Keeping competition at bay in Puerto Rico

RIO PIEDRAS, Puerto Rico -- Despite Puerto Rico's difficult competitive climate, Farmacias El Amal ended 1999 with a 12.5 percent sales gain and a 10 percent advance in same-store sales. The chain also added five new stores and remodeled five more.

The increase in sales to $180 million was far more difficult in 1999 than in previous years because of competitors such as Kmart, which aggressively added drug store-style departments in 16 existing units.

According to Saleh Yassin, president and chief executive of Farmacias El Amal, "Wal-Mart is also adding more [pharmacies] into their stores, and Walgreens, too, is aggressively opening more stores." Independent drug stores, with more than 800 locations on the island, also make the battlefield a challenge. And newcomers such as Eckerd, which is rumored to be entering the market, will make 2000 just as competitive.

But the competition does not appear to be getting in the way of Farmacias, or Yassin, who keeps competitors' game plans at arm's length so he can focus on 2000 goals, such as fine-tuning operations.

Farmacias spent $2 million in 1999 to install a new data-mining and data-warehousing system designed to improve category management.

The results accumulated in the first year showed that sales in convenience food items and school supplies grew markedly. As a result, Farmacias doubled the size of its school supplies departments, beefed up consumables and equipped all stores with freezers to house ever-popular TV dinners.

In 1999, general merchandise and grocery products accounted for 25 percent of sales, up from the previous year. In addition, over-the-counter products accounted for 15 percent of sales, health and beauty care products for 10 percent and home health care for 10 percent. In 2000, some of these categories will receive new planograms based on scan sales data from the prior year.

Along with the plan to improve customer convenience by adding drive-throughs, Farmacias is planning new promotional moves to drive foot traffic into stores. For example, the chain will expand greatly its Mother's Day flyer, which will be the largest ever at 52 pages. Yassin said suppliers have been more than cooperative in helping the chain achieve a bulked-up shopper, which was only 16 pages last year.

Other changes in 2000 include the addition of four drive-throughs, which Yassin noted was spurred by Walgreens' aggressive addition of drive-throughs to its stores. Farmacias plans to open five stores this year, increasing its store count to 60, and all but one are slated to get drive-through pharmacies.

Farmacias also will focus on increasing membership in its customer loyalty card program, which began last year. Current membership totals 8,000 subscribers, but Yassin was expecting more people to join. To improve membership, Farmacias "is right now studying what marketing tools will increase [membership] and also focusing on an e-commerce site, which we should launch by year's end."

Farmacias is teaming up with Microsoft for its online pharmacy, e-commerce and Web site initiatives, which should launch by the end of the third quarter.

By the end of the year, Yassin expects Farmacias to be able to deliver prescriptions and other goods to a customer's door within two days. Competitors have to deliver from the United States, whence it takes up to five days for delivery.

"There is a lot of value being first on this type of thing. [Walgreens] is doing this from the States, and we are local here. We want to do it in hand with second-day delivery and in some places even same-day delivery."

Farmacias El Amal

Headquarters: Rio Piedras, Puerto Rico

1999 sales: $180 million

% change vs. 1998: 12.5 percent

No of units: 55

Pharmacy sales: $72 million

% of sales from pharmacy: 40 percent

COPYRIGHT 2000 Lebhar-Friedman, Inc.
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