Pharmacist, Retailer, Entrepreneur Stephen L. LaFrance Enters Business Hall Of Fame

Editor’s note: The following is an edited version of an interview that was conducted a few months before Stephen LaFrance passed away on June 5, 2013. LaFrance will be inducted in the UA Walton College of Business Hall of Fame on Friday, February 13, 2015.

Twenty-six dollars doesn’t sound like much of a foundation to build a multi-million dollar enterprise, but for the late Stephen LaFrance, it was enough.

LaFrance, the founder and former chairman and CEO of USA Drug Stores and SAJ Distributors, will be posthumously inducted into the Arkansas Business Hall of Fame.

LaFrance died in 2013 at the age of 71 after selling his retail empire to Walgreens in July 2012 for $438 million.

His business career was filled with smooth sailing and choppy waters, and in the interview in 2013, he recalled the early years when he took his first solo pharmacy job in the back of a Gibson’s Department Store at 10th and Main Street in Pine Bluff in February 1968.

“I was 26 years old and living in a one-bedroom apartment on Wisconsin Street,” LaFrance remembered. On his first day at Gibson’s, he rang up $26 in business for the whole day. “I looked in the mirror that night and thought to myself, ‘What am I doing?’”

His soon-to-be wife, Linda, whom he met in Atlanta while working for her father’s pharmacy business, soon joined him in Pine Bluff, and after toiling long hours and growing that small Gibson store’s sales, LaFrance said he finally started making a little money.

“Man, we had nothing,” LaFrance said. “But I always tried to make myself accessible so my customers could get what they needed with their medicine.”

That attention to customer service proved to be a winning formula that would steer all of LaFrance’s major growth in the years to come. It also drove customer and employee loyalty.

LaFrance tells the story of a woman who came into his Pine Bluff pharmacy in the ’70s with her young son, who was seriously ill, but undiagnosed. The woman was weeks away from getting a doctor’s appointment and LaFrance recognized that her son needed immediate attention.

He picked up the phone, called a doctor with whom he was friends and got her an appointment right away. The doctor said to send them over and LaFrance never heard about the eventual outcome.

Twenty-five years later, walking down the hall of his warehouse operations, a lady approached him and relayed the story of how LaFrance had saved her young son’s life by calling a doctor and getting him a faster appointment. She was now working for him.

“I always got a real charge when I got off from work and I came home and thought I had helped a person,” LaFrance said. “The story of that woman and her son still chokes me up today.”

THE FIRST ACQUISITION
While the Gibson pharmacy proved to be a bustling enterprise for LaFrance, an opportunity presented itself a few blocks away. LaFrance was approached about buying a pharmacy on Ohio Street in Pine Bluff for a whopping $5,000 – more than he happened to have at the time.

He was turned down by a few banks, but finally found one who would lend him the money. Smart move. With the loan to do the deal, LaFrance acquired his competitor, combined the two prescription departments, and grew the business.

Eventually, he would expand into other parts of Pine Bluff and outside of the city to Warren and Malvern.

On a drive back from Louisiana to visit family, LaFrance and Linda settled on the name USA Drug Stores for their fledgling business. The red, white and blue capitalized on American pride and small town values.

With multiple operations, LaFrance was getting to the point where he realized there were savings to be found by controlling his wholesale costs. For years, he had collected business cards from manufacturing reps who came into his stores checking on their business.

LaFrance parlayed that Rolodex into the creation of a wholesale distribution outfit, SAJ Distributors in the mid-70s. The S, A and J represented his three children’s names – Stephen, Amy and Jason.

“I started trying to buy everything from the manufacturers instead of wholesalers to make better margins,” LaFrance said.

He couldn’t buy enough quantity for discounts with just his drug store business, so he made the decision to sell to other outlets in the region.

He laughed about the sophistication of his early wholesale business. “Our first warehouse was a garage and third bedroom,” he said.

LIFE GETS MORE COMPLICATED
LaFrance’s new sprawling business endeavors seemed to mirror the expansions in his personal life. With his wife and their three children to provide for, LaFrance felt the pressure to grow his business to support his family.

He had grown up in Monroe, La. His father was a theater manager and his mother operated a women’s dress shop. He was the second of four children and the two brothers he’s sandwiched between in age both became pharmacists. His younger sister was a schoolteacher.

LaFrance first studied chemistry in college, but by his sophomore year gravitated to the pharmacy program at Northeastern Louisiana State College, now known as the University of Louisiana-Monroe.

Creating a family business was important to him because all of his siblings went different directions after they completed their degrees.

“My whole family scattered when we got out of college. My whole goal was to have a company, to have a business that would sustain and keep our family in one spot,” he said.

It almost worked. His two sons eventually joined the family business, but his daughter married and moved to California to raise a family.

INNOVATIONS AND BUYOUTS
LaFrance was a fundamentalist retailer: Pay attention to the customers, stock your shelves with inventory that moves and keep the aisles spotlessly clean.

