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RITE AID THIRD PARTY BUSINESS NOW ACCOUNTS FOR OVER 35% OF PHARMACY VOLUME, GRASS TELLS NACDS; GROWTH OF SECTOR WILL DRIVE PHARMACY COMPUTERIZATION TREND

Executive Summary

Rite Aid's "growing" business with third party payors currently represents "over 35%" of pharmacy sales, the drug chain's chairman, Alex Grass, said at the National Association of Chain Drug Stores' annual meeting on April 29. Grass' presentation was on the changing retail market as it applies to the chain industry. "The future, with the growing older population, will demand drug stores geared to handle more third party business [and] it will be important to attract these groups," Grass said. "Such Rxs already account for over 35% of pharmacy sales at my company and our view is that this is merely a base for the kind of third party volume we're going to experience in the future as America grows older." Also in recognition of the growing role of managed health care systems, NACDS has announced that it is reviewing the feasibility of sponsoring a pharmacy service organization for chain members. Grass warned that the trend toward privatization of health care will place a pressure on drug store pharmacy departments to embrace new technologies. "The source of much of [third party] revenue will not necessarily be the government -- a large and increasing portion will come from the private sector," Grass noted. "That means it will be even more important to have procedures fine-tuned and pharmacy departments computerized to deal with the large volume of third party scrips." Grass' view on the future of chain drug retailing was one of four presentations at the annual meeting's April 29 business session on the subject. The other speakers were McKesson President Thomas Field, Wal-Mart Vice Chairman Jack Shewmaker, and Robert Maich, president of Silicorp, Ltd., a Canadien convenience store chain. Both Grass and Field agreed that pharmacists will have to be more visible and accessible. "Our customers have need to know much more about drugs doctors are prescribing," Grass noted. "Consultation with patients by pharmacists will be a critical factor separating one drug store from another." He added that the trend toward pharmacy automatation will "free the pharmacist to use to the fullest extent and to the greatest benefit his education and knowledge of drug therapy." Field highlighted pharmacist service in a four-point recommendation to the chain group. "Shift the role of your pharmacist -- make him or her a personalized customer service resource; the source of health information in your store," he said. The former American Stores/Alpha Beta exec also advised the chains to "know your customer by store -- select your merchandise and display and price it according to their needs -- . . . and focus on novelty, information, interaction and customer comfort." Field suggested that in the pharmacy area, drug retailers can improve their competitive position "by doing the reverse of what the big discounters do: hire the best pharmacists; sell the right product at the right price; make health care your niche; use computers to help your customers, such as patient profiles; advertise your accessability in case of emergency; train your people to provide caring and courteous service; and analyze your store layout." Field recommended that the chains consider creating "places where people can gather . . . where the customer can wait in comfort like in a doctor's office." Field also advised the drug chain group not to transfer pharmacists from store to store. "Let him or her stay in the store and learn the customers," Fields said. However, Field and Grass disagreed on the drug store format of the future. Emphasizing product assortment and convenience shopping, Field predicted that "the number and size of combination stores will increase." Grass, however, stressed the key role of pharmacy for the industry and the importance of penetrating rural markets that are unable to support larger stores. "The great strength of independent drug stores has been good locations in smaller towns where chains have felt it inappropriate to go with their generally much larger, more lavishly merchandised stores," Grass point out. "I believe that more chains are now going into these markets in an important way with a very focused type of store." The Rite Aid chief exec described his vision of the future chain drug store as "a pharmacy oriented, modestly sized outlet capable of performing in a wide variety of locations." Store fixtures, Grass predicted, "will undergo some changes to work better with improved store design." Technological advances outside of the pharmacy will also be applied, particularly scanners, Grass said. Rite Aid now has "about 400 stores with scanning devices," Grass said, and a new distribution center in South Carolina coming onstream this summer "that will eliminate manual pricing functions."
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