In developing new markets, several hurdles loom in the drug chain's path:

LAND WAR

CVS's (CVS ) need for prime sites to compete with Walgreen (WAG ) is already driving up real-estate costs.

PRICEY STORES

Walgreen is mostly filling in existing markets with new stores--but CVS has to spend more to break into new markets. At such new locations, it takes longer to turn a profit.

CORNERING THE MARKET

Only 39% of CVS stores are at lucrative street-corner locations, vs. 69% for Walgreen. CVS aims to have 80% corner stores by 2006.

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