“We always paid attention to the ABCs of retailing,” LaFrance said. “It was my belief that if you put the business first, you’ll be successful. If you don’t, you’ll go out of business. That’s as simple as it is. It’s not a very complicated theory.”

In the early days of go-go growth in the late ’70s and early ’80s, LaFrance was determined to capitalize on any advantages and opportunities he might find. From his non-conventional desk of a door on top of two file cabinets, he hatched the idea of using computer technology to strengthen his inventory control.

At the time, “coding” was new territory and computer systems were expensive. He convinced – with much persuasion – his banker to loan him $50,000 to buy a computer for an inventory control system, a move that later turned out to be very visionary.

Streamlining his processes shrunk expenses and grew the bottom line and eventually put LaFrance and USA Drug in a position to go on a series of acquisition sprees.

In the ’80s, he bought several Revco stores, later followed by a big buyout of the Memphis-based Super D drug store chain. At the time, LaFrance had 15 stores and Super D had 90.

He had hooked up with a Texas private equity group on the Super D deal, but the banks were nervous as to how LaFrance planned to take the struggling Memphis chain, which was losing money, and return it to the black.

“Here’s the key,” LaFrance recalled. “They didn’t have their own merchandise. They didn’t have generic pharmaceuticals. They had an office in Memphis that was costing $8 million a year.”

LaFrance shut the Memphis headquarters down on day one and filled the stores with the wholesale goods from his company and inventory similar to the USA Drug model.

“It worked. We made money in the first year,” he said with a grin.

‘BACK DOOR’ POLICY
In 2004, he had the opportunity to move into the Tulsa market and add another 60 stores to his empire, which was pulled under the umbrella of Stephen L. LaFrance Holdings.

The deal was even more complicated as he was negotiating with two family-owned pharmacy chains, Med-X and May’s. It was imperative that neither side had knowledge of the potential merger with the other. LaFrance pulled it off.

LaFrance said he never did a deal too big to fail. His deal-making style was always full of options, he contended.

“I always had a back door, so I’d always have a way out,” he said.

In all of his acquisition transactions, LaFrance always looked for efficiencies, which often meant combining prescription departments and consolidating stores in proximity to each other.

So when Walgreens and LaFrance cut their $438 million merger in July 2012, he knew how it would play out.

The Walgreens combo involved 18 months of negotiations beginning in early 2011 and consummating on Sept. 17, 2012. At the time, Stephen L. LaFrance Holdings, Inc., and members of the LaFrance family had 144 stores in seven states operating under the USA Drug, Super D Drug, May’s Drug, Med-X and Drug Warehouse franchises. Those stores generated $825 million in sales in 2011.

The deal also involved the sale of SAJ Distributors, which Walgreens flipped to L&R Distributors of New York in late November of that year for an undisclosed sum.

Walgreens quickly shuttered nearly half of the stores in the seven-state region shortly after the close.

LaFrance said he was ready to exit the business as he moved into his 70s. He said there was too much uncertainty in the future and his sons were not interested in taking over.

“I’ll have to admit that I’ve had many second thoughts, but I’m getting better,” LaFrance said. “You know, if you’ve birthed something 45 years ago and all of a sudden it’s gone, you miss it. And I do miss it … but it was time to sell.”

There were plenty of setbacks in LaFrance’s 45 years in the business world.

He talked about how hard the first 10 years were. Twelve-hour work days, six days a week were routine, and even after he made it big, that work ethic was a driver for more success.

In the early ’80s, his wholesale business was doing well and a sizable relationship with Skaggs stores based out of Memphis drove a period of “exponential growth” for SAJ. For the better part of the decade, LaFrance supplied Skaggs stores with inventory ranging from private-label drugs to mops and brooms. The business reach stretched from the mid-South across Texas, even into New Mexico, as Skaggs kept asking LaFrance to supply its stores with more and more items.

Toward the decade’s end, Skaggs opened its own wholesale operation in Oklahoma and pulled all of its business from LaFrance. Pressed with a choice to downsize or ramp-up to replace the lost business, he gambled and hired salespeople across his territory. Within three years, he had replaced the lost Skaggs sales.

“When you have one basket and they keep pouring things in it, sometimes you have to take it,” LaFrance explained. “It was a devastating event, but we survived and we went on to grow.”

A PASSION FOR COOKING
His obituary on the Ralph Robinson & Son Funeral Home website noted that LaFrance “cherished his Friday afternoon spades games in Pine Bluff” and that “there was nothing he enjoyed more than to cook.”

Once when asked what his dream profession would have been, he replied, “to own my own restaurant and be the cook.”

In fact, the obituary noted, when he designed his home in Pine Bluff in 1980, he insisted that the kitchen be the focal point for interaction with family and friends. Many great memories were made around the table with loving family and lifelong friends, and many remember his legendary Thanksgiving feasts.