Chain reaction

It may seem as if Daryl Katz came out of nowhere to become Canada’s drugstore king, now presiding over an empire that brings in more than $5 billion a year from 11 chains in Canada and the US. In fact, it’s been almost 10 years since Katz bought his first pharmacy in a quiet Edmonton neighborhood.

Canadian Business magazine
December 31, 2001

Chain reaction
Daryl Katz has built a drugstore empire by buying smaller retailers and making them part of his lean machine
Zena Olijnyk

It may seem as if Daryl Katz came out of nowhere to become Canada’s drugstore king, now presiding over an empire that brings in more than $5 billion a year from 11 chains in Canada and the US. In fact, it’s been almost 10 years since Katz bought his first pharmacy in a quiet Edmonton neighborhood. “People always ask, how did we come so far so quickly?” he says. “What a lot of them don’t realize is we’ve been around since 1992, so it’s not really that quick.”

Over the past decade, the 40-year-old chairman of privately held Katz Group Inc. has quietly assembled an impressive collection of assets in a corner of retail that promises red-hot growth, given that an aging population should translate into higher drug sales. Already the owner of over 600 pharmacies in Canada and the US under banners like Medicine Shoppe and Pharma Plus, Katz Group last month signed a deal to purchase Drug Trading Co. Ltd. of Markham, Ont. That acquisition adds 750 stores, under such names as IDA, Guardian and RxCentral, to Katz’s burgeoning stable. And it makes his company the largest operator of pharmacies in Canada, at least by sheer number of stores. Katz Group also owns a mail-order pharmacy business, and an institutional pharmacy servicing nursing homes. All told, Katz (rhymes with “Gates”) is personally worth about $750 million.

Katz Group started off with little fanfare when Katz, who spent six years practising franchise and corporate law, acquired Canadian rights to US-based Medicine Shoppe, a chain of small drugstores. He now owns or franchises 75 Medicine Shoppe outlets in eight provinces. In 1996, Katz purchased the 36-store Pharmx Rexall chain; he’s since boosted that number to 120. In 1997, he acquired ailing Pharma Plus from Oshawa Group Ltd. He cut costs and layers of management, and now it’s the No. 2 chain in
Ontario and Manitoba. In 1999, Katz entered the big-box arena, buying Payless For Drug & Food chain and adding to it the Herbie’s chain in 2000.

Katz also kept an eye south of the border. In 1999, he bought Minnesota-based Snyder’s Drug Stores Inc., boosting the Katz Group by another 180 outlets. This fall, he acquired Ohio-based Drug Emporium Inc., operators of 100 big-box stores.

Katz says that having many banners under his wing enables him to cater to all market niches, from the small neighborhood pharmacy to the big-box discounter. His strategy centres on finding underperforming assets in a sector that’s both growing and consolidating. “We’ve bought assets that had an excellent market share, but were underperforming,” says Katz. “They were not managed properly.” With any new addition, he brings in new management to cut costs and use buying power to cut deals with suppliers.
And when he spots a buying opportunity, he’s persistent. With Pharma Plus, he says, “I was bugging them [Oshawa Group executives] for three years to sell me the business.” When it finally came on the block, he had “already built the necessary relationships.” He credits his background in the drugstore business—his father, Barry Katz, founded the Value Drug Mart chain in Edmonton in the ’70s—with helping him “stay ahead of the curve.”

And a good thing. With big-box retailers like Loblaws and Wal-Mart moving into the pharmacy businness, Katz recognizes that road ahead will be challenging. The best way to deal with retail Golaiths, he says, is to consolidate the independents.

Until now, the Katz Group has been in aggressive acquisition mode, financing its purchases through internal cash flow. But Katz figures it’s time to concentrate on maximizing his current business, especially since the industry is expected to double over the next five years. “You should always be looking for opportunity,” he says, “but you have to balance that by making sure what you own is operating to full potential.”


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