Fruth Pharmacy, Inc.

RR1 Box 332
Point Pleasant, West Virginia 25550
U.S.A.
Telephone: (304) 675-1612
Fax: (304) 675-7338
Web site: http://www.fruthpharmacy.com

Private Company
Founded: 1952 Employees: 500 (est.) Sales: $113 million (2003)
NAIC: 446110 Pharmacies and Drug Stores

Based in Point Pleasant, West Virginia, Fruth Pharmacy, Inc., operates 22 drugstores, generally 10,000 square feet in size, of which 13 are located in western West Virginia and nine in southern Ohio. In addition, the family-run company operates a stand-alone gift store, the Honey Bear Tree, in Cross Lanes, West Virginia. This venture grew out of the chain's strong giftware program, which sets it apart from the competition. Fruth also emphasizes customer service, since it is unable to compete on price with larger competitors. However, many Fruth drugstores are also located in small towns that fly under the radar of large discount stores. As a result, they have often served as one of the few retailers in a community and have traditionally offered a little bit of everything, including such services as utility bill collection, money orders, lottery tickets, and package mailing. As a result, Furth has also become a place where small town residents look to purchase gifts, especially during the Christmas season. Each year the chain mails a 16-page circular promoting its seasonal gifts, many of which are the result of buying trips to the Far East conducted by Fruth's management. The chain also enjoys excellent gift sales at other times of the year, especially during Halloween and Valentine's Day. Nevertheless, the bulk of Fruth's sales still come from prescriptions. Several of the company's executives, including its founder, are licensed pharmacists.

Founding and Growth: 1952–90s

Fruth Pharmacy was founded by Jack E. Furth in 1952. His parents owned a drug store in Mason County, West Virginia, and Fruth grew up around the pharmacy business. In truth, however, the store centered on the soda fountain. After enrolling at Duke University to major in chemistry, Fruth realized that although he enjoyed working in the laboratory, he did not care for the solitude and preferred the experience of retailing. To combine his interests in chemistry and retailing he made the practical decision of becoming a pharmacist. After two years at Duke, Fruth transferred to Ohio State University to enter pharmacy school. Upon graduation in 1951 he spent the next year and half working as a pharmacist in Springfield and Xenia, Ohio, for the Gallagher Drug Co. He then returned home to West Virginia to launch his own business, opening a pharmacy—complete with soda fountain—in the town of Point Pleasant. He operated out of this location for the next eight years before building a new store.

Jack Fruth did not add a second store until 1963, when he bought the Corrick Drug Company. Unfortunately, six years later the store burned down, leaving him with just the Point Pleasant operation. In 1970, Corrick's longtime president, Don Pullin, came to work for Fruth as a pharmacist and would become instrumental in the growth of the company. In 1975, Fruth again added a second location, buying the White Cross Pharmacy in Huntington, West Virginia, a community that would be the eventual home of three Fruth drugstores. Over the next seven years, with Pullin serving as president, Fruth added four more stores. By the end of 1982, the chain for the first time was posting $1 million in revenues each month. To further its growth, the small chain joined Associated Chain Drug Stores, a group founded in 1926 to help drug stores combine their buying power as well as offering other services. By the end of the 1980s, Fruth doubled in size, with 12 stores in West Virginia and Ohio.

In 1989, Associated Drug merged with Affiliated Drug Stores, a rival buying group that was founded several years after Associated. Jack Fruth was named the first chairman of the new organization, which he said represented a new spirit among drug store chains. He told Drug Store News in April 1989, "It used to be that two chains in the same market wouldn't speak to each other; now we're anxious to work together, so we all have a chance at the business. The feeling is no longer that as drug chains, we're competitors. Our competitors are the deep discounters, the combos, the hyper-markets, the HMOs, and mail order. If mail order or a Kmart takes away business, we all suffer."

