In a retail industry that is reshaping itself, the family that controls Jean Coutu Group Inc. believes their company can thrive on its own.
“We are in no hurry to conclude an acquisition just to make a deal,” said its president and CEO, François Jean Coutu, in an interview at the company’s headquarters in Longueuil, on Montreal’s south shore.
It has been a year of dramatic change in the retail sector. Target Corp. opened its first stores in this country, Sobeys Inc. bought the Canadian unit of Safeway, and Loblaw Cos. Ltd. struck a $12.4-billion deal to acquire Shoppers Drug Mart Corp.
With less fanfare, Jean Coutu Group was also active. By selling the last of its Rite Aid Corp. shares in July, the company turned the page on what became a disastrous foray in the United States, from operating Brooks and Eckerd pharmacies to being the biggest Rite Aid shareholder.
But just as Jean Coutu retreated to the Canadian market and shrank itself to profitability, its competitors grew, both in number and in size. And that has increased the pressure on the chain of 407 franchised pharmacies to use its new war chest to strike a deal of its own.
Money is not an object, so to speak: The company has repaid all its debts and has an ample cash cushion. But for Mr. Coutu, there is no urgency. “In no way do we feel threatened because we supposedly don’t have enough of a bargaining power,” he said. Jean Coutu’s revenues reached $2.74-billion in its fiscal year 2013. Suppliers who don’t want to lose another client to consolidation have been making sure Jean Coutu remains competitive, he added.
Mr. Coutu believes the company can hold its ground by showcasing its Quebec roots and its family-run character. In September, the pharmacy chain will start airing a series of TV commercials that will present three generations of Coutu executives. The CEO will appear with his father, Jean Coutu, the 86-year-old chairman who is one of the most recognized figures in Quebec with his always-present white lab coat, and his nephew Jean-Michel Coutu, vice-president for retail operations.
“Those other big retailers, they are faceless. But Jean Coutu is real,” said François Jean Coutu.
“It is not just about price – although I contend we are competitive,” he added. “It about being rooted in a community, about offering a personalized service, about sharing a bond with our clients – and that is where we will best the competition.”
The ad campaign carries another implicit message. The chain has a successor in Jean-Michel Coutu, the 35-year-old executive who owns two pharmacies in Longueuil. And the family that controls the company through multiple voting shares – Jean Coutu himself holds 93 per cent of the votes – has no intention of selling.
This belief is entrenched even if some industry observers think if the Jean Coutu Group can’t strike a deal of its own, it should merge with another company – namely its neighbour grocer, Metro Inc.
François Jean Coutu plays golf with Metro CEO Eric Richer La Flèche once a year at the Laval-sur-le-Lac club, where both men are members. And Mr. La Flèche recently signed off an email with “your golfer friend.”
But for Mr. Coutu, that merger conversation is a non-starter.
“Listen, there aren’t that many synergies to speak of between the two businesses,” he says. “Besides, we have a nice business plan and a successor next in line.”
What that business plan consists of is unclear, however, to a number of industry observers who question where Jean Coutu Group will go from here.
The company is now building a new head office and distribution centre in Varennes, just north-east of Longueuil. The $190-million investment is to support the company’s Canadian expansion.
Those plans have been the subject of intense speculation, given the funds the company now has at its disposal. The company held $185-million in cash on June, and has since sold over $300-million (U.S.) in Rite Aid shares. It also has a $500-million credit facility which is almost intact, meaning that retailer has $1-billion available to it.
At the company’s annual meeting in early July, Mr. Coutu said that should an opportunity present itself, they would pursue it “aggressively,” and that they possibly “didn’t even need to speak to their banker beforehand.”
But the tall and soft-spoken executive has since toned down his assertiveness.
The company, he argues, can still grow organically in its main Quebec market and in French-speaking parts of Ontario and New Brunswick by acquiring independent pharmacies. The company says it accounts for a third of the prescriptions filled out in Quebec and 45 per cent of the pharmacy sales in the province – excluding chain superstores which operate pharmacies.
Mr. Coutu only conceded that it would make more sense to make an acquisition in a contiguous market, which would appear to exclude Western chains such as Procurity and London Drugs but would still leave a number of mid-sized players such as Katz Group Canada (Pharma Plus, Rexall), Lawtons Drugs, a Sobeys affiliate, and Familiprix.
“For us it is not a sprint but a marathon,” said Mr. Coutu. “We are in it for the long run.”Report Typo/Error