Drugstore owner and pharmacist Phillip Guastella knows plenty about retail competition.
Walgreen Co. has a store 11 blocks away from Guastella’s Hills Family Drugs in south suburban Palos Hills and it’s trying to put another Walgreens on an adjacent corner.
Guastella fought back this spring. He submitted petitions with 1,000 names to the Palos Hills Plan Commission, asking the village to block Walgreens’ request for a zoning variance. The Plan Commission complied, rejecting Walgreens’ request.
Score one for the little guy. For now.
Guastella and other local independent drugstore owners are about to face off against a new and equally intimidating foe: CVS Corp.
The Woonsocket, R.I.-based drugstore giant is preparing for a 2001 invasion of the Chicago market and already is lining up sites in the city and suburbs. Its battle plan is ambitious: CVS plans to open more than 200 stores in the Chicago area during the next five years.
“Two hundred stores? It’s crazy,” sighs Guastella. “There’s just not the need for that many drugstores. There’s just so much market to share.”
He isn’t alone in wondering about the wisdom of CVS’ plan. Some retail experts also are puzzled that CVS would tackle Walgreens in its hometown market.
“From the point of view of pins in a map, what they’re doing makes sense,” concedes Neil Stern, partner with McMillan/Doolittle, a Chicago retail consulting firm. “But Walgreens isn’t just a competitor on paper. They’re considered the best drugstore chain in the country.”
To be sure, Deerfield-based Walgreens already has an extensive lock on the Chicago market with 325 stores. The fast-growing chain plans to build another 100 in the next three years.
“We’ve been able to dense up this market more than we thought,” said Walgreens spokesman Michael Polzin. “Back in the mid-1980s, we thought we would have the entire market covered with about 250 stores. That number just keeps going up.”
CVS, a fierce competitor in the East Coast markets it dominates, agrees that there’s plenty of room in Chicago for new drugstores. In fact, the Chicago and its suburbs might even be underserved given the fast growth in the pharmacy business, CVS suggests.
“We don’t believe the market is saturated,” said CVS spokesman Mike DeAngelis. “Chicago is the No. 1 drugstore market in the country. We believe it can easily support additional pharmacies.”
CVS declines to say officially how many stores it plans for the Chicago area or what areas are being targeted first. But company executives told Chicago officials at a recent Las Vegas meeting of the International Council of Shopping Centers that more than 200 stores are on the drawing board.
Of course, CVS’ entry threatens more than just Walgreens’ market share. Osco Drug, now part of the giant Albertson Inc. grocery chain, has 61 stand-alone stores in the Chicago area and another 152 combination Jewel/Osco locations for a total of 213 outlets.
Plenty of other retailers have jumped into the drugstore business, too. Discount chains such as Target Corp. and Wal-Mart Stores Inc. have made major pushes into the prescription and over-the-counter drug business. So, too, have grocery chains such as Cub Foods and Dominick’s.
Even warehouse clubs such as Sam’s Club and Costco Wholesale Corp. fill prescriptions these days.
Walgreens and CVS have more in common with each other than these relative newcomers. Each has a major pharmacy business that is supplemented by higher margin areas such as convenience foods, bottled water and vitamins. Both have e-commerce Web sites that allow customers to refill prescriptions on-line. Walgreens is the largest drugstore chain in terms of revenue; CVS has the most outlets.
Neither chain is known for aggressive price-cutting.
Still, when giants clash, a lot of smaller players are likely to get hurt, retail consultants agree. That means more pressure on independent drugstore owners like Guastella. Even Osco may feel some pain, they say.
“The Chicago market doesn’t need three big stand-alone drugstore chains,” Stern said. “If somebody blinks, it won’t be Walgreens.”
Bill Bishop, a retail consultant with Willard Bishop Consulting in Barrington, is more blunt. “If 200 additional stores enter the Chicago market, some will have to exit. It’s not like the market isn’t already well served.”
Still, lots of people are happy to invite CVS to play in their back yards.
James Sexton, village clerk of southwest suburban Evergreen Park, couldn’t be more pleased that CVS has applied for a building permit at 95th Street and Kedzie Avenue, the village’s main shopping thoroughfare.
“We’re excited to have them. We’re going to clean up an old dilapidated building with an absentee landlord. We can’t wait to get them started,” Sexton said. With any luck, construction of the new CVS will be under way by December, he added.
Likewise, Chicago Ald. Virginia Rugai is welcoming CVS to her 19th Ward community, which includes the Beverly and Mt. Greenwood neighborhoods. CVS is moving ahead with a site at 103rd Street and Pulaski Road in Mt. Greenwood and is considering another in Beverly’s historic district at 103rd Street and Longwood Drive.
Rugai is happy with CVS’ plans for Mt. Greenwood but has concerns about its plans for the historic district. “Until we’re sure the store will be an enhancement, it’s not going to happen,” she said.
Rugai also is concerned about competitive fallout five years from now as Walgreens, Osco and CVS battle it out. “My hope is they all succeed. Common sense makes me wonder if they all can.”
Other communities that CVS has targeted for its first wave include west suburban Oak Park and Hillside.
“The perception in the market is that Walgreens is on every corner,” said Tim Gallagher, a Chicago-based partner with Wilton Partners, the Los Angeles development firm that is one of three working for CVS in the Chicago area.
“The reality is there are many holes in the marketplace. We’re trying to open as many stores as we can as quickly as we can.”
It’s also a reality that Walgreens and CVS are increasingly stepping on each other’s toes as they expand nationally.
Walgreens has entered Philadelphia, Atlanta, Baltimore and Virginia in recent years, all markets where CVS had a stronghold first.
“We’ve gone into some of their markets,” said Walgreens’ Polzin. “They’re starting to come into some of ours. That’s business.”
Of course, Walgreens hasn’t made it any easier for CVS to invade Chicago. It already has locked up many of the best pieces of real estate, although the company denies doing so to thwart CVS’ efforts to acquire property.
“We don’t purchase property and sit on it. We don’t play those games,” Polzin said. “If we secure property, we are going to build on it.”
Walgreens also has made it harder for CVS to recruit among its employees by recently issuing stock options to all workers that vest in three years. CVS is likely to have a particularly hard time finding pharmacists, which are in short supply right now.
While Walgreens and CVS begin battling it out in Chicago next year, consumers are likely to be the beneficiaries, industry experts agree. Both chains are likely to offer more specials and low prices to entice shoppers.
“It’s generally the case that consumers benefit from retail wars,” Bishop said. “The competition drives prices down, and the consumer is exposed to a new retail proposition that is different and trying harder.”
