As consumers clamor for convenience, national drug chains are building freestanding stores on high-profile corners across the country. They say such locations offer important advantages over shopping centers - namely curbside parking and drive-thru pick-up service. Stand-alone buildings also let drugstores set their own hours and have greater visibility.

"The entire industry is repositioning itself, relocating from inline to freestanding, sometimes on an outparcel in front of the same shopping center," notes Gary Ralston, president of Orlando-based Commercial Net Lease Realty, a REIT that invests exclusively in freestanding retail properties. "The real reason that drugstores are going freestanding is because that's what their customers want. Drive-thru is the ultimate convenience."

Studies have shown that moving to a freestanding location can increase customer traffic by 10% and sales by as much as 30% to 35%, Ralston says. That explains why all the major national drug chains are enamored with the format. They've announced aggressive plans to move out of inline locations.

A competitive edge Walgreens, which pioneered the freestanding concept with drive-thru windows, is expanding rapidly with 450 new stores planned to open this year. The main reason the chain adopted the freestanding approach was to better compete with mass merchandisers, explains Michael Polzin, spokesman for the Deerfield, Ill.-based giant. "We needed to be more convenient than they were," he says. "A freestanding store at the corner of a major intersection is much more accessible than a mall."

Mass merchandisers and supermarkets are projected to corner 22% of total drugstore sales in 1999, according to the National Association of Chain Drug Stores (NACDS), which estimates that traditional drugstores will capture 41% of the market and independents 24.4%.

According to Drug Store News, Wal-Mart ranks fifth among chains in pharmacy sales, followed by CVS, Walgreens, Eckerd and Rite Aid. Meanwhile, NACDS projects that 1999 drugstore sales will total $121.6 billion, compared with $105.7 billion the year before. Mail order is expected to comprise 12.6% of total sales.

CVS, which has the most drugstores with 4,100 stores in 26 states, plans on opening 425 new or relocated stores this year, according to Mike DeAngelis, spokesperson for the Woonsocket, R.I.-based chain. "Every year going forward we expect to open between 400 and 450 new stores," he says.

Last year, CVS opened 440 new stores. It expects this expansion pace to continue. "That's because we're only in 26 states and are expanding in existing markets," DeAngelis notes.

Currently, 33% of CVS stores are freestanding; that percentage is expected to reach 80% in the next five to six years, according to DeAngelis. CVS shifted its strategy to freestanding stores about three years ago. "Certainly the majority will be freestanding, but we won't totally abandon other kinds of stores," DeAngelis adds.

Setting trends For its part, Walgreens aims to have 6,000 stores open by 2010, according to Polzin. The chain will open a record number of stores this year; the number of annual openings has increased from 100 stores a year in 1990 to the current level of 450, Polzin notes. Due in part to its early drive to build freestanding stores, Walgreens now dominates many major markets.

"Walgreens was the first to come in to Las Vegas with freestanding drug stores on the corner with drive-thru prescription pick-up," says Hank Gordon, president of Las Vegas-based Laurich Properties Inc., which develops Rite Aid, Longs, Sav-On and Walgreens stores. "All the new development here has been for freestanding centers with drive-thrus."

Walgreens started the freestanding drive-thru trend in Las Vegas about five years ago, followed by Rite Aid and Sav-On, according to Gordon. "The last to come in for freestanding was Longs Drugs."

Walgreens basically has a monopoly on the St. Louis drugstore market, according to Scott Saunders, who oversees retail development for St. Louis-based Colliers Turley Martin Tucker. "They're on every hot corner in St. Louis," he says. "They've been on a major expansion in our market for the last five years."

Cornering the market Walgreens is willing to pay top dollar to be on high-profile corners because increased visibility and traffic flow boost sales, Saunders notes.

Nationwide, Walgreens is in the process of converting all its express pharmacies into 14,500 sq. ft. full-size stores, according to Polzin. "This will take us a number of years," he says. "It's confusing to the consumer to have both kinds in a market."

