Sherwin-Williams Co.'s decision to sell Gray Drug Fair was an inevitable midcourse correction that has strong implications for competition in the Washington market.
Gray Drug Fair is a multistate chain. But Sherwin-Williams' plans to sell it is, to some extent, a continuation of the fallout from the bruising drug-chain wars that shaped competition in metropolitan Washington before and during the '80s. Drug Fair became a casualty of that competition, in fact, leading to its purchase by Sherwin-Williams five years ago.
Back in the '60s and '70s, the fiercest competition in local retail circles was waged by three drug chains, all based in metropolitan Washington. The "big three" then -- Peoples Drug Stores Inc., Drug Fair and Dart Drug Co. -- battled one another for market share as they slashed prices, built new stores across the suburban landscape and merchandised practically everything; from soup to nuts, from lingerie to lawn furniture, and from paint to patent medicines.
But former principal owners of the big three, under increasing pressure from each other and from new discount retailers, sold their interests in the drug chains for handsome profits and turned to other business interests or retirement.
Peoples, no longer just a local chain after changing hands twice in rapid succession, emerged eventually as the unchallenged leader of the old triumvirate. Dart Drug, no longer controlled by the Haft family, continues to search for a new direction and greater market share. Drug Fair, which Gray Drug Inc. of Cleveland bought before selling out to Sherwin-Williams, has been unable, under its last two owners, to close the competition gap in this market.
In the shakeout that followed the peak years of the bitter three-way fight for market dominance, Giant Food Inc., another Washington-area retailer, has carved out a major share of the local drugstore market. It has accomplished that with the one-stop-shopping appeal of its combination food-pharmacies and by forcing competitors to engage reluctantly in disruptive and costly (for them) price wars.
Now that Sherwin-Williams has announced plans to sell Drug Fair, the battle for market share here -- historically the country's most competitive market for drug chains -- will enter a new phase. That will occur whether the eventual owner of Drug Fair decides to operate the chain intact or spin off the Washington division. Peoples has been mentioned as a possible buyer. That certainly has far-reaching implications for this market, though the same could be said of a purchase by some other major drug chain. Whatever the outcome, another fierce struggle for market dominance is almost certain to take place.
One of the more interesting aspects of the current speculation about Peoples and Drug Fair is that they didn't merge several years ago. None of the leading Washington-based chains moved decisively toward a merger with another, even when it became apparent that competition had begun to take its toll on profits.
Herbert H. Haft, the founder of Dart Drug and the last of the original chain drug operators to survive the skirmishes among the big three, ironically, and inexplicably, got out of the drug-chain business, only to chase eventually after two other drug chains, with checkbook in hand.
Interestingly, Sherwin-Williams' announcement of plans last week to sell Drug Fair, coming when it did, makes Haft's quest for control of a major retail company seem more ironic and contradictory than it first appeared. Haft is stalking Safeway Stores Inc., in an industry about which he knows little, while a major drug chain -- with roots in the market he knows best and in an industry in which he does have expertise -- is for sale.
First Haft, a hardened veteran of Washington's chain drugstore wars, withdraws from competition in the local market by selling the Dart Drug chain to a group of former employes. Then he goes shopping for a big retail company, with unsuccessful tries for Jack Eckerd Corp. and Revco D. S. Inc., both drug chains.
Might Haft have considered a merger of Gray Drug Fair and Dart Drug at some point? Certainly ownership of a chain of more than 500 stores (Drug Fair and Dart Drug combined) would have accomplished his goal of operating a major national chain, even if he had been forced to spin off some Washington stores. But then Haft may be making a statement that's gone largely unnoticed about the nature of competition in this market.
Whether Eckerd and Revco have any interest in acquiring Drug Fair is a question that's open to speculation. But it certainly would be no small twist of irony if one of those companies, after spurning Haft's bid, were to buy out Drug Fair and capture a share of a prized market from which Haft withdrew.