Jean coutu, pharmacie analysis

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INTRODUCTION

In 16, Jean Coutu and Louis Michaud began The Jean Coutu Discount Pharmacy in Montreal. In order to adapt to changing markets Jean Coutu revolutionized the pharmaceutical industry by introducing a retail chain that would provide pharmaceutical, parapharmaceutical and retail products at low prices, with superior customer service and extended business hours . Today, Jean Coutu is the largest pharmaceutical retail chain in Quebec. They are the second largest in Canada and the 8th largest in North America. Jean Coutu has emerged as one of the fastest growing pharmaceutical chains in their industry.

CLAIM STATEMENT

For a company to be considered a good long-term investment, many factors must be taken into account. The most important of these include growth, increasing market share, a sound theory of business, quality of customer service and steady growth in revenue and earnings. After extensive research it is apparent much of Jean Coutus success can be attributed to these main characteristics; therefore, making a great long-term investment.

EXPANSION

One of the obvious factors contributing to Jean Coutus increasing presence in the pharmaceutical retail industry is attributed to their ability to expand in both Canadian and American markets. Jean Coutu first entered the Canadian market in 16 as a single outlet. In 17, The Jean Coutu Discount Pharmacy began a franchising system in Quebec. At this time, they also opened a warehouse for centralized purchasing in order to lower expenses. In 18 and 18, Jean Coutu opened its first stores in both New Brunswick and Ontario. In 187, Jean Coutu crossed the border into northeastern U.S. states through its affiliates the Jean Coutu Group U.S.A. Inc. In 15, it made a strategic investment in buying 1 Brooks Drug stores located throughout New Englands seven states . Today Jean Coutu has as many as 5 outlets in Canada and 51 in America with a total of 17,650 employees. In addition, Jean Coutu has opened 40 clinics and one Sant Beaut in Canada. (Annual report, 000-001) In addition to this Coutu plans to open 16 more stores in the next year in Canada and the United States. (Jean Coutu profit jumps % in forth quarter, Jan 15 00).

As Alfred D. Chandler points out in his article titled "The Enduring Logic of Industrial Success", two of the main components to insure a companys success include economies of scale and economies of scope. Economies of scale includes expanding nationally and internationally in order to lower costs and breach new markets. Economies of scope refer to growth into related products. Jean Coutu has been able to achieve both economies of scale, by expanding their outlets in Canada and acquiring outlets in the U.S., and direct use of economies of scope by opening their clinics and the Sant Beaut which are both closely related to Jean Coutus speciality.

MARKET SHARE AND VISION

Their ability to grow in terms of scale and scope has provided them with a large market share. Market share is the size of the slice (share) of the pie (market) that a company maintains. As Chandler points out, this is a crucial component to a companys success. They are currently the 8th largest pharmaceutical retail chain in North America, nd largest in Canada and the largest chain in Quebec in terms of sales and number of outlets. Jean Coutu has been able to maintain this high market share by constantly monitoring the changes in the environment. In their 1-000 annual report, Jean Coutu reported that in 18 they were "pursuing modernization." They focussed on improvement of customer service and outlets and using state of the art technologies to optimize their business processes. As Peter Drucker mentions in his article "The Theory of the Business," one of things that makes a theory of business successful is its ability to change and adapt to the changing times. Jean Coutu, in their 000-001 annual report, discussed their new theory of business that would help them succeed in the changing markets. Jean Coutu emphasized the importance of having "a clear vision of an ever changing market." There are four main assumptions that Jean Coutu made about the changing markets.

1. Demography In 000, Statistics Canada estimated that 1.5% of the population was over 65 years old and that by 011 this percentage will increase to 14.5%. They also predicted that the population of people age 1 and under will increase to %. According to Jean Coutus 001 annual report, these two groups are the largest consumers for medication and their growth indicates a future increase in demand for pharmaceutical services. Coutu has set up an Internet site whereby customers are able to access prescription refills and online flyers of weekly specials and information on health, beauty and parenting just to name a few. (Appendix __) Jupiter Maedia Matrix predicated that prescription drug will become increasing popular web purchases. Part of the reason for the projected increase of sales is largely due to the elderly who are more likely to purchase prescription drugs. According to Cassar, 16% of the on-line shopping population are seniors. As the elderly have already become more comfortable with using the Internet, this service provides a great convenience for them. They can simply pre-order their drugs and avoid waiting in line. Jean Coutu is anticipating the increase in demand for pharmaceuticals and is therefore, is in a better position to serve these growing markets.

. New Drugs With the ongoing research and improvements in medicine, there are constantly new drugs being introduced into the market, either as prescription drugs or over-the-counter drugs. For that reason, pharmacists are faced with increased complexities in preparing and formulating new medications; as well as, dealing with customers increasing number of questions. Pharmacists must constantly update their current knowledge to keep up with these demands.

