Recent developments concerning Walgreens andCVS point tochanges in their stores and company interactions. These range fromalterations in store layout and product offerings to new rulesconcerning prescriptions. Both of these tenants are huge players inthe net lease market and these shifts could change the wayinvestors view them.

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CVS to Expand Grocery Aisles

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CVS plans to expand grocery aisles in 3,000 of their stores during 2010.They will be doubled in size, giving the company more exposure tothe trillion dollar U.S. food market. Many see this as continuationof “channel blurring”, a trend which has been embraced by manyretailers. As reported by the Patriot Ledger “Just as supermarketshave expanded pharmacy and health and beauty sections in the pastdecade, drugstores are retaliating by putting food products in theforefront.” Cleary CVS is jumping in head first by modifying 43% oftheir 7,000 nationwide stores.

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Walgreens to Sell Beer and Wine Again

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Walgreens is breaking a nearly 15 year self-imposed ban on the sale ofalcohol in their stores by reintroducing beer and wine. So far3,100 (41.3%) of their stores have already been stocked, with plansto increase that number to 5,000 by years end. Previously the saleof alcohol and other spirits made up 10% of Walgreens total sales,indicating a likely increase in sales this year. Other drugstoressuch as CVS and Rite Aid have continually sold alcohol. It isavailable in 4,300 (61.4%) of CVS stores and 28 of the 31 statesRite Aid operates.

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CVS to Exclude Walgreens from Retail PharmacyNetwork

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CVS Caremark has stated it will end their retail pharmacy partnership with Walgreens in roughly30 days. This occurred in response to Walgreens announcement thatit will no longer participate in new CVS managed prescription drugplans. Thus, the pharmacy networks of the two will become mutuallyexclusive forcing customers to one or the other. This certainlyheightens the competition for customers between the two and couldincrease marketing to that effect.

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Looking at the situation from an investor’s standpoint, thefirst two changes are certainly positive. CVS expanding their foodsection is in line with a nascent trend of frugality and “back tobasics” purchase behavior. Walgreens on the other hand is openingitself up to the conclusively popular trade in alcohol which shouldonly benefit their store revenues. The only trend which could beperceived as worrisome is the segregation of prescriptioncustomers. Forcing an exclusive choice could lead to higher coststo maintain and attract new customers. However, such fears maybeoverblown. A little competition never hurt anyone.

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Jonathan Hipp

Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.