The “King of Retail,” Stronger than Convenience Stores: Fierce Competition in the Drugstore Industry

Headhunting for Pharmacists

Leading the industry with a “three-tier strategy” of dispensing pharmacies, fresh produce, daily necessities, and pharmaceuticals are the aforementioned Wellcia and the industry’s second largest drugstore by sales, Turuha Drug. Both drugstore chains have continued to grow to giant size through repeated M&A of medium-sized regional drugstore chains. A major influence on the management of these two companies has been retail industry guru Aeon. Aeon made Wellcia a consolidated subsidiary in 2002. It also holds about 13% of the shares of Tsuruha.

Aeon is also the largest shareholder in the industry’s ninth largest drugstore, Kusuri no Aoki, and operates its own Aeon Pharmacy. Utilizing Aeon’s logistics system, reasonably priced Top Value private-brand products are also displayed in Wellesia and Tsuruha stores.

This allied force has become a monolith and continues to run alone, but in fact there is a battle for the pie within the group. In particular, the two groups, No. 1 in terms of sales, Wellucia and Turuha, have begun to show a clear difference. According to an industry insider.

In the fiscal year ended May 2010, Tsuruha’s sales and profits declined, and the number of customers fell compared to other chains. The rapid M&A offensive has resulted in a lack of store strategy, and there have been cases of Turuha competing with each other for customers. Although drugstore chains are cheaply priced, they have no other ″variety″ that appeals to customers, so there could be a case where growth suddenly stops. Wellesia is no stranger to this.”

Recruitment of pharmacists, which is indispensable for the development of drugstores, is also becoming increasingly intense. A pharmacist who worked as a store manager for a major chain said, “If you only look at the number of pharmacists, there are more than enough pharmacists.

If you look at the number of pharmacists, there is a surplus, but the rapid increase in the number of dispensing pharmacies has not kept pace with the number of job openings, and there is a shortage of personnel. There are an increasing number of cases of headhunting pharmacists from other chains. Drugstore clerks do hard work, such as unloading heavy items and working late at night. Many pharmacists then move to dispensing pharmacies, where they can make good use of their qualifications and earn more money.”

In hot pursuit of Wellcia and Tsuruha is Cosmos Yakuhin, the third largest company in the industry. The chain, which has built a solid foundation in Kyushu, achieved 31 consecutive quarters of sales growth in the fiscal year ended May 31, 2010. It has expanded into the Chugoku and Shikoku regions, stealing customers from local supermarkets and exerting enough influence to prompt a reorganization of local retail chains.

In response, Wellucia established a joint venture, AEON Wellucia Kyushu, and opened its first store in April this year. In response, Wellucia established a joint venture company, AEON Wellucia Kyushu, and opened its first store in April of this year, while Turuha has gone head-to-head with JR Kyushu-owned Drug Eleven by making it a wholly owned subsidiary.

Cosmos’ strengths lie in its ability to sell food products at low prices and the strong distribution network it has built in Kyushu. Other chains have expanded through acquisitions, so many of their stores are located in “enclaves,” and they have not fully developed their logistics networks. Cosmos is gradually expanding its logistics bases by investing its stable earnings. Currently, Cosmos is focusing on expanding into the Chukyo area, but will eventually expand eastward to the Kanto and Tohoku regions,” said retail and distribution analyst Akihito Nakai.