Valley Drug Mart: The Lawton's Entry

As 1984 drew to a dose, George Fairn wondered what the new year would bring for the Valley Drug Mart, the business he had started and built in Middleton, Nova Scotia over the last fifteen years. He had recently learned that a major chain, Lawton's Drugs, was moving into Middleton in the new year. Could he hope to survive?

Background

George was born in 1930 in Albany, a small satellite community of Middleton, a town of 2,000 people nestled in the Annapolis Valley halfway between Halifax and Yarmouth. He grew up and went to school in the Middleton area, graduating from the old MacDonald School before going on to study pharmacy at Dalhousie University. After completing his training, he took a Job in Saint John, New Brunswick.

In 1964, George had the opportunity to return to the Annapolis Valley, "the best place to live in North America." He also had a


This case was prepared by Professor Ravi Tangri of Saint Mary's University for the Atlantic Entrepreneurial Institute as a basis for classroom discussion, and is not meant to illustrate either effective or ineffective management.

Copyright 1993, the Atlantic Entrepreneurial Institute. Reproduction of this case is allowed without permission for educational purposes, but all such reproduction must acknowledge the copyright. This permission does not include publication.


family now and did not want to raise his children in the city So, he moved back to Middleton to work in the Eaton Drug Store. At the time, two retail drug stores operated in Middleton, Eaton and Mumford's, both independently owned. Both of these drug stores were fairly small establishments (about 1200 square feet each) located near the intersection of the two main streets of Middleton (see Exhibit 1). Neither had an extensive front store, the section that displayed the sundry (non-prescription) items available at the store.

After a few years, George took the opportunity to purchase the Eaton drug store and, on January 1, 1969, took over the business. Over the next few years, George worked many long hours. Not only was he the owner, but he was also the only pharmacist. He had a staff of four clerks who worked the front star .

George preferred to focus on prescription service and did not particularly favour a large front store, especially since 95% of profits came from prescriptions. Most front stores in Canada operated at a loss. However, he realized that by not providing one, he was only inviting competition. If he did not provide the services the public demanded, someone else would. In 1973, in order to expand to provide these services, he bought a neighbouring building that leased space to several small retail outlets, including his competition, Mumford's Drug Store.

On November 3,1975, he moved into the new building and the Valley Drug Mart was born. The new name reflected the change in services and philosophy of the business. Shortly afterwards, he purchased Mumford's Drug Store and expanded the Valley Drug Mart even further. The former owner of Mumford's worked with George for five years and then continued to serve on the board of the Valley Drug Mart. Over the next few years, George expanded into spaces vacated by other tenants, using the space for storage, office, and front store. Finally, in 1983, the Valley Drug Mart occupied the entire building, comprising over 7000 square feet.

To provide a full range of front store services, George investigated a number of buying groups for pharmaceutical goods. Affiliation with any one of these groups would allow the Valley Drug Mart to carry a line of 'house' products. Through these associations, independents could jointly purchase many of their products with the same volume discounts enjoyed by larger chains. Carrying the branded goods from any of these associations involved somewhat higher advertising costs for radio advertising and flyers, but George felt, once again, that it was expected by the public

At first, the Valley Drug Mart was affiliated with the Associated Retail Pharmacies (ARP) buying group. However, George had recently switched to Guardian Drugs as the merchandising arm of his store due to its superiority in several factors, including cost. George had since been appointed a director of the Guardian plan.

George saw the Valley Drug Mart as a full-service store. Not only did it have prescription service and an extensive front store, but it also offered a host of other services, such as ortho and breast prostheses.

With the growth of the store, George had increased not only his front store staff, but also had added a front store manager and three additional full-time pharmacists.

Business Philosophy

George had very strong feelings about service, both in the store and in the community It was important to George that the staff was friendly and always had a smile for the customer 'The customers are the ones doing us a favour by coming into the store. It's not the other way around."

In a town the am of Middleton, the pharmacist was almost expected to be active in civic affairs and to be a community leader These expectations were possibly enhanced by the fact that the pharmacist was the only retailer required to have a university education. Whatever the expectations, most Middletonians felt that George far exceeded them, having served on the town council, as chair of the merchants' committee, in church activities and in the Rotary Club. He had recently been recognized for his community involvement with a reward from AH Robbins, a pharmaceutical company George felt that his involvement with the community was further enhanced by the fact that he lived in the town itself.

On several occasions, when the local hospital had needed key equipment for its intensive care unit or for its veterans' win& the Valley Drug Mart had purchased this equipment for them. George felt that it was part of his responsibility to contribute to the community which provided his living.

Advertising for the Valley Drug Mart was strongly service-oriented. It included the sponsorship of fire and birth announcements on the radio and community bulletin boards. Each month, the Valley Drug Mart brought in a nurse from the Victorian Order of Nurses (VON) to run a blood pressure clinic for the public.

Most recently, George had been investigating the possibility of sponsoring a van to chauffeur load residents who needed special medical tests in Halifax into the city, which was approximately 160 kilometres away (Exhibit 2). This idea arose from conversation at a Lion's Club function. A local resident had mentioned that when he had been in Halifax recently for a test at the Victoria General Hospital, he had encountered several other people from Middleton at the hospital. Some had travelled by car, some by tram, and some by bus. This conversation had sparked the idea of running a van into Halifax two or three days a week to transport these people more efficiently

Further investigation had shown that this commuter service could be used to transport blood, frozen sections, and other crucial items between the local hospital and the city. The cost of a van would be $17,000 and the cost of each round trip, including gas, maintenance, and a driver's salary, would be approximately $100. George was seriously considering the implementation of this service, but he still had to consider several issues, such as its frequency and what he should charge for its use. Should he sponsor part or all of the service?

The Lawton's Entry

At the end of 1984, after a fairly comfortable period of continued growth, the Valley Drug Mart was facing a major competitive challenge. As George was preparing to welcome in the new year and the 16th anniversary of his business, he learned that a new strip mall was to be built approximately one kilometre from his business (Exhibit 1) and that one of the stores that would be in this mall would be a Lawton's Drug Store. The anchor store for this mall would be a department store.

By 1984, the greater Middleton area had a population of approximately 4,000 people, . approximately half of whom lived in the town, with the remainder living in surrounding communities. The closest pharmacies were in Kingston and Lawrencetown, two slightly smaller towns located 12 kilometres on either side of Middleton (Exhibit 2). Adjoining Kingston was Greenwood, a community centred about a Canadian Forces Base. Greenwood had a population of about 5,000 and housed a major regional mall. Another drug store was located in this mail. None of these pharmacies were part of any major chains. Given the local market, George felt that Middleton could not support another major pharmacy.

Lawton's Drugs was a major chain that was owned by Sobey's, a powerful and wealthy organization that had grown from a regional grocery chain. Its resources were on a scale far removed from those of the Valley Drug Mart, and George felt he had no hope of surviving a price war, should it come to that. He did not know what he could do that Lawton's, with its vastly superior resources, could not only match, but exceed.

George loved his work. He arrived at his store by 7-45 am each morning, even though the store did riot open until 8-30 am, and he often came in at odd hours to fill urgent prescriptions. He had no intentions of giving up, even though he had planned to retire in four or five years anyway. Some friends had privately asked him if the fight was worth the effort. He had often received offers from major chains, such as Shopper's Drug Mart, to purchase the Valley Drug Mart, but he strongly opposed turning his business over to these having invested so much of himself into both the Valley Drug Mart and the town of Middleton. Yet Lawton's would be opening its doors within six months. How could he hope to compete, let alone survive against this threat?


Exhibit 1

Middleton, Nova Scotia

Exhibit 2

Nova Scotia