Is the bad economy or big competition killing regional chains?

Another good company, Snyder’s Drug Stores, announced a couple of weeks ago that it is closing. I know because we sent out the press releases. Each press release listed my name, Michael Morin, as the contact for more information. We do crisis management for our clients, but this is one you hope you never have to do – going out of business. It resulted in a grueling couple of days on the phone with radio, TV and newspaper people throughout Minnesota, the US and Canada.

The whole ordeal was physically draining. But, it was more than that; it was sad… really sad. Snyder’s was a vital part of the neighborhoods where they had stores. Some of the calls I got asked me where the local seniors were going to turn to for their prescriptions. Another call talked about how Snyder’s had been delivering prescriptions to a paraplegic veteran. Now, what was he going to do?

In most of the areas, Walgreens bought the prescription lists and will take care of those who were loyal Snyder’s customers. In many markets, Walgreens is even taking over the existing store and will convert it. But, some neighborhoods will be without. And the big national chains won’t deliver the kind of personal service that took care of a local vet who couldn’t make it to the store. Many people won’t have the trusted pharmacist they’ve had for years. It’s a sad story that’s told over and over these days as regional chains fall by the wayside.

So, how did this happen? Was it a product of the recession that has hit small to mid-size companies especially hard this last year? Or was it part of the trend this past decade with larger competitors gobbling up the smaller chains all across the country? We’ve seen this happen to many Yaffe & Company clients the past 10 years. Michigan based Perry Drug Stores, a Yaffe client, was bought out by Rite Aid and then their local competition Arbor Drugs was bought up by CVS.

Snyder’s Drug Stores were founded by Max Snyder in downtown Minneapolis in 1928 and grew to become a formidable player in the drugstore category with over 80 stores in the Twin Cities, plus dozens of franchise stores in many other states. A merger 8 years ago turned out to be a bad move, resulting in bankruptcy. Then, in the past five years, three big competitors (Walgreens, CVS and Target) opened 60 new pharmacies in the Twin Cities. So, the weakened Snyder’s now had to compete against the big national players who opened stores at all the best intersections.

So, if Snyder’s had been able to stay relevant, adapt and remain financially strong, would they have been able to overcome these obstacles? It’s hard to say. If they had been strong enough to weather the economic storm that was 2009, who’s to say they might not have still been bought out by one of the big players like so many regional chains before them. The end result would have been better for the Snyder’s people, but would have been the same for the neighborhoods who believed in their local drug store chain.

Small and mid-size chains are disappearing all over the place. Is it the economy, the homogenization of America, merger mania or some combination of all? I’d be interested in hearing what you think.

Michael Morin, EVP, Client Services

Comments

[Turbobrown]

My initial reaction is that small companies don't have the resources or the capabilities to take strategic action to prevent or react to oncoming threats to their business. Too often as business dwindles these small players continue working business as usual and hope that they can weather the storm.
Instead they should be exploring new and different ways to turn their industry on its head and differentiate themselves from their big chain, lower priced competitors. I don't know the retail pharmaceutical business and I don't know Snyder specifically, but it seems like the story is always the same: in a booming economy the little guy is able to compete against the competitors by being local and friendly but in the end tough times and a lack of business creativity end up squeezing them out.
I can't help but wonder if we'd be reading a different story about Snyder if they had come up with a way to revolutionize their business.

[Michael Morin]

Good thoughts. Business evolution requires creativity. Thanks for the comment.

[Nathanacosta]

Hey Michael,

I'm in Gen-Y, so big box, nationwide retail is pretty much all I can remember. I don't think smaller chains are competitive in today's marketplace. Sure, they may carry a family name, local history, and the customer service may be better, but what most people really care about are the price tags.

I also agree with Turbobrown -- in a way, I think there's more tendency to do things as they've always been done. Afterall, that way worked "since 19xx," right? The old "if it ain't broke, don't fix it" mentality runs rampant here, but too often smaller businesses change their tune too late. Plus I think there's a lot more emotions and sometimes family politics in the way at smaller organizations. There aren't stockholders, a board of directors, or CNBC journalists to answer to. (And the local paper probably shut down five years ago anyway.) So change doesn't happen as fast.

In early 2008, while still in college, I was laid off from a small restaurant chain that closed literally overnight. A few weeks later I went to work for Olive Garden. OG's parent company makes about $6 billion/year. While I have to admit working conditions/benefits were better at the OG (I got health insurance!), I did observe some of the smaller chain's strengths: The smaller chain purchased local food, gave back to the community, and focused on human connections. By contrast OG imported food, furnishings, and [immigrant] labor from thousands of miles away. The "when you're here your family" slogan is just a feel-good saying. In reality, things were overly systematic (your entire dining experience can be measured in 60 second intervals, by the way). Employees are stripped of their personality (ever notice how its hard to recognize your server over all the others at an OG?).

Gen-Y is expected to be a generation of self-starting entrepreneurs. I think smaller business will be more competitive in the future. No one likes to be from Anytown, USA. Big box backlash is probably on the horizon.

My salute to Snyder's. Alan Jackson's "Little Man" is one of my favorite songs.

[Michael Morin]

While Alan Jackson captures the essence of the situation, I hope you are right about Gen-Y being a generation of self-starting entrepreneurs. The Internet allows a whole new form of competition and is likely the catalyst. Thanks for posting your comments.