Stage set for drug market share battle in San Diego

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Stage set for drug market share battle in San Diego

By John Karolefski - 04/25/2018
The retail marketplace continues to churn in San Diego, a metro area that is growing by leaps and bounds, but also is hounded by high real estate and worker costs. Albertson’s pending acquisition of Rite Aid could shake up the drug channel here, which is dominated by CVS Pharmacy as it competes with a growing number of grocers in a club- and mass-dominated market.

Meanwhile, other factors affecting retail competition are the growing Hispanic population and the increasing popularity of such specialty stores as Sprouts, Trader’s Joe’s and especially Whole Foods, which is sure to flex its muscles due to its new owner, Amazon.

Change began in this area three years ago with the merger between Albertsons and Safeway, the parent company of the Vons banner. Today, according to ARM Insight, Vons has an 18.5% market share in San Diego, while Albertsons only has 2.9%. Adding 7.0% from Ralphs gives traditional grocery slightly more than a quarter market share. More than half of the marketplace is controlled by market leader Costco (22.8%), Walmart (17.6%) and Target (10.8%).

Retailers are certainly aware of the growing population in the San Diego metro market, especially among Hispanic consumers. This will naturally lead to more store growth, which will intensify retail competition. Neil Stern, senior partner at Chicago-based McMillanDoolittle consultancy, predicted that much of this new growth will be in the value grocery segment.

“The immigrant population will also drive significant change in retail,” he said. “The millennial generation is already more than 40% ethnic, as an example. This leads to potential changes, large and small. From a merchandise standpoint, food, drug and mass must make changes to the assortment to accommodate the profiles of various ethnic consumers. On a larger scale, we will see the emergence of more specialty-focused chains, particularly around the Hispanic consumer, with a number of very strong regional chains already emerging.”

The demographic changes also will affect drug stores, which are carrying more food items and other nontraditional drug store merchandise to drive impulse and convenience purchases.

CVS Pharmacy dominates the San Diego marketplace with a 57% share, per ARM Insight. Rite Aid trails at 30% and Walgreens at 12%.

The drug channel in San Diego and across much of the country will be affected by Albertsons’ pending purchase of Rite Aid. “The move will allow Albertsons to go public as a “fully-integrated one-stop shop,” Albertsons’ CEO Bob Miller said when the merger was announced.

Brandt Sharrock, vice president of development and acquisitions of Wellesley, Mass.-based Charterhouse Development, said, “For drug stores, the pharmacy market has become extremely competitive through acquisitions of supply chains and individual drug store chains, small or large. Drug store companies that are successful will be those that focus in an area that is hard to duplicate and is based on health and wellness.

Consumers still want to go to a trusted provider, and the convenience of a wellness clinic in a pharmacy is hard to beat. Combined with a personalized experience in health and beauty, there is a strong, personalized market that is impossible to duplicate online.”

As more retailers offer pharmacy services outside the drug channel, Sharrock said that retail drug chains are well-adapted to compete.

“Grocery providers remain strong in the day-to-day needs, but many drug stores recognize that and are providing convenience store needs to add on to the general checkout ticket and provide immense value in urban markets where convenience is extraordinarily important,” Sharrock said.