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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: Meredith, what are you factoring into the outlook for the food and drug retailers for the balance of this year and looking out to 2003? What are the issues that you’re going to be watching most closely?

Ms. Adler: Do you mind if I just go back and make a comment on the drug retailers?

TWST: Not at all.

Ms. Adler: I think that the most interesting thing that has happened recently, in terms of taking care of seniors — and so far it’s only really covering the lowest income seniors — is the fact that we do have the pharmaceutical manufacturers developing their own pharmacy discount plans and recognizing that they have to contribute to the cost of coverage. I think their efforts are really driven by public relations, as opposed to much of anything else. But if you think about where we’ve been, as Mark said, something that was going to end up being a tax on the profits of the drug retailers is turning into something that, granted, is more narrowly focused but is still being contributed by the folks with the deep pockets — the pharmaceutical manufacturers — you can see that we have made progress. I happen to be rather skeptical about whether Congress is actually going to require taxpayers to give seniors the kind of true drug coverage that they need. I’m a real skeptic about that because it is very expensive. I think there is a great deal of agreement that it’s needed, but I’m not sure that anybody wants to spend the money and I’m not sure that anybody has the political will to craft a plan that forces all the interested parties to reach into their pockets and help pay for it. But I go back to saying that I never thought that the manufacturers perceived that they needed to contribute. So we’ve made progress. Is it a big driver for the drug retailers’ bottom lines? No, but I think it is a step in the right direction and the elimination of what was clearly a negative.

TWST: What are the most important issues to watch for as you consider the outlook for the food and drug retailers for the balance of this year and looking out to 2003?

Ms. Adler: I think we’ve talked a lot about the supermarket side of things. I would say that for the drug retailers there is also a difficult competitive environment in the front end. Long term, as I see it, the competitive pressure in the front end comes from Wal-Mart and Target, and even Kmart, for that matter. Long term, to be successful in the front end of the drugstore, I think retailers have to have the very best real estate. I think they have to play the convenience game to the absolute utmost to be successful.

TWST: Meredith, are there any other stocks that you would like to highlight, companies that may not be stocks that investors should rush out to buy today, but that should have on a watch list?

Ms. Adler: I’ve been looking at a number of small cap names that I find attractive. On the big caps, I’m actually interested that we barely talked about Albertson’s (NYSE:ABS). I am not a great fan of that story and I was actually kind of interested to hear what Mark and Neil had to say about it. I just looked at performance over the last 12 months, and Albertson’s was the best performing big cap stock in my group. It surpassed big caps in the food and drug retailing group, and I had been on the sidelines for the entire year, yet I’m having a very hard time getting comfortable with that story.

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.