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Three analysts and top management from five sector firms examine the supermarkets & drug chains sector in this special 33-page Supermarkets & Drug Chains issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info539.htm.

TWST: Neil, what are your views on pricing, and are consumers willing to pay up for the convenience of a local store with good service versus one with more competitive pricing that may be more distant and too large to navigate easily?

Mr. Currie: I think value for money is a very complex equation which includes price, location, quality and service. I think the larger supercenter formats are inconvenient in one sense, insofar as you have to travel a longer distance to get there and it takes longer to get around the store — and if you’re only buying a small basket of products, that’s inconvenient. But they’re very convenient if you want to do that monthly shop or buy everything under one roof; it offers virtually the entire range of food and non-food products. So convenience is a double-edged sword.

TWST: Neil, what’s happening at the front of the store? Are there any trends to note that reflect a changing business mix at the front end of the drugstore?

Mr. Currie: The sales mix has been continually changing more toward the pharmacy side, purely because the pharmacy market is growing in double digits and the front end is growing in low single digits. I think what we saw in the back half of last year is that the recession caused a slight contraction on front-end sales and also some increased promotional activity. I believe we’ll continue to see pharmacy growth going forward, maybe in double digits, and that’s going to continue to drive customers into the store. And as long as the drugstore retailers do their jobs well, they can derive improvement in sales at the front end from the built-in growth at the back end.

TWST: Neil, what are you telling investors?

Mr. Currie: Where I would agree with Mark is that analysts should look forward and not back, but I think my conclusions are very different. I don’t really care about the relative valuations historically of food retailers. I actually think that the valuations of food retailers look quite low at the moment, but the sector could be a value trap. The downside may not necessarily be because the valuations get lower, but more because earnings could come under further pressure. This is a long-term thesis that I’ve had since I initiated coverage in the middle of 2000, and I don’t see things really changing for a number of years.

TWST: Neil, Meredith brought up Whole Foods Market (Nasdaq:WFMI), a slightly different animal. What’s your view of Whole Foods Market?

Mr. Currie: When Meredith was talking about Whole Foods I was saying "hear, hear." I’m a bit more company focused than quarterly performance focused. I do like to buy good companies and I think Whole Foods is a fine company. It has a truly differentiated offer and has the ability to double its store base and still be the fly on the elephant’s backside, so to speak. I just have similar issues with the valuation in the short term. I would love it to get close to 40, so that I could put it back on the buy list again.

This special issue includes:

1) Supermarkets & Drug Chains - In an in-depth (13,800 words) Analyst Roundtable, Meredith Adler, Equity Analyst following the supermarket and drug store industries at Lehman Brothers, Neil Currie, Executive Director in the consumer group at UBS Warburg and Mark Husson, Analyst at Merrill Lynch Global Securities, examine the outlook for the sector including stock performance, drug benefit plans and share specific stock recommendations.

2) CEO interviews (average 2,500 words). Top management of five sector firms examine the outlook for their firm and the sector.