Don't say Drug Fair, say . . . Jack Eckerd? Or Skaggs? Or Super Rx?
That's the tantalizing question on the minds of area investors and drug store executives this week in the wake of a revelation last Friday that an unnamed company has offered to buy the controlling interest in Drug Fair Inc., an Alexandria-based regional chain with 175 stores.
In addition to buying 47 percent of the stock owned by the local Elsberg and Gerber families, whose patriarchs founded Drug Fair, the outside suitor has stated that the same cash offer will be made to other investors as to the founding families.
Drug Fair, the second-largest of Washington's big three drug chains (a retail competitive situation unique in America which reflects the high per-capita drug store sales here), has been regarded as a takeover candidate for a long time.
This is so partly because of the problem of deciding future direction of a business that has many Elsberg and Gerber family members making the decisions, including President Milton ("Doc) Elsberg (he's chief executive) and Chairman Myron Gerber. Robert Gerber (Myron's father) and Milton Elsberg founded the company in 1938.
As a consequence of expectations that the Elsberg and Gerber families might agree to sell their shares, Drug Fair stock has been a wanted commodity in recent weeks and months. As the Washington Business listing of 100 selected area stocks shows, Drug Fair stock has soared in value by about 70 percent in the past month to a high of $13.32 1/2.
Drug Fair's board is due to study the proposed stock bid this week, and additional information could become available afterwards.
Meanwhile, some officials of the No. 1 chain here, Peoples Drug Stores, Inc., already were talking out loud over the weekend about the possible impact on their business if an aggressive, outside company moves into this market. And founder Herbert Haft at Dart Drug Corp., number three in overall size but right up there with Peoples and Drug Fair in the D.C. market alone, also will be watching with interest.
Initial speculation among retail drug store leades and analysts has centered on Jack Eckerd Co., of Clearwater, Fla., regared as among the most aggressive retail drug chains. Eckerd is the nation's third-largest drug store retailer, with 1,045 stores and annual sales of more than $1.4 billion. Peoples, with about 485 stores and annual sales of $562 million, is the 11th- or 12th-ranking firm in the industry.
There were other reports over the weekend that a drug store subsidiary of a food retailer was the suitor of Drug Fair. Among such large chains are Osco (owned by the Jewel Cos.), Super Rx (owned by Kroger) and Skaggs (American Stores, owner of Acme).
Eckerd is seen as particularly attracted to the big D.C. region, from Richmond through Washington to Baltimore, because of its affluence and future growth. Eckerd is strong in Florida but it faces new competitive pressures there and is searching for growth outside its Southeast concentration.
In addition to being one of the fastest-growing segments of the retail industry, drug chains are relatively insensitive to economic recession. The leading chains, including Peoples and Drug Fair, have expanded their stores to include a wide variety of general merchandise.
As Johnston, Lemon & Co. President James Lemon has described Drug Fair, it has followed "a more cautious and conservative course than Peoples, emphasizing the quality of its professional services and the convenience of its locations." Drug Fair's average store size of 16,000 square feet is larger than the average of about 11,000 at Peoples but smaller than Dart's 50,000-square-foot super stores, Lemon notes. Drug Fair has phased out unprofitable Scoops ice cream and Wrangler Wranch jean outlets to concentrate on its first line of business, retail drugs.
Many of these subjects will be on the minds of Peoples Drug stockholders when they gather for that firm's annual meeting on Thursday. Peoples, under the aggressive management of President Sheldon Fantle, has been awakened to a new age of competition. Sales jumped 27 percent in the year ended Sept. 27 and profits also rose 27 percent to $8.2 million for a 15.9 percent return on average stockholders' investment.
Peoples wants to stay No. 1 and has in place a four-part program designed to reduce administrative expenses, increase security to prevent theft, cut long-term debt by $15 million and benefit from the interest savings and build better profit margins. New owners at Drug Fair could be expected to follow similar paths, adding to the competitive pressures here.