March 2008 Archive
In my last post, I posed the question: What’s next for Walgreen? In-store surgery? Boy, was I on the wrong track. While the nation’s #1 drugstore chain won’t be installing in-store operating theatres anytime soon (that I’m aware of), it will be opening apparel departments in most of its 6,000-plus stores tomorrow, April 1. This is no April Fools hoax! The drugstore chain’s first line of private-label clothing — called Casual Gear — will include clothing basics, such as hoodies, Capri pants, socks, and T-shirts, priced at $7 to $15. While Walgreen already sells some basic apparel, including T-shirts, bras, flip flops, and slippers, those goods aren’t exclusive to Walgreen.
The new Casual Gear line is made exclusively for the company by Wonderbrand LLC, a San Francisco-based firm formed by underwear maverick Nick Graham, the founder of the popular Joe Boxer line sold in Kmart stores.
Walgreen’s foray into the world of “low fashion” is unpretentious, and the company hasn’t done much to promote the launch. But the low-profile debut is at odds with Walgreen’s overall private-label strategy, which has been aggressive. No stranger to private-label goods, Walgreen offers its own brand of everything from over-the-counter medications, including aspirin and cough syrup, to personal care products like whitening strips for teeth and eyeglass wipes. Indeed, Walgreen’s own-brand business has grown from about 12% of general merchandise sales in 2000 to 20% today.
The reason Walgreen and other retailers — supermarkets come to mind — love private label goods is that they foster customer loyalty and, more importantly, return a higher profit margin to the retailer. So Walgreen takes its store-brand business very seriously. It recently upgraded the packaging and logo for Walgreen-brand products under the new “W” brand and — in another blow to struggling Starbucks — is even testing in-store beverage bars, called Café W, at some 200 locations.
While leggings and lattes may seem like a departure for a pharmacy chain, they fit right in with Walgreen’s strategy to drive sales and customer traffic.
“We’re seeing more people interested in taking a peek inside the stagecoach,” Wells Fargo CEO John Stumpf told the San Francisco Business Times last week, but in reality, it’s his company that’s kicking tires and peeking under hoods.
Wells Fargo, which traces its roots to the Pony Express days and still utilizes a stagecoach logo, is the fifth-largest bank in the country by assets. While many of its counterparts along the East Coast have made blockbuster acquisitions in recent years — JPMorgan Chase scooped up Bank One and Bear Stearns; Bank of America bought FleetBoston and credit card company MBNA, and is assimilating mortgage lender Countrywide, while Wachovia has cozied up with Golden West Financial and A.G. Edwards — Wells has been content to buy smaller banks in states like California, Texas, and Wyoming to fill in its market area in the West.
And while some of those same peers founder in the wake of the mortgage mess, Wells Fargo has remained relatively unscathed. Indeed, it is the only US bank with a “AAA” credit rating from Moody’s and Standard & Poor’s.
Based in San Francisco, Wells’ wagon train stretches only as far east as Indiana, and conditions are ripe for the company to make a large acquisition to help it spread toward the Atlantic. Perhaps the most obvious target is National City, which operates in slow-growth Rust Belt states such as Ohio, Illinois, Michigan, Pennsylvania, and Indiana and has seen its stock lose some two-thirds of its value due to loan losses. Wells is well-capitalized enough to take on the Cleveland-based bank’s problems, and could expand its footprint and gain market share on the cheap. But National City’s bargain-basement price has also attracted other possible suitors, PNC and KeyCorp among them.
Of course, Wells has also been rumored to be looking for an acquisition in the more-attractive Southeast market for several years. Possible targets there include SunTrust and BB&T, which have struggled to integrate acquisitions of their own.
What’s certain is that Stumpf and Wells are hot to get a deal (or deals) done, whether it be a blockbuster or more small fill-in acquisitions, and are even willing to sacrifice the sterling credit rating that the company has been so prudent to attain.
It seems like every time I visit the health clinic, there’s a smartly dressed pharmaceutical representative somewhere in the immediate vicinity. A fun waiting room game can be found in picking out the reps from the patients. (In fact, if I don’t see one, I actually worry about where he/she is.) Skeptic that I am, I also wonder how much of an influence these reps have on what medication my doctor recommends, while the hypocrite in me feels a small surge of glee when I’m handed free samples instead of a pharmacy slip.
Despite my personal feelings, it seems that doctors may also be overwhelmed by the numbers of pharma reps visiting their offices day in and day out. Either that, or the drug companies, feeling the heat from patent challenges and generic competition, are tired of paying them, because according to a post on the Wall Street Journal’s Health Blog last week, major players including Pfizer and Bristol-Myers Squibb are cutting back on their sales forces.
In another drug marketing development, Congress is currently reviewing the FDA’s duties regarding television advertising of pharmaceuticals. The woefully underfunded FDA may be given an increased budget to review those annoying ads — you know, the ones that start with a beautiful beach or a butterfly and end with digestive or bleeding ailments — before they’re aired to consumers. Imagine.
