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TWST: What about the online grocers? Have they taken any share from the food retailers, the Webvans and the Peapods of the world?

Ms. Weinswig: The original economic model at Webvan (Nasdaq:WBVN) required five to six deliveries to be made per hour. This has proven to be extremely challenging, especially as one of the company’s main goals is to offer excellent customer service. Even in a best case scenario, where deliveries are made to one apartment building, it is very difficult to go to the van, put all of the groceries on the dolly, go upstairs, drop the delivery off, and provide attentive customer service all in under 10-12 minutes. That scenario does not even account for any travel time between drop points. Additionally, a lot of people prefer to handpick their perishables such as produce, meat, and dairy. I personally order from Netgrocer.com because it saves me a significant amount of time, and I am saved from having to lug the groceries up the stairs.

TWST: Moving onto another topic, Deborah, what happens to the food retailers as the economy slows? Are you concerned?

Ms. Weinswig: No, not at all. What they have seen thus far is greater sales in private label, which have higher margins. The result is slower top-line growth, but faster growth in gross profit. The effect is similar to selling generics in a pharmacy, where the top line is lower, but the margins are higher. And at the end of the day, gross profit is what matters. Also, in a tough economic environment, I think you may see consumers trading down from restaurants to supermarkets. It has been said that we have a whole generation now of people, the 30 - 40 years olds, who have not necessarily grown up cooking. This, combined with a lack of adequate time for cooking, has offered supermarkets a real opportunity to capitalize on the growing market for home meal replacement, such as rotisserie chickens, which are higher margin.

TWST: And these stocks are generally thought of as defensive anyway, aren’t they?

Ms. Weinswig: Yes. People are uncertain which way this market is going, and supermarkets are pretty safe. People have to eat and fill their prescriptions, and the supermarkets are all adding pharmacy counters. The addition of pharmacy counters helps to drive traffic but also increases sales in the higher margin health and beauty area by an average of 25%, since people are more comfortable buying these products at the same place that they buy their pharmaceuticals.

TWST: If there is a Medicare drug benefit, and most people seem to believe that there will be, how will that affect the drug chains?

Ms. Weinswig: Currently, approximately 16% of prescription sales are paid for with cash. In my opinion, probably half of those are from cash paying seniors. So 6% of the pharmacy sales, which you have been enjoying 30% margins on, will now go to 18% or 19% margins. That is not a huge impact. On the other hand, the decrease in cost for these customers will likely prompt more frequent trips to the store.