. Access to Health Care Its becoming more and more difficult and expensive for people to receive medical attention from doctors. Because of Jean Coutus highly skilled pharmacists, more and more people are turning to them for advice. In an interview by Yannick Clrouin, Francois Coutu, Director President and Chief Operating Officer of Jean Coutu, was asked if the lack of pharmacists was a problem that Jean Coutu faced. He answered that it definitely was a problem in both the US and Canada because the demand for pharmacists is great. However, he said that Jean Coutu was taking measures to mend the situation. Jean Coutu donated $1.5 million to lUniversit de Montral as part of a total donation for the construction of new pavilions. These pavilions will be location for faculty of pharmaceutical studies and for cancer research. This is a major attempt to research new drugs and to educate future pharmacists. The number of students to be pharmacists would increase from 660 to 1000.

4. Urban Development With their close watch on the changing needs of the population, Jean Coutu is constantly conforming to the specific needs in different geographical areas. They go about this by modifying store layouts and locations to better serve the increasing market for pharmaceuticals, parapharmaceuticals and the other services they provide. For example, Jean Coutu has opened many pharmacies along with clinics to make picking up prescriptions more convenient and help fulfill clients medical needs. In addition, the increased demand for beauty and skincare products by "shopping mall clientele" prompted them to open their Sant Beaut store.

These four assumptions about the environment play a major role in their increasing market share. The overall number of prescriptions filled in the US and Canada increased by 5.6% and 7% respectively, in the year 000. Because Jean Coutu anticipated to the growing needs of the market, they were able to respond to those needs and have thereby exceeded the Canadian average for growth for filling prescriptions.

CUSTOMER SERVICE

Jean Coutu has demonstrated that their customers are their main priority. For example, in November 000 when Health Canada cautioned people against using any drugs containing phenylpropanolamine (PPA), Jean Coutu responded by immediately removing all these drugs from their shelves. They posted a list of all the drugs containing PPA on their website in order to inform their consumers. Jean Coutu also had a full, one page ad in the Gazette in which they announced that any products containing PPA could be returned for a full refund no matter where they were purchased or how much of it was left. This is just one example of their excellent customer service. It is therefore no surprise that Jean Coutu was named Most Admired Company In Quebec for the third consecutive year (In a Leger and Leger poll conducted for Commerce magazine in March 000).

In their book Built to Last, Collins and Porras stated that visionary companies are those who place the interests of their customers before profits. They relate how Johnson & Johnson proved their purpose beyond profit when faced with the 18 Tylenol crisis. In 18, after 7 deaths, it was found that certain bottles of Tylenol had been laced with cyanide. Johnson & Johnson promptly recalled all Tylenol products from across the entire U.S. When it concerns their customers health, Jean Coutu has demonstrated their commonality with this visionary company.

Jean Coutu also serve their clients by fulfilling their need for easy and convenient shopping and services. They have already set tools in place to accommodate the elderly, which is a big portion of their customers. Jean Coutu has set up a phone line and Internet service from which their customers can pre-order their prescription refills. They also offer several in-store services such as a photo lab, postal services, pickup windows and private consultation at the pharmacy counter. The Jean Coutu outlets come equipped with a health centre where customers can check their blood pressure. On certain days of the week there is a nurse present where customers can take a variety of health tests ranging from a sugar level count to a Strep throat culture test.

According to Collins and Porras, visionary companies are never satisfied at their present state and always strive to be better. The Jean Coutu group is constantly striving to achieve greatness through developing new ideas and fresh approaches. They make use of new technologies, such as the Internet, as well as keeping a sound and effective internal environment and ensuring the highest quality of customer service.

INSIDE THE JEAN COUTU GROUP

Jean Coutu devotes large portions of its resources to personnel training. Employees at the head offices, distribution centres and pharmacies have the option of attending the PJC Training School, which offers "proficiency programs in all job categories." In 000-001 alone, ,861 employees from both head offices and franchised pharmacies completed at least one of these courses. This shows a collective desire to continually improve the company and their services on behalf of the employees. As Collins and Porras mentioned, companies such as IBM, Walt Disney Company and Nordstrom require their employees to attend orientation programs that teach their employees the traditions, history, company ideologies and behavioural norms. These programs are designed to not only increase effective customer service, but to help create a cult-like culture. Although Jean Coutu cannot be seen as having a cult-like culture, they are benefiting from the increased dedication these programs have provided.

