OTC manufacturers "strategic alliances" with small drug chains mutually beneficial -- Kerr

OTC MANUFACTURERS "STRATEGIC ALLIANCES" WITH REGIONAL DRUG CHAINS would be mutually beneficial, Kerr Drug President and CEO Tony Civello commented at the Nonprescription Drug Manufacturers Association Annual Executive Conference in Palm Beach, Fla. March 19-22. "For Kerr Drug, the doors are wide open for strategic alliances with...suppliers," Civello noted. The drug store executive participated in a panel discussion entitled "The Retail Trade -- It's Changing; Will You?"

"If I understand what your problems are," whether they be the "manufacturing process, the distribution [or] dealing with the large chains, then I can better advantage you through opportunities in my stores," Civello said. Stocking "18 different sizes of the same item...doesn't help us at all to carry that many items," he maintained. So, "if we work together in the strategic alliance sense that I mentioned earlier, then we can streamline what you produce, and streamline what I need, and both [will] be more profitable."

Civello noted Kerr, a 165-store regional drug chain serving the Carolinas, is "thinking about acquisitions and growing the company" but has "no intention to be available" for sale.

Manufacturers should "make absolutely certain that the products we're offering to the consumers provide them with some unique and meaningfully different reason for being than other products within that category," Del Pharmaceuticals President Charles Hinkaty noted during the panel discussion. Hinkaty is NDMA chairman-elect.

"There is a place for regional" drug chains, Happy Harry's Discount Drug Stores President and CEO Alan Levin said, noting smaller chains may provide enhanced customer service and can make business decisions without the approval of "ten layers of management."

Regional chains serve as the "conscience" of the OTC industry, Levin added. "If you were left to only serve four mega-chains, superchains...God save you all," he maintained. OTC manufacturers "should certainly make sure that we survive and we continue to flourish and grow," he affirmed.

Gerald Heller, president and CEO of May's Drug Stores and twice an NDMA chairman, said "if we're going to continue to grow and prosper, we have to have the cooperation of every company in this room and in our industry, and we can't be put at a disadvantage." Many suppliers "do a good job of making sure that we are not put at that disadvantage; but others...talk about not putting us at that disadvantage, and yet you do it every day of the week."

Some companies "do a great job of making sure everybody gets shipped [products] at the same time, others...talk about it, but you very definitely ship [products to] the large people before" the smaller chains, Heller noted. The regional chain's plea for equity may be drowned out by the larger players, however: Eckerd Senior VP, Merchandising & Purchasing Enzo Cerra told participants in NDMA's annual regulatory/marketing seminar, held earlier in March, that mega-chains expect to have new products first ("The Rose Sheet" March 23, p. 11).

Eckerd Vice Chairman Robert Hannan told the panel audience his chain's relations with suppliers are "strained at times." During J.C. Penney's acquisition of Eckerd, everybody "saw the figure $100 mil." that was forecast to be realized in savings, Hannan noted, adding that "$100 mil. became...an obligation" that "has been developed...pro forma to justify company A acquiring company B." Hannan said "some of that comes from reducing overhead, but most of that savings comes from better buying -- squeezing lower prices out of the suppliers." Eckerd is "absolutely" interested in further acquisitions, he added.

The "winner" in the competition between drug chains "will be the store that provides the merchandise mix that best responds to the expectations of the consumer in that particular market," Hannan said. "I'm not talking a market being Pittsburgh or Atlanta, I'm talking about a market being the two-and-a-half mile radius that generally is served by a drug store." Products that "will be able to differentiate the stores" via micromarketing "will be very important," he predicted.

"Regional chains that survive and thrive will determine what it is they do well, they will not try to mimic the big chains, and they'll work the heck out of those features of their business," Hannan continued. "Most importantly, I think they'll really outshine the larger mega-chains in the area of customer service...to that block of customers that reside within that two-and-a-half mile radius where they operate their stores."