National drugstore giant CVS announced Monday that it plans to buy half of rival Eckerd, including all the Arizona stores, forming the country’s largest pharmacy retailer with more than 5,000 stores in 36 states.
Previous leader Walgreens has about 4,300 stores in 46 states.
CVS said it will buy 1,260 Eckerd stores in Southern states, Eckerd’s $1 billion mail-order pharmacy and three distribution centers from J.C. Penney Co. for $2.15 billion in cash. Retailer Penney, which has been trying to unload the pharmacy business for six months, is selling Eckerd stores in the Northeast and Mid-Atlantic states plus the pharmacy chain’s Florida headquarters to the Jean Coutu Group for $2.4 billion. Jean Coutu will take over 1,539 Eckerd stores in 13 states.
Pending regulatory approvals, the deals are expected to close by the end of June.
CVS will double its local presence after the acquisition with 37 stores Valleywide. But with 141 Valley stores, Walgreens is still formidable competition.
The second-largest local pharmacy presence is Osco with 97 Valley locations — including stand-alones and Osco-Albertson’s supermarket combos. Osco is based in Scottsdale.
CVS and Eckerd are newcomers to the Valley, trying to capture the lucrative prescription business. In early 2002, CVS entered the south East Valley market with its first three stores in Chandler, Gilbert and Mesa. The chain now has six stores in Mesa, four in Chandler, two in Gilbert, plus seven more stores in the Valley.
Eckerd followed nearly a year later with an even more aggressive building agenda. Eckerd now has 18 Valley stores, including two in Tempe, two in Mesa and one each in Gilbert, Scottsdale and Ahwatukee Foothills.
CVS expects to close some stores after the merger in areas where Eckerd and CVS stores are in close proximity, CVS spokesman Mike DeAngelis said. But he said it’s too soon to say which stores will close. Since both chains are so new and so few in the local market, it’s likely that most — if not all — the East Valley stores will be saved.
A merger of pharmacy chains “was inevitable,” said Tom Rex, research director at Arizona State University’s W.P. Carey School of Business.
The timing of the CVS-Eckerd deal was fortuitous for the Valley, he said. Since both chains were aggressively and simultaneously entering the area, a few more years as competitors could have left local intersections saturated with drugstores, Rex said.
“There’s still plenty of competition, and people will still be served, but this is positive rather than have the stores overbuild and later close,” Rex said. “You can’t have two (new-to-the-market chains) at the same time trying to take the same market share. And in the far south East Valley, the new pharmacies are going up faster than the houses.” Rex said consolidation of supermarkets and banks has already left the Valley full of big empty boxes to fill. The two rapidly expanding drugstore chains could have added to the crop of future retail vacancies.
DeAngelis said suddenly doubling its store count will help CVS take on Walgreens in the Valley. “In two years, our stores have done well there, and Arizona is an important market because of the growing population and the growing prescription usage,” he said. “This will solidify our position in the market.”
Walgreens isn’t worried, said spokesman Michael Polzin.
“We have the name recognition and the history of serving that market for 70 years,” Polzin said. “But that doesn’t mean we will sit back. We’ll continue to look at opportunities for new stores and to provide the best service to attract new customers. This won’t change our strategies. We’ll continue to grow.”
Osco competes with CVS and Eckerd in several markets, said spokeswoman Karen Ramos. She doesn’t see the merger making much of a difference in Arizona.
“Our focus is on our customers,” Ramos said. “We try to sell our customers every day that we have the best drugstores out there. We know they have many other choices.”
It’s the prescriptions, not the toothpaste and toilet paper, that the stores bank on. Aging baby boomers are fueling the growth of drugstores nationwide. The Valley’s popularity among retirees makes it especially attractive for the chains.
“Over 60 percent of our revenue comes from the pharmacy,” Polzin said. “That’s the heart of our business.”