San Diego indy bets on growing community

Drug Store News, June 18, 1990

San Diego indy bets on growing community

LA JOLLA, Calif. -- What if you opened a new drug store and nobody came?

That was the question going through James Kambestad's mind after he opened Costa Verde Drugs in Costa Verde Center, an upscale mini-mall located in this San Diego shore community. The opening of the new store was Kambestad's fifth in the San Diego area.

Before opening the 9,000-square-foot store, Kambestad was under the impression that the shopping center in which it was located was supposed to be nestled next to 2,500 units of new housing. But nine months after the Labor Day opening of Costa Verde Drugs, the proposed housing tract remains a vacant lot, though bisected by a new palm-tree-bordered avenue.

Within the mini-mall, a three-level structure featuring outdoor escalators, retail vacancies abound as well. Although the store has benefitted from being next to a Big Bear Supermarket and a Pier I Imports store, Kambestad said it's behind his initial sales projections.

"When we came in here, I took an educated guess and brought in the merchandise that I thought was going to work," said Kambestad, a USC Pharmacy School graduate.

Approximately one-third of the store's sales are from strong cosmetic and gift departments, thanks to a program put together by Karen Wallace, an associate and buyer. The departments have attracted the residents in LaJolla, a section of San Diego's fast-growing "north county".

Kambestad's chain of five drug stores, which he began creating 11 years ago, currently employs a staff of 70 and is doing approximately $5 million in sales.

After graduating from pharmacy school in 1974, he worked at San Diego's Mission Bay Hospital for two years, then moved to Fed-Mart, the discount chain owned at the time by Sol Price.

Kambestad bought his first store in metro San Diego, Ace Pharmacy, in January 1979. Shortly after, he bought several more, helped with borrowed funds from Bergen Brunswig, and from former owners who accepted promissory notes.

His second purchase was Delta Drug in San Diego followed by Sav-All Drug in Ocean Beach. Rancho Pharmacy, his largest store (12,000 square feet), is located in Temecula, near Rancho California, a town in southern Riverside County undergoing rapid growth. All of the stores are under the corporate umbrella of Ace, Inc.

With some of his stores already entrenched in established San Diego neighborhoods and others in upbeat, fast-growing suburbs, Kambestad has positioned his company to take advantage of the area's bullish growth propects, though he knows the going won't be easy. Chains such as Thrifty, Sav-on and Longs are also jockeying for prime retail sites.

Despite his company's chain-like growth, Kambestad continues to view himself as an independent.

Although he has made efforts to make a strong front-of-the-store inventory statement, Kambestad knows that the pharmacy department is still the area that butters the independent's bread. Kambestad said his five stores do approximately 50 percent of their business in pharmacy sales.

"I think there's a significant difference between us [independents] and the chains. You have to be competitive when it comes to price. But the only [other] thing you can do is offer service to make yourself better and different," he says. Free delivery and charge accounts are among some of the services his stores offer.

"There's not a lot of really good community pharmacies out there, or people who want to be community pharmacists," he adds. Kambestad last month began working a full-time pharmacist's shift after one of his pharmacists died and a second left.

Third-party business has taken its toll in reduced profits and lost business to exclusive contracts garnered by competing chains such as Thrifty and Sav-on. Third party accounts for 40 percent of his prescription business, up seven percent from five years ago.

"[Third party] is tough. But if you're really careful, and really good, it's a breakeven." Kambestad says he tries to buy drugs in volume whenever he can to benefit from premiums and rebates that lower the overall costs of the drugs, and then distribute the product throughout his five stores to turn it quickly.

Two of Kambestad's stores participate in McKesson's Valu-Rite voluntary program while the remainder belong to Bergen Brunswig's Good Neighbor Pharmacy voluntary program. Kambestad said that both programs are important to his business because, through them, he is often able to purchase products cheaper.

Also helping cut costs is electronic verification and adjudication of third-party claims with PCS, Blue Cross Paid and other major third-party administrators. By electronically transmitting his claims, Kambestad is paid every two weeks compared to every four-to-six weeks before. He is also maintaining necessary tighter controls on what is allowed under specific programs and what is not.

Preparing himself for the future, the Costa Verde store features a point-of-sale scanning system. Kambestad is testing Bergen-Brunswig's Compuphase III system in the front-of-the-store, which uses TEC registers, an IBM PS/2 Model 50 in the back room, and National Data Corp.'s retail store software (modified by Bergen).