CVS/pharmacy’s buyout of the Plaza Shopping Center on Superior Street in Duluth, Minn., is the latest shot in a heated battle between the nation's largest drug store chains: CVS/pharmacy and Walgreens. “Walgreens has a reputation for spotting the best locations while CVS/pharmacy always follows and copies them,” said Ahmed Maamoun, an assistant professor of Marketing in the Labovitz School of Business & Economics at the University of Minnesota Duluth.
Maamoun said that the strategy of similar businesses clustering together is a common phenomenon.
It is found not only among drug store chains but also other retail formats such as Wal-Mart and Target, Sam’s Club and Costco, Home Depot and Lowe’s, Starbucks and Dunkin’ Donuts.
“The strategy aims at making it more difficult for the competitor to gain market share, revenues, or profits that could be used to undermine the other rival in other markets,” Maamoun said.
In the last two years, the faceoff between Walgreens and CVS/pharmacy in Duluth has been criticized because of the property buyouts, the tenant’s leases, and the changing face of the neighborhood.
According to the National Association of Chain Drug Stores, Walgreen Co. is the largest drug retailing chain in the United States of America. It has 8,300 stores across all 50 states, the District of Columbia and Puerto Rico.
CVS/pharmacy is the second largest pharmacy chain in the United States with more than 7,000 stores in 41 states and Puerto Rico.
Duluth will soon get its first CVS/pharmacy store. In fact, the new store will be right across from Walgreens on Superior Street.
The property details from the City of Duluth Assessor’s website state that CVS/pharmacy bought the property from Plaza Associates of Duluth LLP for $2.3 million in October 2011. A house between the strip mall and the Super America gas station was also included in the purchase. The total estimated market value (EMV) of the property was assessed at $635,000.
CVS/pharmacy also purchased the Super America gas station on the corner of Superior Street and 12th Avenue East for $1 million.
Mike DeAngelis, public relations director for CVS/pharmacy, said that the location for the new pharmacy store was chosen due to the high visibility and accessibility.
“It is important for our customers to have convenient access to pharmacy services,” DeAngelis said. “We will build a store that complements the surrounding community and provides a superior level of products, services and value to the community.”
The brewing national battle between nation's largest retail pharmacies has come to Duluth at a cost.
John Cabrey, a neighborhood resident, said that all the good things in the community are gone.
“I had a nightmare that Wal-Mart is taking over the parking lot of Super One,” Cabrey said. “All the three monsters were competing with each other, converting the residential community into a commercial hood.”
Cabrey had been a tenant in a house for 25 years until it was demolished in May 2010. Cabrey’s house was razed, along with six other historic residential buildings, to construct the new Walgreens.
“When an elephant walks through a field, does it worry about the mice in the field?” John Cabrey said. “The pharmacies are the elephants and the tenants are the mice.”
CVS/pharmacy’s $2.3 million buyout of the Plaza Shopping Center does not include the buyout of the leases of the independent business owners in the plaza.
Rolf B. Flaig, agent for State Farm Insurance, has been in the Plaza Shopping Center for more than 14 years. Flaig’s lease ran through May 2015 but he sold it to CVS/pharmacy.
Flaig did not disclose the details of the buyout because it was a private transaction.
“Technically speaking, I had the legal right to stay here until May 2015,” Flaig said. “In reality, CVS/pharmacy wouldn’t have let me stay because it would have been an obstacle in the construction of the new store.”
Flaig said that CVS/pharmacy allowed him to make an offer on any building he wanted to buy.
“It was a lot of hassle but a win-win situation for both CVS/pharmacy and me,” Flaig said.
While Flaig is happy to have a new beginning in Kenwood Shopping Center, he feels that the competition between the pharmacies has taken away the unique quality of the Plaza Shopping Center.
“There is no longer a hair salon, an insurance agency, a gas station and a fitness center all at the same place,” Flaig said.
Some, like Lynn Levine, were treated differently.
Levine, 58, owned the Plaza Hair Styles for about 33 years.
Until CVS took over.
“Sometimes, I think I wasted those years,” Levine said. “I spent 33 years on my salon so that I could sell it and retire.”
Levine said that about two years ago, CVS/pharmacy started negotiations with the other tenants in the Plaza Shopping Center.
“They didn’t talk to me,” Levine said. “They ignored me.”
In September 2011, Levine was offered $20,000 for the buyout of her lease.
“But CVS/pharmacy rescinded the offer a few weeks later,” Levine said.
CVS/pharmacy contacted Levine again and offered her rent money from January through March, plus two extra weeks in April. They also offered her $3,000 for relocating expenses.
“It’s like no money out of their pockets,” Levine said.
Levine, who now rents a chair at Revelations Hair Salon on London Road, has no plans to reopen her salon.
“CVS/pharmacy thinks that if you are a stylist, you can go anywhere, bring your equipment and start working,” Levine said. “They don’t know about the different regulations.”
But DeAngelis, CVS/pharmacy’s public relations director, said that Plaza Hair Styles rejected the lease buyout offer.
“We then agreed to let them stay on-site until the end of March 2012, well beyond the 90-day notice as stipulated in their lease,” DeAngelis said. “We also agreed to waive their rent for the last three months of their occupation.”
DeAngelis further said that they worked with many of the tenants to provide them with buyouts for their lease agreements.
“An exception is Beijing Restaurant, which at this time has chosen to remain on-site until their lease expires in 2015,” DeAngelis said.
The owner of Beijing Restaurant could not be reached for comment.
Terry Guggenbuehl, vice president of the City of Duluth Planning Commission, said that the planning commission has not received any applications for a new CVS/pharmacy on Superior Street.
“We typically decide on land developments, not land purchases,” Guggenbuehl said. “It's likely that when CVS is ready to build, they will come before the Planning Commission.”
Across town, Walgreens is constructing its new store on the intersection of West Arrowhead Road and Kenwood Avenue.
To build the new store, Kenwood Apartments was demolished last summer.
Yihan Zhu, a senior accounting and finance major at the University of Minnesota Duluth, was forced to move out of the Kenwood Apartments.
“There was no negotiation,” Zhu said. “The lease was not over but we did not get any compensation.”
Zhu, an international student from China, said that it was a horrible time because all the building's residents were doing the same thing at the same time: looking for new apartments.
“I was sacrificed because of the competition between the retailers,” Zhu said.
Despite the disturbances caused by the competition between Walgreens and CVS/pharmacy on Superior Street and 12th Avenue East, there is some good news for the neighborhood and its residents.
Mark Labovitz, president and CEO of Labovitz Enterprises, and former manager of the Plaza Shopping Center, said that the new CVS/pharmacy store on Superior Street represents a big investment.
“The existing merchants in the area benefit from the additional traffic that Walgreens and CVS/pharmacy will bring,” Labovitz said. “The consumers will have new facilities, additional choices and stronger merchants in the area.”
Moreover, there is a benefit of having two pharmacies on the same street.
“If consumers don’t like one retail store, they have the option of switching to the other one,” said Maamoun, assistant professor of marketing at the University of Minnesota Duluth.