bay area called Greenwise.