LaFrance Faces Bitter Discount Pill

Competition has caught up with Stephen L. LaFrance Pharmacy Inc. of Pine Bluff. Industry estimates reflect a 10 percent drop in annual sales by the company, which operates a regional chain of drug stores.

Sales in 2003 were pegged at $356 million, a 10.3 percent decline from $397 million the previous year. The private company claims 114 stores in its operation including six in Northwest Arkansas: two in Fayetteville and one each in Springdale, Rogers, Bentonville and Siloam Springs.

LaFrance Pharmacy’s revenue apparently includes 10 franchise stores in Iowa and Illinois. Those are owned by Hartig Drug Co. of Dubuque, Iowa.

Sales at Hartig-owned stores (eight in Iowa and two in Illinois) are tallied separately by industry watchers such as Drug Store News.

LaFrance’s corporate Web site lists 98 stores in a four-state region divided among Arkansas, 39; Tennessee, 32; Mississippi 18; and Missouri, 9. The stores operate under the banners of USA Drug, Super D and Ike’s.

The company’s namesake president and chief executive officer declined an interview.

“We don’t seek or need publicity,” LaFrance said with a laugh. “I like to stay under the radar screen.”

During the past 10 years, LaFrance has butted heads more and more frequently with an industry giant: Walgreen Co. of Deerfield, Ill., the nation’s largest drugstore chain and 11th largest retailer.

Walgreens left the Arkansas market in 1977 and returned in 1995 with a new store model: a 14,000-SF, freestanding shop armed with the latest retailing technology and bearing goods priced the Wal-Mart way.

Walgreens now has 24 Arkansas stores including one each in Springdale and Rogers and two existing and one under construction in Fayetteville. New locations in Jonesboro and Jacksonville will open by August.

Walgreens operates 340 stores in LaFrance’s four-state area.

The publicly traded Walgreen Co. opened 2,221 stores between 1999-2003. By contrast, little has changed with the size of the privately held LaFrance chain. In 1998, LaFrance had 116 drug stores regionally. The Arkansas census was 39 locations at the time.

LaFrance has spent much of its energy during the intervening years closing old locations and opening new ones in the face of the Walgreens onslaught.

Gone are two locations each in Texarkana, Texas, and Muskogee, Okla., that were part of the 1997 Super D acquisition. The same goes for two Super Ds in Wisconsin and one in Tennessee.

The purchase of Super D Drugs Inc. of Memphis elevated LaFrance from an Arkansas concern to regional status. The price of the acquisition was undisclosed but has been estimated at more than $90 million.

At the time of the transaction, LaFrance had 15 drug stores and Super D had 87. Thirteen of LaFrance’s stores were in Arkansas, and the two in Shreveport and Bossier City are now gone.

LaFrance has expanded into new markets amid the coming and going of individual stores, but the total number of stores is flat.

LaFrance’s 1995 entry into the Little Rock market coincided with the arrival of Walgreens. In 1994, Walgreens announced its intention to open three locations in the Little Rock market.

USA Drug followed with a three-store announcement of its own in early 1995, but only two of those were in operation by 1997.

USA Drug now has 10 stores in the Little Rock-North Little Rock-Sherwood market. Walgreens had seven at last count. No. 8 is scheduled to open in Little Rock in 2006.

It’s unclear how many other franchised stores are affiliated with the company besides Hartig, although the total number is believed to be about 25.

LaFrance still lists franchise opportunities among its offerings, but not much is happening on this front. Disinterest by the company, and perhaps would-be franchisees as well, is cited for its dormancy.

Hartig is touted as the oldest continuously operated family drugstore chain in America. Its affiliation with LaFrance dates back to October 1999.

When the Hartig/USA Drug deal was announced, the move was described as helping Hartig update technology and offer lower prices to better compete with national discount chains.

Attempts to contact Richard Hartig, company CEO, were unsuccessful. Hartig annual sales are estimated at more than $40 million.

Growth Through Acquisition?

Rumors that LaFrance was poised to acquire pieces of the Eckerd drug store chain in Oklahoma didn’t materialize.

After J.C. Penney Co. announced it was putting Eckerd’s on the sales block, analysts wondered if Penney’s could generate more money by carving up Eckerd’s rather than sell it in one fell swoop.

Parts of the 2,799-store chain would make for a logical expansion of LaFrance’s regional operation. Eckerd’s has 91 stores in Louisiana, 47 in Tennessee, 33 in Oklahoma, 27 in Mississippi and 19 in Missouri.

As it turned out, Penney’s got a better-than-expected price in the sale of Eckerd’s in April. And the cumulative $4.53 billion cash deal was accomplished by selling to more than one buyer.

But LaFrance was absent from the transaction that was divvied between CVS Corp. of Woonsocket, R.I., and the Jean Coutu Group Inc. of Canada.

CVS will pay $2.15 billion for 1,260 stores in Alabama, Arizona, Florida, Kansas, Louisiana Mississippi, Missouri, Oklahoma and Texas along with three distribution centers.

The purchase will restore CVS to the largest drug store chain in terms of locations, but Walgreens is forecast to retain its No. 1 position in sales.

Growth through acquisition is part of the company history. CVS bought 2,552 Revco stores in 1997 and 207 Arbor stores in 1998.

Jean Coutu Group Inc. of Longueuil, Quebec, will pay $2.38 billion for 1,539 Eckerd stores in Connecticut, Delaware, Georgia Maryland, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia and West Virginia.

This portion of the deal also includes Eckerd’s corporate headquarters in Largo, Fla. Jean Coutu will replace Eckerd’s as the fourth largest drug store chain in the nation when the new locations are added to its 335 Brooks Pharmacies.

Amid the changes at the top, LaFrance is left to maintain a profitable niche while finding a way to grow among heightened competition.

Corporate History

The company’s founding dates back to February 1968 by Stephen L. LaFrance, a Pine Bluff pharmacist. Thirty years ago, the family-owned venture added SAJ Distributors, a full-service wholesale distribution company.

According to corporate info, SAJ distributes more than 22,000 items to more than 1,000 customers from its four-story, 255,000-SF storage facility in Pine Bluff.

LaFrance opened the first USA Drug store in 1984 in Pine Bluff. Two years later, LaFrance formed Select Brand Distributors — its own line of merchandise equivalent to national brands but sporting lower prices.

Select Brand products now encompass more than 750 different items sold through the LaFrance stable of drug stores and other retailers.

Helping feed the LaFrance pipeline of goods is McKesson Corp. of San Francisco. In 1998, the two companies struck a seven-year deal valued at $525 million for McKesson to supply pharmaceuticals, over-the-counter drugs and health/beauty care products to LaFrance.

SAJ is considered a bright spot in the LaFrance operations, adding sales outside USA Drug/Super D/Ike’s to aid in the retailing wars.