McCauley’s pharmacies ‘open to new equity partner’
SAM MCCAULEY, the executive chairman of the eponymous pharmacy chain, has said that the company is open to bringing in a new equity investor to the business and may even consider listing the company on the Irish Stock Exchange.
He said that the board, which includes business expert Bernard Somers, is actively assessing ways to grow the business. “We could look at lots of options including an equity partner to make a quantum leap in the business,” he said, adding that ideally an investor would have experience in the sector.
“It would be very desirable that somebody could bring something to the table in terms of expertise or synergies,” he said. “I don’t see any reason why an Irish pharmacy group can’t hold the same position as Musgraves or Dunnes in the grocery market.”
The company is pushing ahead with expansion plans, opening a new store in Navan last week bringing the chain to 30 shops. “We’re very much now on the path of organic growth,” he said.
The company is targeting revenues of €90m next year, which will outstrip its pre-recession turnover.
SAMMcCauley looks back at the last 10 years as a lost decade in retail. His chain of chemists, which reached 30 shops on Friday with a new opening in Navan, is just now seeing a return to growth in the retail sector.
“It’s not a gold rush,” cautions McCauley. “You’re fighting to come up with more innovative ideas as to how you stay on trend and make sure you are going to be interesting.”
McCauley, a soft-spoken and entertaining raconteur, has kept a low personal profile for more then 10 years, but is keen to celebrate the 60-year anniversary of the first McCauley chemist, set up by his father and mother in Enniscorthy, Co Wexford. It is also 25 years since he opened the first branch of the chain and he is glad to be able to say the business is once again in growth.
After that lost decade of sales growth, next year the business aims to outstrip is its peak boomtime revenues with an expected €90m in sales, albeit across a wider portfolio of stores.
Now aged 67, he is also happy to share that the company is mulling bringing in a new equity investor to bring the business to the next level.
“I don’t see any reason why an Irish pharmacy group can’t hold the same position as Musgraves or Dunnes in the grocery market, in other words, be right there with the market leaders,” he says. “We’re on their heels but there is a gap. I see a unique opportunity for a uniquely Irish model.”
McCauley is the largest shareholder in the group, with management and pharmacists among the other investors in the company.
With two new openings in recent months (the other being in Tipperary), the company is planning further expansion.
“We’re very much now on the path of organic growth,” says McCauley. “We’ve put €2m in this year into two new businesses.”
The chain is also expanding existing shops, taking advantage of lower property prices.
“We’re maximising out the existing portfolio, adding on new greenfield sites and may do selective acquisitions,” he says. “We see lots of opportunity to expand the business. We’re now in a better position than ever before to move the business forward to a new level.”
McCauley’s ethos has always been to have large shopfronts to entice shoppers as well as those seeking prescriptions.
In the chain, 60pc of revenue comes from front shop with 40pc from the dispensing business. In the average Irish pharmacy, 70pc of turnover comes from dispensing and the remainder is in retail.
McCauley’s model, which depends heavily on upmarket cosmetics, photo services and other retail offerings, is a far cry from his father’s chemist shop in Enniscorthy, which opened in the early 1950s.
“He ran the typical provincial Irish chemist and things were pretty dire economically at that time. It would be like an antique chemist shop now,” says McCauley. “A pharmacy museum.”
There was a small counter and very little on the shelves for customers to ‘self select’. Antibiotics were not widely prescribed and aspirin was the drug of day for most ails.
“It was a time of mystique, when pharmacists were mixing a lot of medicines,” he recalls. “He was in there conjuring and you’d come back in half an hour for your medicine which would be wrapped in pristine white paper.”
McCauley was one of seven children, joint third with his twin. He did not have a natural inclination for pharmacy.
“Academically I was a nonentity,” he says with a laugh. “I think I became the pharmacist in the family because my father wanted one pharmacist who was going to come back to run the shop.”
“So I suppose I was a pharmacist by conception rather than conviction,” he adds.
McCauley’s real interest was in business.
“I had an uncle in namesake who founded the first indigenous Irish pharmaceutical company, Irish Pharmaceuticals Ltd, which was publicly quoted. My aspirations would have been in that direction but that would not have suited my dad’s aspirations for me.”
After studying in UCD, he found himself in Dungarvan. Co Waterford in the early 1970s.
But he felt there was more to life than working in a pharmacy in small town Ireland and decided to head to Toronto, Canada.
“Other than running your own business in the Ireland of its time, there were no employment opportunities worthwhile. But it was more a spirit of adventure that pushed me than economic necessity.”
He worked initially in a hospital pharmacy before managing retail pharmacies. He met his wife Leslie there, extending his stay but returned when he got the call that his father needed him back to fulfil his role in Enniscorthy.
Before returning, he had one precondition. “That we maximise the floor space of the pharmacy and there is self-select shopping at the front of the shop.