The FDA’s budget is getting high press this year as contaminated drugs and other drug safety issues make regular headlines. While improved facility inspection and drug approval processes are top priority, I believe that advertising oversight is also important. It seems to me that the high level of prescription drug use in the US is partially tied to advertising campaigns that make consumers believe that a drug will make all of their problems disappear.
Despite the reported dip in pharmaceutical representatives from certain big-name manufacturers, it would be wise to increase regulation in this area as well. Some state legislators are pushing to limit the gifts pharmaceutical representatives are allowed to give to doctors, while some US senators are pursuing the provision of objective drug information so that doctors and patients can have unbiased input on what sorts of medications they should take, if any.
Will any of these developments have a profound impact on how pharmaceuticals are prescribed? Overcoming the drug companies’ sometimes misleading and overbearing sales tactics, as well as lobbying efforts, will surely be a big challenge. Whatever the answer, lawmakers and regulators undoubtedly have a role to play in the future of drug companies’ marketing campaigns.
The long-rumored deal has become fact: Tata will buy the Jaguar and Land Rover car business for about $2.3 billion. The deal will net Ford about $1.7 billion after it pays into the pension fund for the unit. The car company will use the money to revitalize its long-standing brands.
Tata’s acquisition of Jaguar and Land Rover will allow the company to fulfill a longstanding goal — to move out of the East and become a truly global company. The first step was its acquisition of Corus Steel. Now, with Jaguar and Land Rover, it can take its aspirations a step further. East won’t just meet West — will East become West? Interesting that its two biggest western acquisitions are British: first Corus and now these two venerable nameplates. Tata was founded during the period of the British Raj. If Freud analyzed corporations, I wonder what he would think of that.
Tata has said that it will keep the unit separate from its Indian auto operations, famous for its recent unveiling of the one-lakh car, a small economy car that costs about $2,500. The one-lakh car is about as far on the other end of the scale from a Jaguar or Land Rover as a car can be. I wouldn’t be surprised if in the next few years we saw another acquisition by Tata of a mid-market nameplate.
Whether Tata can make a go of the luxury nameplate — Ford couldn’t — is still up in the air. Certainly right now it doesn’t look so good: The economy is fragile and Jaguar sales have been dismal recently. But recessions end, and the good times have a way of creeping back up on you. When people are ready to open their pocketbooks again, Tata will be ready.
When PepsiCo’s acquisition of Lebedyansky becomes final (probably in the third quarter of this year), the soda maker will have achieved three things — expanded its global presence, become a player in the lucrative Russian juice market, and re-ignited its rivalry with that other venerable beverage barterer, Coca-Cola.
While 44% of Pepsi’s sales already occur outside of the US, its purchase of Russia’s #1 juice maker will definitely increase that percentage. Lebedyansky controls about one-third of its home country’s juice market. It is the world’s sixth largest juice maker, ringing up sales of some $800 million in 2007. The $1.4 billion purchase, its largest since it forked over $14 billion for Quaker Oats in 2001, is PepsiCo’s biggest foreign acquisition ever.
Lebedyansky, with both premium and economy-priced juice brands, will put Pepsi ahead of Coca-Cola, which owns the #2 Russian juice maker, Multon Co., acquired in 2005 for some $500 million. At the moment, Pepsi’s Tropicana brand only rings up 2% of sales in the Russian juice market, while Coke’s Multon controls more than a fifth of the sector.
Pepsi and Russia go back quite a way — back to the Cold War days when the country was the USSR. The mercurial premier Nikita Khrushchev (of shoe-banging fame, for those of an age to remember) sampled Pepsi’s flagship cola for the first time at an exhibition of US products in Moscow in 1959. Things went slowly in those spy-versus-spy days. It took Pepsi fifteen more years to open a bottling plant there, when in 1974, it became the first Western company to actually manufacture its products in the USSR.
Coke has a not-too-shabby presence in the country, but it took it until the early 1990s to establish a significant presence there. But as it does everywhere else in the world, Coke wins the cola wars, with a 21% share of Russia’s carbonated soft drink sales volume; Pepsi Cola’s share is a close-but-no-cigar 19%.
The $3.6 billion Russian juice market, which is expected to increase 10% during the next decade, along with the growing disposable incomes of the country’s consumers, has savvy companies salivating. In addition to Pepsi and Coke, the UK’s Lion Capital last year bought up another of Russia’s biggest juice makers, Nidan Soki.
Never a company to relish second place, Coca-Cola is said to be interested in purchasing the juice business of Russian dairy giant, Wimm-Bill-Dann Foods. Moscow’s daily business paper, Kommersant, has reported that Coke is tracking Wimm-Bill’s monthly juice sales. While both Coke and Wimm-Bill deny any interest in each other, Kommersant quotes the general director of Nidan Soki as saying, “Coca-Cola will not be satisfied with the # 2 position in the market.”
We’ll see. But no matter what Atlanta’s Avatar of Avarice does, we raise our juice glasses in congratulations to Pepsi.