Over the next five years, Fruth added another five stores and upgraded its pharmacy operation with a new computer system, Synercom Pharmacy System, which helped to process third-party insurance claims. For Jack Furth, it was part of the changes the pharmacy business had undergone since he entered the field 30 years earlier, when most transactions for prescriptions were done on a cash basis. Synercom was chosen because it combined technical sophistication with ease of use, allowing the chain's pharmacists to begin using it as quickly as possible. All Furth pharmacies were connected to a central system, which pooled the information and helped management to determine what to carry and to set price changes. Each night, files were updated so that the next day the stores had new information on supply and pricing. In addition, customers' prescriptions could be included in the system and they could be filled at any Fruth location.

Branching Out in the 1990s

Fruth added two new stores in 1993, bringing the total to 18, and the business was generating $35 million in annual sales systemwide. The chain continued to thrive despite the poor economic conditions that prevailed in its area of operation. With the closing of many of the steel mills and coal mines in the region, whose workers provided a base of income for local retailers, Fruth had found itself operating in a market with one of the lowest per capita incomes in the nation. The company also faced a new challenge on the big box front in the form of Wal-Mart. By serving markets too small for Wal-Mart, Fruth was protected somewhat, while in larger markets where Wal-Mart entered, Fruth would see an immediate drop in sales. Generally, however, within six months the store would have won back its market share, despite not being able to compete on the basis of price. The key was the chain's commitment to customer service.

Although Fruth's stores were relatively small, they often had five or six associates available on the sales floor to help customers. Moreover, the practice of offering a wide variety of merchandise, started by Jack Fruth at his first store, continued to pay dividends. The stores were especially known for their giftware sections, which offered items ranging in price from $2.99 to more than $400. High-end items included collectible figurines, decorative lamps, dolls, and glassware. Because it was a high-margin business, giftware was especially attractive to management, which made buying trips several times a year. Thus, new merchandise regularly appeared on the sales floor, prompting many customers to stop by to see what had come in.

The stores were also quick to stock seasonal merchandise and to hold decorating contests in order to give customers a different look. Aside from giftware, buyers for the other departments were given a great deal of latitude in replacing merchandise, so that on average departments were refreshed every other month. In addition, the stores made a point of being responsive to customer requests and would place special orders for merchandise if necessary. As a result, the Fruth stores averaged about $2 million each in revenues in fiscal 1994, a notable achievement.

In the mid-1990s, Fruth had to contend with shrinking margins on its pharmacy business, which placed greater emphasis on controlling costs and maximizing the giftware business. A 20,000-square-foot addition was made to its warehouse to speed up the shipment of merchandise. Starting in 1995, Fruth began installing a new point-of-sale (POS) scanning system in all of its stores. This system, combined with an expanded warehouse, helped the chain to better control inventory and avoid having items run out of stock. The chain also strengthened its gift business by making buying trips to Hong Kong to stock up on seasonal products, artificial flowers, toys, and general merchandise. To maximize its buying power, Fruth began to travel with buyers from other drug store chains. During fiscal 1994, Fruth stores enjoyed a strong increase in average sales per store, to $2.8 million, as total revenues topped $50 million.

Struggles and Recovery: Mid-1990s and Beyond

In the fall of 1996, Fruth added stores in Eleanor and Ripley, West Virginia, and in February 1997 a store was opened in Gallipolis, Ohio, bringing the total number of Fruth drugstores to 21. There was some talk about entering the Kentucky market but mostly the chain was looking to fill in the areas in which it had already established a presence. The Ohio opening was remarkable given that the company was recovering from a December 1986 fire that completely destroyed its Point Pleasant 30,000-square-foot distribution center and some adjacent office space. All told, Fruth lost more than $2 million worth of inventory, of which $1.2 million was covered by insurance. Nevertheless, the company lost all of its Valentine's Day merchandise. Fruth quickly rented two floors in Gallipolis, some 30 minutes away, to house replacement inventory and cobbled together office space in Point Pleasant banks and churches for buyers and administrators. The accounting operation was moved to temporary quarters in Gallipolis.