“We followed through on the commitment to increase the floorspace and the business mushroomed,” he says.
“It had a strong loyal customer base. The mantra would have been that anybody who put a thrupenny bit on the counter was as important as any other person. The customer service ethos was drilled not just into me but went through the business.”
It was 1978 and most pharmacies were small, not unlike his father’s original shop.
McCauley also got involved in a couple of manufacturing businesses, as well as politics.
“I did stand for nomination in the early 80s for Fianna Fail. I got an underwhelming response from the delegates,” he says.
He did spend several years on Enniscorthy urban council but over time the pharmacy which expanded into adjacent properties with new services such as a hair salon, became his focus.
In 1991 an opportunity came up in Wexford town.
“It was a Dunnes Stores development and we took what at the time would have been seen as an enormous amount of space, 4,000 square feet.
“We put in a beauty salon, hair salon, one-hour photo, all the prestige beauty brands, as well as jewellery and handbags,” he says. “It was the first of those type of stores and we had first mover advantage.”
“The thinking was that there were a lot of really good family pharmacies. So you’re going to have to really differentiate yourself,” he adds.
“We did a lot on branding. We brought in graphic designers. We had radio jingles, cinema advertising.”
Two young employees became joint managers of the store, one of whom is Patrick McCormack, now managing director of the group, both taking equity stakes in the expanding business.
“I never started out to open a chain of shops, it was always a very incremental process,” says McCauley. “But that was probably the first time we had the vision to say this is a formula that works.” They replicated the model in Carlow and then expanded from there.
They primarily opted for greenfield sites, seeking extended shopfronts.
The next big move was into Cork and the south west, where it has a significant presence.
“We also acquired three or four pharmacies that would have been underperforming and we bought them with the idea of relocating them.” As larger chains such as Boots and Lloyds expanded in Ireland, McCauley must have had some worries? “None whatsoever,” he says. “What we started with the larger shopfronts was with the anticipation that Boots would come in. And you’re going to meet that competition and you’re going to be leading it rather than following it.”
Business was booming for the pharmacy sector, but even before the recession hit, margins came under pressure.
The HSE began to reduce dispensing fees, with the health service facing significant resistance from pharmacies in the process.
McCauley concedes that things needed to change.
“Let’s face it, it was a fairly comfortable regime in terms of the contracts we had,” he says.
“Of course nobody lightly gives up their contracts. But the sector had also taken on debt in line with those contracts. People had taken on big property costs and bought pharmacies based on crazy multiples, based on those contracts.” It was a tough time. “There was a huge impact, the HSE cuts were enormous. It was literally multi-millions from our bottom line.”
The chain at one time saw debt hit excess of €30m.
“We were growing exponentially, probably 25/30pc per annum, including new store openings.”
Then in 2008, retail sales began to fall. “From that growth, we actually saw declining sales by 5/6pc per annum and that was even with additional stores.”
The business wasn’t quite in survival mode but it was a time of consolidation.
Debt is now around €10m and McCauley says he was lucky that the company’s debt was reasonably sustainable. Only one store closed, in St Stephen’s Green shopping centre, and that was before the recession.
Further margin cuts have followed, with the HSE now using reference pricing to keep Ireland in line with other EU countries.
“What caused the pricing differential was the wholesale price. It’s the price the Government negotiated with the wholesale supplier,” says McCauley. “I think we’re very competitive now.”
The market has settled down and pharmacies are once again changing hands. “Now there is a plethora of pharmacies coming to the market because prices have hit a level where people now accept that is the value.”
McCauley is now executive chairman of the group and remains very involved, although not quite as hands on as in the past. “You’re a human dynamo until you’re 55, and I remember when we were opening a big store I’d be leading from the front. Suddenly about mid-50s you don’t do that any more and there was a very deliberate passing on of the mantle.
“A lot of people want to die with their boots on and I made a very deliberate decision to step back from the public profile.”
McCauley is clearly open to selling some if not all of his stake. The business was close to being sold to Lloyds last year according to several industry sources, but Lloyds apparenty pulled back amid a HSE challenge to how it charged for some dispensing fees. McCauley says he couldn’t say what space the McKesson-owned Lloyds is in now.
He says he has no sentimental attachment to equity. Growth is essential to the business. “I would love to have people on board to create that sort of energy in the business,” he says.
Consolidation is inevitable, he feels.
“Everyone says you need a good recession to sharpen your business. We consolidated, paid down debt, reduced and cut costs,” he says.
“You have to have a growth-oriented dynamic in your business. It’s the old adage, if you’re not growing you are going the other way.”
‘I never started out to open a chain of shops, it was always a very incremental process...’ Sam McCauley is ready to bring in new equity to make his pharmacy chain a major player writes Business Editor Samantha McCaughren