Bitter Pill for Big Drugstores

By Lisa Wormser

As a teenager, Robert Slattery, Jr. — now mayor of Mt. Morris, Michigan (pop. 3,300) — swept floors and helped customers at the pharmacy founded by his grandfather in 1912. Until it closed in 1988, Slattery's Pharmacy was an unofficial community center, home to the town's first telephone and last soda fountain. Slattery's brother Pat recently sold his pharmacy in nearby Burton (pop. 27,617) to the Rite Aid Corporation.

Now Mayor Slattery is presiding over two major drugstore development projects in Mt. Morris — one being built by Rite Aid, based in Harrisburg, Pennsylvania, and the other by Arbor Drugs (which was recently acquired by the CVS Corporation, based in Woonsocket, Rhode Island). Soon Mt. Morris, all of 1.5 square miles with a downtown roughly one block in each direction, will have two major chain drugstores in addition to its two remaining independent pharmacies. This winter, an entire downtown block will be razed to make way for the new Rite Aid store.

Mt. Morris is not unique in having to cope with big drugstore chains. Local officials across the country are negotiating over landscaping, parking requirements, and the scale of drugstore development. As outlined on their own web sites, the nation's drugstore chains have ambitions to expand throughout the U.S. — putting an additional burden on independents.

The National Community Pharmacists Association in Alexandria, Virginia, says that it represents close to 30,000 independent pharmacies nationwide. Another Alexandria-based organization, the National Association of Chain Drug Stores, puts the number of independents at 20,000 and estimates that the total has been dropping by more than 1,000 a year since 1990. NACD also says that the number of chain drugstore outlets has grown from about 18,500 to 19,000 in the same period. Judging by figures from three of the largest chains, their growth rate could increase substantially in the next few years if they follow through on their current plans.

On one point the independent and chain drugstores agree: Both say that large drug companies favor customers buying in bulk, including mail-order prescription plans, health maintenance organizations, and large discount retailers such as Wal-Mart and Kmart. In a federal lawsuit settled last July, four drug companies agreed to pay about $350 million to settle price-fixing lawsuits filed by independent and chain drugstores.

Few surprises

One result of the chains' expansion is that Main Streets are becoming more architecturally homogeneous. For the most part, their design prototypes vary little whether the development is proposed for town, country, suburb, or the heart of a city.

According to information on the chains' respective web sites, Rite Aid intends to open more than 1,000 stores, each with 10,572 square feet and a drive-through window, by the end of this year. CVS's prototype is a 10,125-square-foot facility on a site of one to 1.25 acres that offers high visibility and easy access. That translates to pylon signs, high-traffic arterial locations, and parking for 40 to 60 vehicles. CVS expects to open 425 new stores in 1999. And Walgreens, which first began experimenting with freestanding stores in the 1980s, currently operates more than 2,500 stores across 35 states and Puerto Rico, plans to develop 500 more stores by 2000, and anticipates a total of 6,000 stores by 2010.

Unlike its competitors, Walgreens, according to its web site, is willing to "[go] to great lengths to preserve the visual integrity of the surrounding area" in neighborhoods where it locates. The web site features a map of the U.S. highlighting a dozen stores with designs Walgreens is particularly proud of. San Francisco's downtown Walgreens boasts a bank-like facade, while Los Angeles has one with a neon exterior. A Walgreens in Colorado Springs looks like a cozy lodge with a breathtaking Rocky Mountain backdrop. But what of the other 2,488 stores?

"We do try to blend into each community and be sensitive to its needs," says Michael Polzin, community relations spokesman for the chain in its Deerfield, Illinois, headquarters. "But we take a unique design approach in a very small percentage of our stores — probably fewer than 10 percent."

Some elements are not negotiable, says Polzin. "We have to locate a site that's right at the corner of an intersection, that is large enough to accommodate sufficient parking, and that allows for the configuration of a drive-through window," he says. "We feel that putting parking out front makes it more convenient to shop at our stores and easier to work in a drive-through, and it presents a safer environment for our customers." Also, Polzin says, Walgreens wants to make sure that its stores are easily recognizable.

