CVS to buy Standard Drug, extending its march south

Drug Store News, Sept 27, 1993 by Barbara White

WOONSOCKET, R.I. -- CVS has agreed to purchase Richmond, Va.-based Standard Drug Co. for an undisclosed sum. The transaction should be completed in mid-October.

The acquisition of the 60-unit Standard chain solidifies CVS' position in the metro Washington D.C. and Richmond markets, where the chain operates under the Peoples name.

The Peoples stores have gained momentum in the mid-Atlantic region since CVS began a promotional program that ran from mid-May to mid-July.

"We remodelled the stores and made some operational changes," said Harvey Rosenthal, president and chief executive officer at CVS.

"The focus was on re-introducing Peoples. We had excellent increases in traffic and we are holding a significant portion of market share in the Washington and Virginia markets," Rosenthal told Drug Store News.

The positive response in the Richmond market figured heavily in CVS' decision to purchase Standard, he added.

Another factor was the synergy between the Standard store format and the formats in which CVS operates, noted Rosenthal. "Standad's stores are of similar size, and like CVS, some have pharmacy departments and others do not."

Of its 1,250 stores, CVS operates 200 non-pharmacy units. The Standard acquisition includes 47 stores with pharmacy departments and 13 non-pharmacy HBA stores.

Rosenthal said CVS would not add pharmacies to the Standard units which operate now without the departments.

All aquired stores will eventually be remodelled and will operate under the Peoples name. In addition, the Standard distribution center in Richmond will be closed and all stores will be serviced from the Peoples distribution center in Fredericksburg.

Front-end will be built

"Standard has built a strong prescription business. CVS will look to build the front-end of the store with promotion activity," said the chairman. Promotional activity, he added, will be folded into Peoples' promotional events.

Rosenthal said that because of the competitive nature of the metro Washington market, Peoples stores are more price-competitive than the CVS units in the Northeast.

POS a priority

Aside from an aggressive approach to front-end merchandise, CVS' first order of business will be to install POS scanning in all Standard stores. Standard has been operating as a non-scanning chain, while CVS just completed a chainwide scanning system rollout.

It was, in part, the prohibitive cost of scanning and other technology investments that put family-owned Standard back at the negotiating table. Although the chain has been courted by buyers several times, the Rosenthal family (which owned the Standard chain and are no relation to CVS president and ceo Harvey Rosenthal) has never reached a final deal until now.

"We've been in business 73 years and we have mixed emotions about selling," said Standard president Tom Rosenthal. "But to compete in this market, we would have had to invest a tremendous amount of capital in POS scanning equipment, pharmacy computers and remodeling stores. We felt that the rewards would not have out-weighed the risk.

"Economies of scale are very important in this business, and it's hard for a chain this size to operate efficiently. We felt that the time to sell was while we were still doing well financially," he said.

Standard reported sales of $85 million last year, a growth of about 2 percent over the previous year's sales.

Said CVS's Rosenthal: "Gil Rosenthal and his family have done a wonderful job in keeping the chain very responsive and customer-oriented. Along with the real estate and inventory, we are acquiring a group of dedicated store-level people that add to the quality of customer service the chain is known for.