Company Perspectives:

We cater to the needs of our customers by providing the best customer service in town. Fruth's pharmacists are on duty 7 days a week and are dedicated to serving your every prescription need. That's why we're known as … Your Home-town Pharmacy.

The chain had essentially recovered from the shock of the fire when in March 1998, a levy broke in Waverly, Ohio, flooding its makeshift storage facility and depositing 18 inches of water in area Fruth stores. Although the stores had to be closed for a day, the pharmacy departments continued to serve customers. Despite fire and flood, the chain continued to show strong growth, with sales for fiscal 1997 up 9 percent to $60 million. The fire also resulted in the building of a more modern warehouse in September 1997, as well as a separate 10,000-square-foot corporate office complex, adding a multimedia meeting room that could also be used as a training center to help bolster Fruth's reputation for superior customer service.

Around this time, Fruth began a program to remodel two or three stores a year. Management also looked to grow the chain by acquisition and was regularly approached by independent drug stores interested in being acquired. The goal was to reach the 25-unit mark by 2002, but it would not be met. Instead, the company focused on internal growth. The chain's POS system was providing information that management was now able to use to adjust its mix of merchandise. For example, cosmetic products were deemphasized while more bath and body items were added, as were sugar-free and snack foods. Sales for fiscal 1998 grew to $65 million, an 8.3 percent increase over the previous year.

In early 2000, Fruth opened its first non-pharmacy operation, a gift, card, and floral shop it named the Honey Bear Tree, which took over a 9,500-square-foot store in Cross Lanes, West Virginia, that had previously housed a Rite Aid drugstore. The upscale decor, featuring dark wood cabinetry and diffused lighting, was divided into separate "rooms" where different product lines and brands were featured, such as Yankee Candles and Precious Moments. While Honey Bear Tree was up-market in many respects, it also attracted customers by offering half-price greeting cards. Fruth also opened its 22nd drugstore in fiscal 2000, taking over a former Kroger supermarket in Nelsonville, Ohio. In addition, the chain invested in adding drive-through window pharmacy operations to nine of its stores. At the same time, Fruth continued to use POS data to prune its shelves of unnecessary and redundant merchandise. As a result of these efforts, sales approached $80 million in fiscal 2000.

Traditionally, Furth's advertising budget was devoted almost entirely to circulars, but in 2000 the chain tried advertising on television after a vendor asked if Fruth would be interested in spending some co-op money on a commercial for a Christmas tree stand. A large number of customers reported seeing the commercials, which led management to eliminate one circular each quarter to use for television advertising the following year. The reallocation of funds proved highly successful. The chain advertised during morning talk shows and evening news programs shortly before seasonal promotions. As a result, Valentine's Day sales were up 18 percent and Christmas sales improved 20 percent, while overall sales for fiscal 2001 increased by 13.2 percent to $90 million. The chain also took advantage of television advertising by becoming involved in a segment with a local station called "Ask the Pharmacist," which allowed viewers to have their pharmacy questions answered by a Fruth pharmacist.

Fruth celebrated in 50th anniversary in 2002, and for fiscal 2001 (which ended June 30, 2002) the chain saw annual sales top the $100 million mark for the first tine, reaching $105 million, a 10.5 percent increase over the previous year. Although the chain was not adding stores, it continued to modify its merchandise mix and broaden the range of its giftware. One of the greatest challenges Fruth faced at this stage was recruiting new pharmacists willing to move to western West Virginia and southern Ohio. The latest store to open, for example, was able to hire only one pharmacist, who had to handle the entire load for the first six months in operation. To help alleviate this problem, in 2003 Fruth started an extern program with West Virginia University to attract young pharmacists to the area.

Although Jack Fruth was well into his 70s, he remained chairman and had no intention of selling the chain of drugstores he founded, although he would likely find a number of willing suitors. For years he had emphasized treating employees like family and customers like friends. In keeping with this approach, his succession plan called for the company to one day be owned by its employees.