Location, location, location

"The trend toward freestanding stores has been accelerating for three or four years," says Anne Stillman, a Connecticut-based historic preservation consultant who has studied chain drugstores for the National Trust for Historic Preservation. "The chains are targeting prominent downtown corners or entryways to commercial districts, rather than strip shopping centers."

Occasionally chain drugstores that buy out both independents and smaller chains decide to renovate the existing stores; but for large sites, the chains typically bring in their own design teams for soup-to-nuts development. "The developers for chain drugstores often bulldoze historic buildings, sometimes the most architecturally significant in town, to clear their preferred sites," says Stillman.

Critics charge that the chains cluster new stores in a small area to saturate the market and force out the competition. Just west of downtown Nashville, Walgreens has proposed or is building four stores within two miles of each other, according to William Kelly, historic zoning administrator at the Metropolitan Historical Commission of Nashville.

Coincidentally Kelly is fighting a proposed Walgreens as a private citizen. He is working with the newly formed Jacksonian Foundation to save the 1917 Jacksonian Apartments building, among the last grand old apartment buildings near downtown. The building is threatened with demolition to make way for a 10,000-square-foot Walgreens with a 14,000-square-foot parking lot. The chain was recently granted a setback variance by the city. Earlier this fall, tenants received a notice to vacate by November 30.

Last May the Jacksonian Foundation—made up of interested individuals, including tenants of the building — collected 4,000 signatures on a petition calling for the apartment building to be protected and the Walgreens project to be scrapped. The foundation has appealed to reverse the variance approval, and the suit has been joined by neighborhood groups and nearby businesses, including the national Houston's Restaurant chain. At least two other developers have come forth with alternative proposals to renovate the building for residential and retail use, Kelly says.

"Our representatives have been in contact with city officials and with the citizens who have concerns," says Polzin. "We have talked with city officials about what we are doing and how best to do it. At the present time, we intend to open a freestanding store on that site."

Rite Aid, wrong place?

"The drugstore chains want a presence in each neighborhood here," says Vincent Marsh, preservation planner for the city of San Francisco. The most aggressive newcomer is Rite Aid, whose recent acquisition of the Thrifty/Payless stores has given the company six San Francisco locations; it plans to open 20 more in the near future. Walgreens, Rite Aid's main competitor in San Francisco, already has 38 stores in the city.

Chains that want to do business in San Francisco must comply with neighborhood commercial zoning, in place since 1986. The city has over 200 neighborhood commercial districts, where everything from floor area ratio to parking and signage are strictly controlled. Marsh describes the requirements as "analogous to Main Street zoning; they created linear commercial corridors that are walkable and lively."

Still, some issues surrounding commercial development have not gone away. Amit Ghosh, the city's chief of comprehensive planning, says, "You can regulate the physical aspects and impacts of land use, but you can't regulate how businesses structure themselves. Neighborhood groups have no means of controlling chains that comply with the zoning."

In North Beach, a traditional Italian-American neighborhood that is home to dozens of small trattorias and bookstores, Rite Aid recently backed off from a proposed 9,200-square-foot store in the newly renovated Pagoda Theatre after local merchants and residents protested. Recently, though, Mayor Willie Brown and Mabel Teng, a member of the board of supervisors, struck a deal to help Rite Aid find another location in North Beach.

A September press conference to announce the deal was picketed by the Telegraph Hill Dwellers Association, a 45-year-old neighborhood group that had collected 8,000 signatures against the first site and vows to block Rite Aid from developing anywhere in North Beach.

"If a company owns more than one store, that doesn't necessarily indicate that it won't benefit the community," says Darolyn Davis of Davis & Associates. Davis is the San Francisco public relations consultant for Rite Aid. "In some neighborhoods we have been welcomed with open arms. Then there are neighborhoods in which a small group of people believe they have the right to control free enterprise."

