Pharmacy chain gets bigger with small-town strategy
Dallas Business Journal, Tuesday, October 07, 1997 at 19:05
PRINCETON - In an era of chain stores and megamalls, Horizon
Pharmacies Inc. aims to grow large by preserving a slice of
small-town life: the corner pharmacy.
No cookie-cutter approach for this company, which purchases
independent pharmacies, then brings them into its network to improve
operating efficiencies.
It retains the stores' employees and actively solicits their ideas
for improving the operation. That philosophy flows from the young
company's management team, a close-knit group that's logged many
years in the drugstore industry.
Their familiarity with the industry, and with each other, has
enabled the company's management to act quickly - and as a true
team, said analyst David Braunstein of ComVest Partners Inc., a
Dallas investment firm.
"The similar background allows management to trust one another and
know what to expect, with fewer surprises," Braunstein said.
"The management team has grown up in the industry. They've worked in
rural pharmacies and know how to improve them. It's second nature to
them."
That's important, because the highly competitive drugstore
industry can be brutal to independent pharmacies in general, and
rural pharmacies in particular, Braunstein said.
Horizon, however, never starts from scratch. Instead, its
strategy calls for assembling a network of already-profitable
drugstores in towns with populations of 50,000 or less.
That's because, although those towns generally have a Wal-Mart
nearby, other competition often is lacking. In addition, operational
costs such as rent, salaries and advertising are relatively low in
smaller towns.
In the North Texas area, Horizon operates drugstores in Princeton,
Mount Vernon and McKinney. It also has stores in Colorado, New
Mexico, Oklahoma and Wisconsin.
Uniting an independent pharmacy with a small chain like Horizon is
a winning proposition for each, said Horizon President Rick McCord.
The company doesn't have a target for the number of pharmacies it
would like to operate, although it expects to add eight to 12 this
year. It currently has 19 stores.
Key to the expansion effort will be the management team.
Several of Horizon's leaders had worked together at True Quality
Pharmacies Inc., operating pharmacies within Wal-Marts, Brookshires
groceries and other large stores.
McCord, for example, began working for True Quality straight out
of pharmacy school. He soon managed that store and others as well.
From True Quality's world, five Horizon directors joined forces to
launch the company in 1994. They are: McCord, Chief Financial
Officer David Frauhiger, Executive Vice President Sy Shahid,
Southern Regional Manager Charlie Herr and Western Regional Manager
Robert Mueller.
With each man averaging 10 to 15 years in the field, Horizon
didn't exactly feel like a startup, McCord said, though some of the
team did keep their day jobs, at least for a time.
But that was then.
In July, the company raised about $6 million in an initial public
offering that will fuel its acquisition binge for another two years.
In the weeks that followed, Horizon (AMEX: HZP) purchased five
stores, for its 19 total. That compares to an average of four new
stores added each year since the company's founding.
For its leaders, taking Horizon public was a dream come true.
"It was the biggest moment of my life," said McCord, who with
Frauhiger and Herr traveled to New York to see the stock open on the
American Stock Exchange. McCord, in fact, rang the bell to open the
exchange that day.
"Our company is small, but we were given the red-carpet
treatment," McCord said.
Now, Horizon will work to get a little bigger.
The company's typical acquisition is a drugstore whose owner also
serves as the pharmacist. Horizon moves in to consolidate payroll
and other functions in its central office, and standardizes the new
pharmacy on its computer system.
That way, the company has the capacity to monitor prescriptions
filled - and quickly analyze margins - at all of its properties.
The company also encourages employee involvement. "Each company
has to have a spirit to win," McCord said. "If you don't have it,
you won't succeed."
The spirit seems to feed on itself, and is part of what has
allowed the company's people to work together so well. "A new store
soon gets the same feeling," McCord said.
To encourage that spirit, the company provides incentives for all
its employees. In 1998, it will begin offering a 401(k) investment
plan, allowing employees to purchase stock in the company through
the plan.
"We want each employee to feel like we're using their ideas, and
that they are a partner in the company," McCord said.
One payoff, he added, is low turnover.
Horizon also retains each store's individual image and feel.
"We want to keep what was making a store work when we bought it,"
said Nancy Papaneri, Northern regional manager.
That's why one of Horizon's largest units, a 20,000-square-foot
store in Butte, Mont., stocks veterinary supplies and even saddles.
The reason: Feed stores in the area don't carry tack.
"We'll add whatever it takes," McCord said. "We're always looking
for profitable items, but the pharmacy is the foundation."
That's why some stores have one-hour photo labs, while others have
custom framing sections. Something that proves popular and
profitable in one store is often rolled out in another.
"We learn something new from each store," McCord said.
Horizon expects higher-margin business lines, including supplies
for home health care and sales of non-pharmacy items, to make up more
of its total revenue in the years ahead.
Horizon's use of technology is what separates it from the
individual stores it purchases, said Shahid.
"Technology is what gives us the tools to manage the stores and
maximize our buying power," Shahid said.
Amazingly, the company has found that no one at any of the stores
it's acquired actually knew the true cost of the goods sold. Some
didn't even take an annual inventory.
"You cannot operate without knowing your gross margin," Shahid
said. "Technology gives you a window of opportunity to manage that.
It's not a gimmick, but truly a management tool to increase profits
and make a successful run."
The company is able to buy a store and, the next morning, have its
software and hardware in place.
The future lies in providing a total health care concept, McCord
said - including medical equipment.
"The physician can send a patient to Horizon and they can get a
wheelchair, oxygen, whatever they need," he said.
That concept has worked well in a Farmington, N.M., store, which
sells and leases medical equipment and offers home oxygen therapy
and other services.
The company plans to replicate that business in several other
sites and may even develop clinics, staffed by a physician's
assistant or nurse practitioner adjacent to some stores.
That setup is planned for Princeton in Collin County, Horizon's
home base. The Princeton store, located just across State Highway
380 from Horizon's headquarters, is the company's smallest.
It will be relocated to a new site and open in the summer of 1998
with a small clinic attached, McCord said.
That's a step to differentiate itself in a market that's
increasingly controlled by pharmacy giants such as Eckerds and
Revco, as well as discounters like Wal-mart.
"The margins are very high, so it makes sense for Horizon to
expand the role of the rural pharmacy into home health care," said
ComVest's Braunstein.
It's a distinguishing feature for Horizon, he said, and enhances
the overall health care of a small community.
Experts say
What makes for a successful management team?
"A successful management team is customer-focused. Their
strategies drive toward meeting and exceeding the customer's
expectations. A successful team respects the intelligence of
employees, expects high performance and provides support for personal
development." Tom Vance
Partner
Arthur Andersen L.L.P.
"The best management team is one that under-promises and
over-delivers. To do that, team members need the ability to see the
other person's perspective and to be able to give and take."
Tony Ford
Executive Director
Fort Worth Business Assistance Center
"A successful team possesses solid planning ability and talent by
discipline; a good organizational structure; strong, positive
personalities and a good method of accountability."
Earnest Castillo
Director
Dallas Small Business Development Center
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Gotta love this article!
Anette |
