Walgreen Co. is buying the 76 North Carolina retail drugstores belonging to Kerr Drug, a Raleigh-based pharmacy chain with stores in Four Oaks and Benson.
Walgreen, based in Deerfield, Ill., is also buying Kerr Drug’s specialty pharmacy business and distribution center. Kerr Drug will keep its long-term-care pharmacy business.
The deal greatly expands Walgreen’s presence in North Carolina, a fast-growing market where the company now operates about 200 Walgreens stores. In North Carolina, Walgreen has stories in Smithfield, Clayton and the Cleveland community.
In Kerr Drug, Walgreen is getting a company with a loyal customer base that is known for incubating ideas that have been widely adopted by much larger chains.
“They’ve done a lot of innovation in pharmacy service, and I think that matches up with our own strategy to transform the role that community pharmacy plays in health care,” said Michael Polzin, a Walgreen spokesman.
The company doesn’t expect many store closings as a result of the deal, Polzin said. Kerr Drug operates 19 stores in the greater Triangle area.
“At this stage, we anticipate that a significant majority of the Kerr stores will remain open,” Polzin said. “As with most acquisitions, there will be some overlap, which could result in store closures.”
In Johnston County, no town or community has both a Walgreens and Kerr Drug.
Kerr Drug employs a little more than 2,000 people in the state, including fewer than 40 at its Raleigh headquarters.
“If there are any reductions, severance benefits would be provided to any jobs that are affected by the transaction,” Polzin said. “We also expect that some positions will be available for Kerr associates at nearby Walgreens locations if there are store closures.”
The acquisition is expected to close by the end of the year. Financial terms weren’t disclosed. Last year, Kerr Drug’s drugstores and specialty pharmacy business had sales of $381 million.
The Kerr Drug name won’t go away immediately. Walgreen said that Kerr Drug will continue to operate under its own brand until a decision is made on how to integrate the drugstores with Walgreen operations.
Shannon Moore of Four Oaks said she goes to her local Kerr Drug several times a week. She said she wasn’t sure where she would go if Kerr Drug closed but would likely start using Walgreens.
Moore said she likes going to Kerr Drug because of the discounts and the friendly staff. “They treat me like they know me,” she said.
April Thompson of Four Oaks, who also goes to Kerr Drug weekly, said she isn’t concerned about the ownership change.
Thompson said she likes Kerr Drug because of the one-on-one help, both in the pharmacy and in the rest of the store. “They know me personally,” she said of employees.
The changing health care landscape has made it harder for independent pharmacies and regional chains to compete. The profit pharmacies make on each prescription has been declining as reimbursement rates from both insurance companies and the government get thinner, said David Magee, an analyst with SunTrust Robinson Humphrey in Atlanta.
Smaller players also have less leverage when negotiating with pharmacy benefit managers, or PPMs, which administer prescription benefit programs.
“That’s why it pays to have the size and sophistication in this space,” Magee said. “They have the brand names, they have the relationships with the PPMs, they usually have really good real estate, and they have established advertising.”
Walgreen is the nation’s largest drugstore chain, with sales of $72 billion last year. The company operates 8,117 drugstores in the United States.
It also is a health care provider, operating 370 in-store clinics and more than 350 health and wellness centers on the campuses of large employers.
Magee said Walgreen, like its competitors, is positioning itself to benefit from the surge in insured patients that is expected to result from federal health care reform. That means becoming a low-cost and convenient provider of basic health care, one that improves a patient’s overall health by doing more than just dispensing drugs.
Diane Eliezer, Kerr Drug’s director of marketing, said Walgreen’s efforts to expand the traditional role of the drugstore made it a good fit for Kerr Drug.
“Obviously, in this competitive environment, there are some things that you can’t overcome,” she said, “and so what you want to do is make the best judgment going forward with the best partner available.”
Paula Seligson contributed reporting.