North Beach currently has two Walgreens drugstores, one of them three blocks from the Pagoda Theatre and the other about a block from a site that Rite Aid is rumored to be looking at, says Gerry Crowley, president of the Telegraph Hill Dwellers. But neighborhood groups say that the scale of the business and the involvement of the owner in the everyday life of the community are just as important as convenience.

"Most business owners either live or work in North Beach, or both," says Kathleen Dooley, owner of Columbine Designs, a florist at the foot of Telegraph Hill. "This is a small, old-fashioned neighborhood and we like it that way. Everyone knows everyone else."

Davis says Rite Aid strives to be a good neighbor: "We are committed to community outreach and improving the health of a community, whether it's assisting with small clinics in the neighborhood, or education programs, hiring people off welfare rolls, or providing teens with work experience. It's a company commitment," she says.

Davis notes that Rite Aid is considering developing two mixed-use projects in San Francisco that could include low-income housing, one in the Bayview district and another one in an unspecified location. If completed, these could be the only mixed-used projects of their sort developed by a national drugstore chain.

Meanwhile, in October Mark Leno, another member of the board of supervisors, proposed an 18-month moratorium on all new restaurants, bars, or drugstores in North Beach. "I'm just looking for a time out, a breather, so we can come up with a more comprehensive plan to preserve the unique character of the neighborhood," Leno told the San Francisco Examiner. Vincent Marsh says that historic designation for the area is one possible outcome.

Moving in

In Mt. Morris, Rite Aid's site plan was approved only after the company agreed to 24 conditions, including contributing $250,000 toward new sidewalks, decorative brick surfaces, benches, lighting, and burying some downtown utility lines. Mt. Morris also made some concessions: It changed its parking requirements to allow up to 40 percent less parking in some cases, and it changed its zoning to allow drive-throughs.

CVS/Arbor also received preliminary site-plan approval to build a 10,000-square-foot facility at the southwest corner of the main intersection in downtown. "Arbor began with a different style and approach," says Carter Terenzini, city manager for Mt. Morris. "They asked the town what we wanted them to do, set up a scoping session with city staff — including fire, police, department of public works, city planners, and the city architect. Then Arbor put together sketches and was open to changes."

In contrast, Terenzini says, "Rite Aid came in with their formula, right down to which side of the intersection they had to face, circular parking all around, drive-throughs. Once you are locked into that many conditions, there is only one possible way to use the site. It took a lot longer to get to the table, although we now have something workable."

"The fact is that we could use a $3 million project in our downtown," says Bob Slattery, who has a master's in city planning from the University of Michigan and works as a planner with Oakland County. Slattery adds, though, that he feels "Rite Aid isn't really addressing urban design with these improvements; it is simply buying its way into the community."

Meanwhile, the town's two independent pharmacies are hanging on. The chains are not the only factor in their future. According to many pharmacists, the biggest threat to small pharmacies nationwide is not the chain drugstores so much as the advent of managed care, under which insurance companies pay substantially less for each prescription filled, and often refuse to deal with independent pharmacists.

"Almost no independent pharmacy has gone out of business due to competition from chain drugstores," attorney Kenneth McArthur recently told Inside Business magazine. McArthur represented more than 4,000 independent drugstores in the court battle against big pharmaceutical companies.

Home-grown businesses have advantages of their own, namely familiarity and service. In a study published last April in Drug Topics magazine, pharmacy patrons gave independents much higher ratings in nearly every category of service.

"I'm not so sure customer loyalty is a thing of the past," says Slattery. "I think people will reach a saturation point and begin to seek out locally owned businesses that really know and care about the individual." In the meantime, he hopes that "some good things will come out of this project. We are trying to make sure it enhances the downtown and the community."

Lisa Wormser is a writer in Washington, D.C. Copyright by the author.

December 1998