At the end of last month, Walgreens announced that it will buy out Rite Aid in a $17.2 billion deal that is likely to draw some anti-trust scrutiny. Walgreens is the largest drug store chain in the US, with more than 8,000 stores, while Rite Aid sits in the #3 position with 4600 stores. (CVS is #2 with 7800 locations.)
Regulators will be addressing the question of whether or not this is good for consumers. My question here, though, is what’s in it for Walgreens? On the face of it, they add a lot of stores growing by more than 50 percent. But obviously that’s not the way it will play out because many stores are just too close together and will have to close. How many stores, you ask?
Well, according to an article in Fortune magazine, that number could be as high as 3000. The deal allows for divestiture or closing of as many as 1000 stores. But analysis from commercial real estate firm Cushman & Wakefield, suggests that, aside from any anti-trust concerns, just based on locations that are in close proximity, Walgreens could close about 3000 stores, or two-thirds of their acquisition.
Seriously, would you go to your local Walgreens and by a 24-pack of beer, knowing that you’re going to pour 16 cans down the drain because they won’t fit in your refrigerator?
It would seem obvious that there is but one reason for this deal: to eliminate a major competitor. One would hope that the FTC will look at this and reject it.
But there is yet another aspect of this deal, and that the people who work in these stores. I was at a CVS yesterday and I asked how many people work in a typical CVS. The answer was 20-25. If Walgreens staffs similarly that means at least 60,000 people will lose their jobs because of this deal, and that's just in the stores, Add in the people working in home office, the warehouses, truck drivers and you’re talking many more. No doubt there will be a ripple effect on vendors — even if the combined stores sell the same amount of product, the soft drink and beer distributors, etc. won’t have as many stops to make, the greeter card merchandisers won't have as many stores to service, and so on down the line.
And for what? To create a virtual duopoly in the drugstore industry and raise prices?
Job creators, my ass.
One other point...my friend used to be a pharmacist for Walgreens, and he was constantly under pressure crank out more prescriptions during his shift. Then the reduced his shift from one pharmacist to two, and he was still expected to fill the same number of prescriptions as the two of them had. He finally went to the overnight shift just to avoid the stress of not pulling a Mr. Gower.
So where they close a Rite Aid because it’s across the street from a Walgreens, do you think they’re going to hire another pharmacist? Don't bet on it.
