Walgreen plans overhaul, CVS makes generic push

By Jessica Wohl

CHICAGO (Reuters) - Walgreen Co (WAG.N) is redesigning stores and adding more groceries to appeal to busy shoppers, while CVS Caremark Corp (CVS.N) is going after cash- strapped consumers looking for cheap drugs, the companies said on Thursday.

Both U.S. drugstore chains know consumers need bargains on household goods and medication, so they are shaking up their strategies to prevent shoppers from defecting to a discounter such as Wal-Mart Stores Inc (WMT.N).

The two unveiled new strategies after a battle for Longs Drug Stores Corp LDG.N ended this month. Walgreen's had sought to usurp CVS's acquisition of the company and expand in markets such as California and Hawaii. But Longs rebuffed the offer and its deal with CVS is set to close on Thursday.

Walgreen, which held its first-ever analyst meeting on Thursday, says consumers are shopping closer to when they get their paychecks and using credit cards less.

CVS, which reported higher third-quarter profit, said some customers are choosing to self-medicate when they are sick rather than spend money on doctor visits.

While fewer trips to the doctor means consumers may fill fewer prescriptions, they are buying over-the-counter drugs and visiting in-store clinics, such as CVS's MinuteClinic and Walgreen's Take Care Health.

Both companies have also responded to the desire for lower- cost medicine after watching and waiting when Wal-Mart kicked off the trend of low-cost generic drug programs in late 2006.

Walgreen launched its own plan about a year later and CVS said on Thursday it would introduce its own plan in November to appeal to consumers with little or no health insurance.

Consumers are also buying more private-label brands as they cut costs, CVS and Walgreen said. While those items carry lower prices, they are typically more profitable.

Walgreen shares were up 6 percent at $25.15 in afternoon trading, while CVS was up 10.3 percent to $29.02.

CVS TRUMPS ON SALES GROWTH

Walgreen said October that sales at stores open at least a year rose just 2.2 percent through October 28, as consumers bought cheaper private label products and shied away from decorative Halloween items. Same-store sales were flat for general merchandise and rose 3.4 percent for pharmacy.

The growth paled in comparison to sales at CVS and smaller rival Rite Aid Corp (RAD.N), which reported sales for slightly different periods.

CVS same-store sales rose 3.7 percent in its third quarter, with a 3.8 percent increase in the pharmacy section and a 3.3 percent rise for general merchandise.

The sales data cheered investors in rival pharmacy benefit manager Express Scripts Inc (ESRX.O), whose share jumped 13.5 percent on Thursday, ahead of its quarterly results due later in the day. The shares of another PBM, Medco Health Solutions Inc (MHS.N), rose 8 percent.