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Wednesday, July 31, 2002

By Teresa F. Lindeman, Post-Gazette Staff Writer

A whole lot of spending power has just been set adrift in Pittsburgh, and somebody's going to reel it in.

That opportunity has triggered an onslaught of drugstore advertising targeted directly to the customers who've gotten their prescriptions filled at discounter Phar-Mor Inc.

Just over a week ago, a bankruptcy court approved going-out-of-business sales for many of the Youngstown, Ohio-based chain's locations. The competitive blitz began almost immediately, from radio and newspaper ads offering incentives for switching to signs welcoming Phar-Mor customers in many a drugstore window.

Giant Eagle Inc. and CVS Corp. actually bought a number of the bankrupt company's prescription files; but even competitors such as Rite Aid Corp. that didn't buy the prescription lists are trying for a piece of the action.

"You're going to continue to have unprecedented advertising levels because the Phar-Mor prescription customers are among the most valuable in the Pittsburgh metropolitan market," said Burt Flickinger III, a retail consultant at Reach Marketing in Westport, Conn.

Flickinger estimated that the average customer in the industry -- at least those who regularly need medicine -- may spend $1,000 annually on drugs. The occasional customer might spend closer to $100 annually. But while they're in the store to have a prescription filled, any of them may spend between $8 and $11 on other items.

Phar-Mor assembled its coveted customer base with a policy of running low profit margins on its pharmaceuticals, Flickinger said. Even expensive drugs such as Viagra were sold at low margins.

In the auction of the company's assets, one of the biggest draws was the prescription files. Such files are usually transferred to a nearby store when a pharmacy closes, meeting the requirement they be kept at a licensed pharmacy. There have been some challenges to the system, but it continues to be the norm.

The complicated Phar-Mor deal in mid-July sent files from 27 stores, most of them in the Pittsburgh region, to O'Hara grocer Giant Eagle; those from another 26 stores to Rhode Island-based drugstore operator CVS; and files from one store to Eckerd Corp., of Clearwater, Fla. Prescription files from Phar-Mor's final 19 stores, including one on Mall Drive in Steubenville, Ohio, are still being marketed.

Giant Eagle spokesman Rob Borella said his company already had shifted the acquired files into its computer system. Giant Eagle sent employees to its group of Phar-Mor stores to explain the switch, and began sending out letters last week to the affected customers, explaining that they should be able to go into any Giant Eagle with a pharmacy and have their prescriptions filled.

"It was a pretty seamless transition," said Borella.

CVS didn't buy any files from stores in the Pittsburgh area, but it has been actively marketing for transfers here. "It's just a simple matter of we want to be able to serve pharmacy customers," said spokesman Mike DeAngelis.

He noted that 67 percent of the company's revenues come from the pharmaceutical side of the business, even though aisles of cards, diapers and notions take up more square footage.

Drugstores often find much of their sales growth is in the back of the store, too. In June, CVS reported pharmacy sales in stores open at least a year jumped 12.1 percent while sales of all other merchandise rose 3.6 percent.

Giant Eagle also is eager to continue making inroads. The company has seen its pharmacy revenues grow from 15 percent to 20 percent annually the past several years, Borella said.

No matter which pharmacy bought the prescription files, customers have the right to go wherever they want. Basically, they can just go to their existing Phar-Mor and ask them to send the files to the pharmacy of their choice -- which is why the advertising war has broken out for Phar-Mor pharmacy customers.

The future of the actual Phar-Mor store sites will probably take longer to resolve than the dispersal of prescription files.

Giant Eagle, which created Phar-Mor as a subsidiary in the 1980s but cut most ties in the early 1990s after some drugstore executives admitted falsifying financial results, will control leases on eight locations, giving it a final say on who can and can't come in. More than 60 other leases are being sold.

Borella said Giant Eagle had hired dozens of Phar-Mor pharmacists and pharmaceutical technicians. The grocer hopes to recruit other retail staffers to fill about 400 full-time and part-time jobs now open in its stores.