Walgreen Will Ad it Up

Despite reporting record quarterly sales and earnings earlier this week, Walgreen Co. (Deerfield, Ill.) said it was aggressively increasing its advertising budget to boost faltering general merchandise sales.

The nation's largest drugstore chain said it would spend $360 million this year, a 12-13 percent increase from last year.

Walgreen, which ranks ahead of industry No. 2 CVS Corp. (Woonsocket, R.I.), has seen growth in the highly profitable front-end general merchandise segment taper off since October. The retailer recently reported that its December front-end same-store sales fell 0.2 percent, while the industry's Number Three — Rite Aid Corp. (Camp Hill, Pa.) — said its December front-end same-store sales rose 1.5 percent.

Much of Walgreen's gain for its record-setting first quarter 2003 was fueled by a 19.7 percent jump in prescription sales. Prescriptions are said to account for 63 percent of the retailer's total sales. According to a report in Crain's Chicago Business, analysts have said Walgreen opted to be less aggressive in marketing and promotions last year, in a bid to protect gross margins. CVS and Rite Aid have been advertising more discounts to mitigate reduced consumer spending stiffening competition.