Walgreens currently has 2,967 stores in 41 states and Puerto Rico. New markets this year will include Atlanta, Baltimore, Salt Lake City and Southern California.

In St. Louis, "Walgreens is looking all over, not just the suburbs," Saunders says. Four or five freestanding stores currently are under construction in St. Louis. "Walgreens looks at the numbers for traffic signals. In the suburbs, they've got to be on a signal intersection. They'll build stores that are only a mile from each other."

Walgreens is even doing freestanding stores with drive-thrus in urban areas by assembling parcels of land from owners of gas stations, apartments and other buildings. "They're very patient," Saunders says. "They're very good at what they do."

Contained growth CVS has built many stores in urban markets, such as New York and Boston, where freestanding structures aren't possible. While CVS' prototype freestanding store is 10,125 sq. ft., its urban stores vary from 5,000 to 8,000 sq. ft. The chain plans to enter two or three new markets every year, including the addition of Tampa-St. Petersburg, Fla., and Grand Rapids, Mich., this year.

With the exception of one or two stores, all CVS stores are east of the Mississippi. "We have no immediate plans to move west," DeAngelis notes. "Florida is a big growth opportunity with its older population."

CVS also looks for population density, good traffic patterns and good visibility. Again, corners are key. "The corner spot is the best place to be seen by a lot of traffic," DeAngelis says. Customers are starved for time, he adds. "They want shopping within a one- to two-mile radius of their homes."

Savvy selection In a move to become more convenient, the typical chain drugstore has expanded the kind of products it carries. "It's not just a drugstore anymore," Gordon says. "It's a merchandise store on a key corner." Ralston calls the new breed of drugstores "convenience/health care shopping alternatives.

"When they move from inline to freestanding," he explains, "they're a lot more than just pharmacies."

Because they are roomier, freestanding stores allow CVS to offer consumers more variety and convenience. "There is more square footage which allows us to add services like drive-thus, one-hour photo processing labs, and wider aisles," DeAngelis says. CVS also is selling more convenience foods, greeting cards and seasonal items.

Walgreens' Polzin agrees that drugstores are becoming more convenience-oriented. "We're including more convenience foods, more photo-finishing services. There's a trend toward convenience in all categories."

Walgreens receives 53% of retail sales from prescriptions, while 60% of CVS sales are from prescriptions.

Getting results CNLR has opened 110 new drugstores in 36 states the past few years, including 25 last year and 30 this year, according to Dennis Tracy, senior vice president. Most of these projects have been Eckerd stores, but the REIT has also begun developing Longs stores.

Eckerd tends to build 11,000 sq. ft. stores, unless it's a very desirable location, then the chain will expand the size to 13,000 sq. ft., according to Tracy. When looking for sites, the optimum is to have 10,000 residents within a mile radius, with about 25,000 cars going by, Tracy says.

The net number of new drugstores stays about the same because of consolidations and relocations from inline to freestanding, according to Ralston. "Relocation is a big driver for new construction," he says. "It's a matter of the chains capturing a larger market share."

The top 10 drugstore chains accounted for 46% of sales in 1993, compared with 66% of sales last year, according to Ralston.

"We've seen some level of consolidation in the industry," he says. "The large chains are now bigger."

Overall, the forecast for drugstore development appears healthy, despite growing retail use of the Internet.

"The Internet is a non-factor for a v ariety of reasons," Ralston says. "Online and mail-order channels have been in existence for some time. Because pharmaceuticals are subject to regulation, they'll continue to be dispensed primarily by neighborhood pharmacies."

The aging population also bodes well for the drugstore industry. "The demand for prescription medication will continue to rise as the population ages and as more new drugs come to market and manufacturers do more direct-to-consumer advertising," DeAngelis predicts.

Ralston agrees: "The industry looks good for the next 20 years."