Eckerd breakup makes Brooks major Rx player

Chain Drug Review, March 14, 2005

WARWICK, R.I. -- While CVS is the country's leading dispenser of prescriptions, it faces intense competition in many markets.

And the same deal that catapulted CVS to the top of the pharmacy industry dramatically heightened the competitiveness and geographic scope of what had been just a New England rival--Brooks Pharmacy.

Brooks, the American division of the Jean Coutu Group, picked up 1,539 Eckerd stores in the deal that brought CVS 1,260 units--vaulting Rhode Island-based Brooks into the front ranks of chain drug retailing.

Brooks is now the No. 4 drug chain in the United States, dispensing more than 130 million prescriptions annually through over 1,900 stores--an average of 1,300 per store per week.

The chain had operated just 333 pharmacies in seven Northeastern states; the addition of the Eckerd outlets expanded the company's territory to 18 states. Brooks' management now oversees an operation that extends as far south as Pensacola, Fla. and as far west as Nashville, Tenn.

The chain has taken over first or second place in the pharmacy business in such major markets as Atlanta; Pittsburgh; Buffalo; Charlotte, N.C.; Virginia Beach/ Norfolk/Newport News, Va.; and Rochester and Syracuse, N.Y.

Coutu had long contemplated a southern expansion, according to Brooks president and chief executive officer Michel Coutu. He describes the chain's new markets as areas where rapidly expanding senior populations are fueling demand for prescriptions, and Brooks, he adds, had long sought "a fair share of that business."

Buying Eckerd outlets also offered a chance for almost purely incremental growth.

Francois Coutu, president and chief executive officer of Brooks' Longueuil, Quebec-based parent company, notes that the only overlap in territory occurred in Connecticut, where Eckerd had six stores to Brooks' 45.

Another inducement was that Brooks' and Eckerd's prototypical stores were very similar. Besides being about the same size, the outlets had similar pharmacy sales ratios, as well as compatible merchandise mixes and product depth in such departments as over-the-counter drugs.

In addition, the acquired stores were in good shape--some two-thirds had been opened, relocated or remodeled in recent years.

The amalgamation also set the stage for future, organic growth. According to Michel Coutu, Brooks intends to follow through on store openings that had been initiated by Eckerd. In doing so it plans to launch about 160 to 170 outlets in the next three years.

For both Brooks and Coutu customer accessibility and quality of service have always been high priorities. In the wake of the acquisition the company has established a target of having at least one 24-hour store in each metropolitan area where it trades. To that end four round-the-clock units were introduced in the second quarter; six more are scheduled for the third.

Francois Coutu says executives recognized that wait times for prescriptions in Eckerd stores were a problem. Apparently, under the previous regime the management-directed response to customers' inquiries about how long they would have to wait had been a standard "one hour." The new directive is to tailor scheduling to meet individual patients' needs as much as possible.

Efficiency levels and costs in the prescription departments are expected to be positively affected by the centralization of the pharmacy and technology platform at the Jean Coutu Group's Longueuil headquarters. That facility has delivered well for the stores it serviced before the acquisition and is expected to deliver the same results for the newly acquired assets.

Brooks has made inroads on the pharmacist recruiting front. At the time of the acquisition Eckerd had 300 unfilled professional positions. That number has since been reduced to 100, and Francois Coutu sees the issue as virtually disappearing shortly. It may reappear when Brooks significantly ramps up expansion, Coutu adds, but the retailer's policy of maintaining close relationships with pharmacy schools and their students goes a long way toward facilitating recruitment.

He says Brooks will only launch a mail-order operation as a competitive necessity. But he does not think the issue has reached that level of seriousness yet.

"We believe most patients value the opportunity to consult with a pharmacist in person," Coutu notes. "They want the pharmacy to be there for them for their acute, as well as their chronic, illnesses."