In the 001 annual report, the board of directors acknowledged the importance of dedication to the company. "Our ongoing prosperity, year after year, is largely due to the outstanding work of all our personnel… They personify the experience we have patiently accumulated that now serves us so well."(source)

BY THE NUMBERS

In order to determine if a company is a good long-term investment we must first define long term. In a personal interview with Martin Troppe, manager of Eport Capital Management Fund, he stated that a long-term investment is a 5 to 10 year investment. The financial report is a good source for investors to determine whether it will be a good long-term investment. Some of the most important aspects of the financial report include, but are not limited to, revenues, net earnings, assets, liabilities, short term and long-term debt. Some other important figures to take into consideration are the price earnings ratio and dividends.

Jean Coutu can be considered a good long-term investment for several reasons. First and foremost, Jean Coutu has experienced consistent growth in their revenue. Their 16 total revenue was $1,614,11,000 and grew year over year. In 001 they reported record total revenues of $,4,844,000. Second, their net earnings, the earnings after all expenses are paid, more then doubled from $46,67,000 in 16 to a record $105,41,000 in 001. Third, their total current assets (assets that can or will be converted into cash quickly) increased over the years to a record $451,600,000. Their total current liabilities (the money the company expects to pay out within the next year) decreased from $17,800,000 at the end of May 000 to $17,500,000 at the end of May 001. This leaves Jean Coutu with an attractive asset to liability ratio of over 1. This is an indication the company has the potential to expand as they can use their assets to further increase their market share. Fourth, aside from the fact that their short term and long-term debt have both decreased since their last years annual report, they are both considerably small. Jean Coutus short-term debt is at $0,400,000 compared to $4,000,000 the year before and long-term debt is at $80,600,000 compared to $4,600,000 in 000. (All the above from Jean Coutus financial report, 1-000 and 000-0001) By keeping low debt Jean Coutu will be able to use more of their earnings for further expansion.

The price earnings ratio (P/E) is the price the stock is trading at divided by its earnings per share. Jean Coutu is trading at a P/E ratio of .17. (Yahoo finance, 00)Mary Rowland, a well-respected business analyst points out that the P/E ratio in isolation might not mean much, but you can compare it to that of other companies. (Rowland, 14) CVS, which is the largest pharmaceutical retail chain in North America, is trading at a P/E ratio of 4.45. (Yahoo finance, 00) This means that when purchasing CVS stock you will be paying a higher premium for their stock, making Jean Coutu a more appealing investment. Jean Coutu has been paying a dividend, which is the percentage of earnings the company pays out to its investors. From 16 through 001 their dividend payouts per share have been 6 cents, 7 cents, 8 cents, 10 cents, 1 cents and 16 cents, respectively. (PJC financial report, 1-000 and 000-001) Although their payout is considerably lower than their counterpart CVS who paid a dividend of cents in 001 Edward Lupin writes

A company paying no or low dividends is really saying to its investors-its owners, "we believe we can earn more, and return more value to shareholders by retaining the earnings, by putting that money to work, than by paying out and not having it to invest in new plants or goods or salaries." And having said that, they are expected to earn a good return on not only their previous equity but on the increased equity represented by retained earnings.

COUNTER ARGUMENTS

If you are like most people you might wonder, what about Wal-Mart? They want to start taking a large portion of the pharmaceutical business how will that affect my investment?

Actually this question was asked to Francois Coutu in an interview with Yannik Clerouin. His answer was short and sweet. Wal-Mart is an excellent retailer, however he finds that the Jean Coutu concept is tailored to a more diverse clientele and this should guarantee its place in the sun. (La deuxieme offensive de Jean Coutu, April 001) (www.webfin.com) Further Mr. Coutu added that they would continue its aggressive pricing plan in order to compete with Wal-Mart stores Inc. and other big chains.

Although rapid growth into other markets may indicate a highly profitable investment, wouldnt Peter F. Drucker, author of The Theory of the Business, believe that rapid growth might be a sign of trouble? True, for Drucker, rapid growth may indicate that the company has outgrown its original mission. However we found that Jean Coutus mission is timeless and adapts to the ever-changing needs of the customer. (appendix 1)

CONCLUSION

After extensive analysis of Jean Coutus business practices, we have found them to be in direct accordance with Chandler, Drucker and Collins and Porrass description of the innermost workings of a successful company. We believe Jean Coutus promising and steady growth as well as their ability to expand and adapt to the changing needs of their customers gives them the edge over the competition. You may look at it either from the financial perspective or according to the business experts of our time but you must agree on two things, Jean Coutu was a clock builder, and that Jean Coutu is an unmistakable preference for a long term investment.

need graphs of prescription filled available in financial report on web site

graph of increasion revenues for past few years available in annual report

cover page

assembly of appendices

bibliography

table of contents

and a nice but easily excitable monkey

That however, is by no means the extent of Jean Coutus charitable donations. According to CanadianBusiness.com Coutu donates medical equipment and clean drinking water to developing countries such as Mali, Haiti and India.

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