Troubled Thrifty Looks to Improve : Retailing: Parent Pacific Enterprises wants to sell chain, but hangs on for a better price.
As Pacific Enterprises bails out of its ill-considered foray into the retailing business, it will be holding on to its troubled Thrifty Drug Store chain--but not for long.
Once the 618-store chain--Southern California’s No. 2 drug store chain behind Sav-On--is strong and profitable again, it will be sold too, Thrifty Corp. Chairman William E. Yingling III said Wednesday. Yingling did not rule out the possibility that he might lead a group of investors in a leveraged buyout of the retailer.
Yingling, 48, who joined Thrifty six months ago with a mandate to clean up its lackluster performance, is pushing a $25-million program to modernize and refurbish 300 of the chain’s outlets and refocus merchandising decisions at individual stores on the unique demographics of their service areas.
Yingling’s strategy, which he calls “neighborhood marketing,” comes at a critical time for the struggling chain. Since Pacific Enterprises acquired it in 1986 to expand on its core Southern California Gas Co. utility operations, Thrifty has been slammed by a series of unwelcome events.
Sav-On, once a sleepy and ill-focused chain, has awakened with renewed vigor; the nation’s two largest deep-discount chains--Phar-Mor and Drug Emporium--have expanded into Southern California; pharmacies are now a regular sight in supermarkets, warehouse clubs and discount emporiums such as Wal-Mart and Kmart, and the nation’s retailing recession persists, especially here in Southern California.
At the same time, analysts say Thrifty’s management lost sight of its core customer, failed to install the latest inventory-tracking technology and allowed its stores to become dirty and its employees lackadaisical.
“The environment became far more competitive, and Thrifty didn’t respond,” explained David Fletcher of Prudential Securities, a New York brokerage.
Added Doug Christopher of Crowell Weedon & Co., a Los Angeles brokerage: “Everyone, it seems, is selling drugs these days. What does Thrifty really offer that no one else does? Nothing. They were the original discount drug store. And their name says it. But whom do they undercut now? No one.”
Yingling, whose background as a supermarket executive includes a stint at Lucky Stores, is the first to acknowledge that Thrifty needs a face-lift--as well as a repositioning of its merchandising efforts.
“We are suffering from a lack of focus on the basics of the drug store business: the pharmacy and film processing,” he said. “We got too carried away in non-traditional categories such as toys, gift ware and other items with only limited appeal.”
He complained also that Thrifty has “lost sight” of the fact that its stores are scattered across the diverse three-state region of California, Arizona and Nevada with widely varying population demographics.
Yingling said that if the turnaround is successful, Pacific Enterprises should be able to get a better price for Thrifty than if it tried to sell the chain, which lost $110 million last year, along with its other retailing units now. Pacific Enterprises announced Tuesday that it will sell two other drug store chains and its three sporting goods retailers, including Big 5, as soon as possible.
Taking a page out of the grocery-marketing book, Yingling said he wants each Thrifty store to have a clear idea of who resides in its primary service neighborhood and what their needs are. Cosmetics, health and beauty aids and other items, he said, should reflect the needs and traditions of ethnic neighborhoods. And stores located in resort and tourist areas should carry merchandise appealing to those shoppers. “We should have a core business that is the same across the board,” he said. “But we should offer special merchandise in individual areas.”
Despite the huge potential for the drug store business in Southern California, some analysts Wednesday remained skeptical that Thrifty can reverse its slide. And they blame Pacific Enterprises, which paid an estimated $600 million to $650 million for the chain, for spoiling it.
“Despite the recession, well-run drug chains are doing well across the country,” said Gary Vineberg, an analyst at Dean Witter in New York.
“Thrifty has just not been run right. The shelves are out of stock, the employees seem lazy and the stores are dirty. You have to fix the fundamentals of the business before you can move into the fancy stuff like demographic marketing strategies.”
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