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Drug chains on periphery of retail action

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The biggest stories to come out of chain drug retailing thus far in 2017 are non-stories. Indeed, it’s grocery and discount store retailers that are making all the news, while drug chains continue to anticipate the newest developments — or, more likely, wait for them to happen.

In the supermarket business, Albertsons Cos. is making news by quickly rolling out new concepts and formulas, most of them tied to the premise that one homogenous brand is not as powerful as a series of individual brands, each encouraged to go its own way. In other words, “local” is the rallying cry, and in individual markets names once written off as yesterday’s news are enjoying a renaissance and a revival as they battle larger competitors by emphasizing local origins and a hometown flavor.

More stunning perhaps was the news, late last month, that Whole Foods Market Inc., the grocery retailer that changed the industry, would shortly be absorbed by Amazon.com Inc., the online retailer that has changed the industry. Opportunities and options abound, but the talk, at this early stage, is more about Amazon than Whole Foods.

The prevailing theory is that Amazon can change the way groceries are bought and sold simply by bringing its online strength and expertise to bear on a grocery chain that has already altered the way groceries are bought and sold. Imagine the potential of a retailer with the capability of drawing traffic to its stores, then delivering purchases almost immediately — online.

The discount segment, while not as volatile, nonetheless is making news. Walmart is recovering from its ills, real and imagined, and its most recent quarterly results put it back among the top-tier performers in the mass retailing industry. Target Corp., while continuing to struggle, is progressing as well, recording sales that are stronger than they’ve been in some time and finally halting the exodus of middle and senior managers. Indeed, those suppliers who claim to know best insist that Target is once again an industry leader.

In online retailing, Amazon remains the pacesetter, continuing to transform the shopping experience by offering a viable alternative to weekly trips to the store. More than that, this online leader is now opening brick-and-mortar stores, initially to understand why some store visits resist being replaced by online shopping. Indeed, the physical bookstore the retailer just opened in New York City’s Time-Warner Center is worth a visit simply as a winning example of what a physical retailer can aspire to be.

As for chain drug retailing, 2017 is quickly becoming the year that wasn’t. The Walgreens Boots Alliance-Rite Aid merger remains a work in progress, with increasing indications that it will not happen. If it fails to materialize, Rite Aid, at this point, could be the biggest loser, having come so far on its road to recovery, yet seemingly in a difficult position to compete within a rejuvenated mass retailing community. But an unsatisfying conclusion to this long-running acquisition story will likely cause Walgreens, CVS Pharmacy and many regional drug chains to rethink their approach to business if Rite Aid remains an independent drug chain.

As for Walgreens and CVS, they will be forced, at last, to confront the issue of a changing retail environment, one in which chain drug retailers have less in common with nondrug competitors and perhaps more in common with nondrug health care providers. In any case, these two retailers, two of the very best this country has to offer, may at last be compelled to rethink the market — and their position in that market — going forward.


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