Bergen Brunswig : Pharmacies Get Fast Relief From Wholesaler
When Emil P. Martini Jr.’s new IBM business computer balked at reading punch cards in 1963, he sent out a call for help. To his amazement, it was answered by then IBM Chairman Thomas J. Watson Jr.
Not only did Watson make sure the bugs in one of IBM’s pioneer business computers were quickly worked out, he struck up a lasting relationship with Martini and his wholesale pharmaceutical business in Bergen County, N.J.
Working together, Martini and Watson developed an automated accounting and inventory system, custom-designed for the needs of drug distributors.
Today, Bergen Brunswig Corp. spends more than $350,000 a month to lease IBM computer hardware. With the help of advanced computer technology, Bergen Brunswig has helped transform the way that pharmaceutical products--from antibiotics to pregnancy test kits--get from their manufacturers to the pharmacies that dispense them.
Acquired Bigger Firm
By providing extensive distribution networks and technological support, such as computer-assisted ordering, wholesalers like Orange County-based Bergen Brunswig have become increasingly popular with both drug makers and drug sellers.
As a result, the proportion of drugs sold through distributors has increased by more than 50% in less than 15 years.
In 1969, the Bergen Drug Co., founded by Emil Martini Sr. in 1947, acquired the much larger Brunswig Drug Co., an enterprise started by French emigrant pharmacist Lucien Brunswig in Los Angeles in 1888. At the time of the merger, the combined companies posted $180 million in annual sales and claimed about 5% of the wholesale drug market.
Bergen Brunswig, which moved its headquarters to the city of Orange in 1985, currently reports annual sales of $3.4 billion. The lion’s share--$2.8 billion--is generated by the company’s wholesale drug business, which has captured about 16% of the national market. The company is also the nation’s largest distributor of videotaped movies.
Martini, the company’s chairman and chief executive, said Bergen Brunswig is striving for an even bigger slice of the national drug distribution market, which is expected to burgeon with the introduction of new products and the aging of the baby boom generation.
Bergen Brunswig officials said the company has no immediate plans to acquire smaller firms, but they do not rule out acquisitions. Industry analysts point out that the company will have $40 million available for expansion plans or a buyback of stock in January after the completion of the recently announced sale of its hospital supply division.
Although Bergen Brunswig owes most of its success to the wholesale drug business where it started, it has ventured into other areas over the years--with varying results.
John T. Fay Jr., Bergen Brunswig’s director of corporate affairs, recalled that the company once launched a vitamin-manufacturing operation, but gave up when it failed to gain a sufficient foothold in the market.
Sheer ‘Serendipity’
In 1982, the company acquired Commtron, a Des Moines, Iowa, distributor of consumer electronics.
By sheer “serendipity,” Fay said, the acquisition coincided with a nationwide boom in the home video market. Commtron, which in 1982 had only a fledgling wholesale video business, quickly became the nation’s largest distributor of videotaped movies, sold principally through video specialty stores.
Last year, however, Commtron’s growth tapered off abruptly. During the fiscal year ended Aug. 31, the subsidiary’s operating earnings declined 59% to $5.5 million from $13.4 million. But George E. Reinhardt Jr., Bergen Brunswig’s chief financial officer, said the future looks bright for Commtron because of an expected increase this year in the number of video movie releases.
Not all of Bergen Brunswig’s diversification moves have been lasting. Acknowledging that it has faced stiff competition in supplying hospitals with such items as needles and catheters, the company has agreed to sell its medical supply subsidiary to a group of private investors, including the subsidiary’s top management.
Bergen Brunswig officials frequently refer to the company as the “Avis” of the wholesale drug industry, second only to McKesson Corp. in San Francisco and striving hard to close the gap. The company has 10,000 customers, including independent, chain-owned and hospital pharmacies, and about 700 suppliers, including major drug manufacturers from Abbott to Upjohn.
With a national work force of 4,000 employees, Bergen Brunswig has thrived in a consolidating industry in which hundreds of other family-founded operations have collapsed or sold out over the last 20 years.
As surviving companies competed for a greater market share, Bergen Brunswig expanded through strategic acquisitions, spending $200 million in 1985 and 1986 to buy six drug-distribution companies that generated about $1 billion in annual sales.
In addition, by pitching the cost-savings aspect of its automated services, Martini said the company has become the nation’s largest supplier of drugs to hospital pharmacies.
Bergen Brunswig officers said their fundamental strategy was to be one of the first drug wholesalers to offer high-technology services to gain customer loyalty and an increased market share in an industry that depends on high volume sales to offset low profit margins.
In 1974, the company purchased hand-held devices that allowed pharmacists to punch drug orders onto a cassette tape that communicated through telephone lines with a Bergen Brunswig computer.
The data-recording devices, which were later computerized, enabled Bergen Brunswig to eliminate a costly “boiler room” of order takers. They also improved the speed and accuracy with which orders were filled.
By offering various computer-related services, the company persuaded many pharmacies, which until then had been buying drugs from other wholesalers or directly from manufacturers, to place the bulk of their orders with Bergen Brunswig.
By computerizing data, Bergen Brunswig can calculate for each of its pharmacist customers the profits generated by the various drugs on the shelves. The company also custom-prints price tags for pharmaceutical products, reflecting each store’s customary markup.
Mark Felder, a securities analyst with Legg Mason, said Bergen Brunswig’s managers were “pioneers in the use of direct order entry. It helped them become one of the more efficient distributors and pick up market share.”
Fay said the automated ordering process “revolutionized” the wholesale drug industry.
Since the introduction of the equipment in 1974, he said the proportion of drugs sold through distributors instead of directly to pharmacies has increased from 45% to 70%, with Bergen Brunswig capturing a big portion of the increase.
In recent years, the company has made increasing use of computer automation to eliminate the paper work in its transactions with drug manufacturers. And it is introducing advanced computer automation at a warehouse under construction in Valencia. At the new warehouse, order-reading computers will signal devices to push the appropriate drugs off shelves and into bins for shipment.
Emil Martini, who helped pioneer the use of business computers in the 1960s, said that maintaining Bergen Brunswig’s technological lead is “even more important than in the past.”
