Discount juggernaut keeps rolling.(State of the Industry)

NEW YORK -- Year by year, discount stores continue to increase their share of mass market retailing's $1 trillion-plus in annual sales. The good news for chain drug store operators is that the discount channel's continuing gains are coming more at the expense of supermarkets than of drug stores.

Discounters posted a solid 7.6% increase in sales to $425.5 billion in 2004, with comparable-store sales up 4.5%. Discount store chains added 652 units last year, a gain of 4.1% for a total store count of 16,556 at the start of 2005.

While chain drug stores generate less than half the volume of the discount channel, the trade class' $157.1 billion in 2004 sales reflect an 8.3% year-over-year increase, beating both discounters and supermarkets. Dollar stores posted a larger sales gain, 14.5%, but it was driven largely by volume from newly opened stores.

The chain drug channel also had the best comparable-store sales improvement among all mass market retailers last year, a 6.5% gain. Same-store sales at dollar stores were up just 2.1%, in contrast, and supermarkets managed only a 1.5% improvement.

All that said, the discount store channel remains a formidable competitor to chain drug …