Drugstore Drama: Bartell warily eyes CVS

March 21, 2014

Bill Virgin

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An already crowded Puget Sound-region retailing sector is about to become even more so.
CVS Pharmacy is the largest drugstore chain in the United States when measuring by number of locations, but none of its 7,400 stores are situated in Washington state. That status will change in August when CVS opens a store in Renton. A company spokesman says three more locations in the Seattle neighborhoods of Wallingford, Lower Queen Anne and West Seattle are in active development but wont open until 2015. More stores in the state are planned.
Its not as though the area has lacked for drugstores and pharmacies. Besides national drugstore chains Rite Aid and Walgreens, both of which are already here, competitors in the space include grocery chains like QFC and Safeway, discounters like Fred Meyer and Target as well as warehouse retailers like Costco, not to mention at least one locally based online retailer, drugstore.com. Even home furnishings retailer Bed Bath & Beyond has a sizable health-and-beauty section in its stores.
But the entry of one more player, especially one with the size and potential marketing clout of CVS, does make a difference, says George D. Bartell, chairman and third-generation CEO of the Seattle-based regional drugstore chain that bears the family name. Youve got a pie and you can only slice it up so many ways, he notes. Theres no lack of competition in that kind of space. Its a little bit daunting.
CVS brings one other advantage to the market that even its biggest rivals dont, Bartell adds: CVSs corporate parent, CVS Caremark, operates a major pharmacy-benefit management company for sponsors of health care plans. Thus, the ongoing challenge for a regional company like Bartell Drugs is figuring out points of differentiation, a task made tougher by the fact that much of the merchandise mix the bottles of Tylenol, the tubes of Crest, the bags of Skittles is the same, no matter who the retailer is.
We work really hard at being local and supporting local products, Bartell says. Thats particularly evident with candy and snacks because there are a lot of local manufacturers of those products around here. We have good relations with a lot of them and sometimes that gets us unique products that our competitors dont have.
Bartell Drugs also emphasizes natural and organic products in its food sections. And the company is tweaking the stores themselves, beyond the periodic remodeling and updating, to make them stand out. At South Lake Union, Greenwood and a store in Ballard that opened in March, Bartell Drugs has refilling stations for beer growlers. The company plans to test hand-dipped ice cream at the new Ballard store, too. Its the first time weve tried that in about 50 years, when we had soda fountains, Bartell notes. We just thought wed give it a try.
The biggest experiment may be with in-store clinics, a venture in which Bartell Drugs is pairing with another significant local organization, Group Health Cooperative. These CareClinics, staffed by advanced practice registered nurses and offering no-appointment treatment for minor illnesses and injuries for a flat fee of $75, are open in the new Ballard store and at University Village, as well as at the Crossroads location in Bellevue. If Bartell Drugs and Group Health like what they see from those three places, they may add more.
This isnt Bartell Drugs first go-round with in-store clinics. At one time, it hosted Minute Clinics in some locations, until the Minute Clinic chain was acquired by none other than CVS. Nor is the concept of an in-store clinic a new one. Rite Aid and Walgreens have clinics in some of their locations in other parts of the country. But the idea hasnt proliferated in Washington state as it has elsewhere. Tacoma-based MultiCare Health System does operate two Express Clinics in Rite Aid stores in Pierce County, so if the service proves popular, Bartell Drugs could actually be ahead of the curve in the Puget Sound region.
Everybody talks about how this has got to be a big wave of the future because of the Affordable Care Act, Bartell says. Sometimes, you look back at those predictions and say, Well, those didnt work out the way we thought. But because [clinics] offer a way to treat certain kinds of illnesses and events less expensively, thats the attraction and, obviously, there are some synergies between a drugstore and having that clinic offering.
Indeed, some new retailing lines prove to be disappointments, if not headaches. Bartell says he wasnt pushing to get into liquor sales, for example, but when the state system was privatized in 2012, he went in, as did many other retailers. It really has not been a big boon for us, he admits. The theft of the product is pretty high. Like a lot of retailers, weve had to adjust. We had to put it behind counters and things. Bartell says he prefers wine sales, where he can differentiate from competitors by offering more made-in-Washington products.
With the new Ballard store, which anchors a 330-unit apartment building directly across the street from a Walgreens and diagonally across from a Safeway, Bartell Drugs now has 63 locations, all in the Puget Sound region (two are smaller stores purchased from the Everett Clinic).
The company doesnt disclose revenues, but trade publications put Bartell Drugs annual sales around $400 million. Bartell declines to say how reliable that estimate is. Assuming its reasonably accurate, is the chain large enough to compete with a company the size of Rhode Island-based CVS, whose quarterly revenue in the three months ending September 30, 2013, was $32 billion? This is an industry in which the small independent drugstore is virtually an extinct species.
Bartell acknowledges that the consolidation driven by the big national players, as well as the technology advantages they can leverage, make him less assured of his answer than he once was. Still, he adds, If we run our business well, we ought to be able to have a profitable business and one that can continue to be local and family owned.

Smoke Signals

One CVS Pharmacy initiative that Bartell Drugs wont be following is CVSs move to stop selling tobacco products by October 1 of this year. George Bartell says the issue has been discussed internally and the deciding factor is smoking is legal and customers want to purchase this product from us.
Bartell adds: We dont promote cigarettes or display them prominently. On the other hand, we do display smoking-cessation products prominently, advertise them from time to time, and our pharmacists are eager to advise our customers about the use of such products. Smokers probably dont have that option available at a convenience store. If demand [for tobacco products] gets to be low enough, we will discontinue them, as we would any other product. When we are able, we try to stock what our customers want to purchase. Im in favor of offering customers choices and letting them decide what to buy. Im resistant to letting some people impose their values and biases on others. They generally dont like it if the tables are turned.