Wade Miquelon: Construction costs have been basically flat, maybe slightly better. You are probably going to see more availability than you''ve seen in the past and again we only go for the best corners but historically we tend to be looking at those corners versus retail banks and others. That will probably open up over time. On renegotiation I would say no. In general, we structure these long-term deals in a way that we believe is beneficial for both parties. Even if we are able to renegotiate or restructure some, it wouldn''t be a marked amount of money.
Deborah Weinswig (Citi): On the POWER initiative in Florida, how are the stores benefiting and have you seen an impact on the consumer as a result of increased attention by the pharmacist?
Greg Wasson: One of the main benefits from POWER is to improve service levels and free the pharmacists up and certainly we are measuring and we see a neutral effect right now. I think that''s probably good because with any system rollout, there is a lot of technology, a lot of change in management that were thrown into the market. We are certainly pleased with what we are seeing. The potential to improve service levels and really allow that pharmacist to spend more time with patients is going to be incredible and that''s the reason we continue to roll it out.
John Heinbockel (Goldman Sachs): How would you look at the front end margin reduction and how would you generally break that out discretionary clearance markdowns around Christmas versus normal promotional activity that you will have every quarter?
Wade Miquelon: We have a little bit of drag from the businesses like specialty, which have a lower margin. Our assessment part of gain was from the Rx retail margin and in the front-end margin was now maybe 70% of that. At the end of the day, almost the entire reduction could be attributed to seasonal closeout and clearance and we did well this seasonal period all things considered especially since our buying happened. As we move forward, we’ve made the right adjustments for that, but the other way I’m saying is you could slice it is that almost all that is essentially some types of seasonal or write-down mix.
Greg Wasson: We did a good job in pulling down our seasonal buyer for the Christmas and holiday but at the same time obviously there are lots of folks down there that were early with markdowns and we had to react to. We did decide to take some markdowns because we want to turn that inventory into cash this year. That was a prudent thing to do. Certainly we''ve reacted to the upcoming seasons as Wade said to make sure that we’ve adjusted to the new economy.
John Heinbockel (Goldman Sachs): Is there a plan to manage non-discretionary front-end growth to a certain level maybe flat and keep investing in value alongside whatever cost reduction you''re getting or you actually think you can see some improvement there?
Greg Wasson: We are seeing a lift in non-discretionary categories and other items now offsetting the drop and the duration. Hence I think that balance will be critical and that''s the reason there is opportunity for us to continue to grow our private-label sales which will help offset their margins.
Wade Miquelon: I wouldn''t see any reason why we couldn''t strive to make improvements in margin in all of our categories, whether we are being more targeted in discretionary, whether we are pulling our staples through more effectively or whether we are driving more business to private-label, et cetera.
Ed Kelly (Credit Suisse): How do you manage the risk of hurting sales by pulling products out that your more loyal customers are looking for in terms of the SKU rationalization and does not having a loyalty card program raise that level of execution risk?
Greg Wasson: As far as how we manage the risk, we are really using what we call shopper-based principles to look at these departments and we are truly looking item by item and what the true profitability of an item is. However, we''re also looking at the regional and the geographic value of each item as well. We are really being careful not to select and not to cut out.
As far as not having loyalty program and whether it does add additional risk, I don''t believe so. I see tremendous opportunity as we go forward, as we know more who our customer is and how to market drug directly to customers. We are managing that risk prudently and appropriately.
Wade Miquelon: On the SKU reduction, we are being extraordinarily thoughtful and apart from the profitability analysis, we''re doing a detailed shopper basket which is by category to make sure that the end proposition is even better, the vetting process for testing or the wave of rollouts is going to give us lots of opportunities to make sure that our read is what we believe. Hence we should be good there. Building more loyalty is a great opportunity for us and invested heavily in loyalty in the past, in things like the best corners in America but to the extent those other things we can do that make sense, we will certainly consider.
Ed Kelly (Credit Suisse): You have been more aggressive on the new store acquisition front recently. How important will this be going forward? How do you evaluate these opportunities and how do you balance doing this with focusing on improving your core store base?
Greg Wasson: As we always do, we will certainly look at every opportunity to make sure it fits strategically as well as gives the right ROIC that we need going forward. We are continuing to see pressure and industry consolidation that we will have to look at and analyze and do it appropriately. That is what I meant my Tom Connolly changing our real estate strategy to more of a portfolio strategy going forward, to make sure if there is an opportunity that makes sense in a certain geography, we will consider it but we will certainly manage that mix between organic and potential opportunities in a prudent way.
Ed Kelly (Credit Suisse): The Company previously made a bid for Longs Drug Stores. Now that you are CEO, are you open to doing something like a large deal or you will focus on your core store base?
Greg Wasson: I think that right now we are absolutely focused on our three-part strategy which is taking and leveraging those 65,000 stores we have and improving the front-end. I think there is tremendous value there. I do think that we will absolutely consider every opportunity and if it makes sense strategically and financially, we are certain to consider it going forward.
Lisa Gill (JP Morgan): When you think about central fill, which you are already doing in the Florida market, is there an opportunity to roll this out nationwide and if so, what percentage of your prescriptions do you foresee going through central fill?
Greg Wasson: There is potential to do 30% to 35% of our prescriptions to go through central fill that is kind of backing in from the percentage of chronic prescriptions that we get still ahead of time. The second will be really more dependent on how successful we are with State regulation and legislation that allows us to fill across states and between states. We''re certainly leveraging Orlando mail service facility in Florida. We intend to leverage our Tempe mail service facility in Arizona, to begin to central fill and aggressively work to show the value that we are seeing in Florida as we work with other states to improve the legislation process.
|
More:
