Grupo Casa Saba, S.A. de C.V.

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Grupo Casa Saba, S.A. de C.V.

Paseo de la Reforma 215
Mexico City, D.F. 11000
Mexico
Telephone: (525) 284-6600
Fax: (525) 284-6665
Web site: http://www.autrey.com

Public Company
Incorporated: 1937 as Botica Americana, S.A.
Employees: 5,572
Sales: 13.15 billion pesos ($1.38 billion) (1999)
Stock Exchanges: Mexico City New York (for American Depositary Receipts)
Ticker Symbols: SAB; ATY
NAIC: 42221 Drug, Drug Proprietaries and Druggists’ Sundries Wholesalers; 42241 General Line Grocery Wholesalers; 551112 Offices of Other Holding Companies

Grupo Casa Saba, S.A. de C.V. is a holding company whose core business is the wholesale distribution of pharmaceutical products. Casa Saba is the largest distributor in Mexico of such products. It also distributes food products, health and beauty aid products, and perfume. The company distributes its products nationwide, to pharmacies, supermarkets, and department, convenience, and grocery stores. For more than a century the enterprise was owned and run by members of the Autrey family, and for more than 50 years it was known as Casa Autrey (House of Autrey). It was sold in 2000 to Grupo Xtra, the holding company of Isaac Saba Raffoul, one of Latin America’s richest men.

Tampico Pharmacist and Distributor: 1892–1944

Newspaper and magazine articles—presumably based on Autrey family accounts—have described Adolfo Prescott John Autrey as the descendant of an ancestor who came to America from France with the Marquis de Lafayette to fight in the Revolutionary War and whose own descendants settled in Alabama to grow cotton. According to these accounts, after the Civil War the family drifted to Texas and then to Mexico, where Adolfo Autrey became the first to receive an oil drilling concession and to refine petroleum in Mexico. A scholarly book, however, describes this man as A.G. Autrey, an Irish-American chemist and reputed inventor of Angostura bitters. He emigrated to Mexico after the Civil War and bought a property in Papantla, Veracruz, in 1870, where he drilled for oil, although he was not the first to do so. He also built a small refinery to produce kerosene, which he sold to local markets. Autrey married, adopted Mexican citizenship, and after his wells dried up, moved to the port of Tampico in the state of Tamaulipas, where in 1892 he established a pharmacy called the Botica Americana.

Following a major strike in 1901, the Huesteca area of northern Veracruz and southern Tamaulipas became the center of the nascent Mexican oil industry, and Tampico became a boom town. A.G. Autrey had missed out on black-gold riches, but Tampico—hot, humid, and insanitary—was an ideal location to manufacture and sell medicines to the companies and their employees involved in extracting petroleum, refining it, and transporting the products. Botica Americana became Autrey y Autrey in 1896, presumably when the founder’s son, Adolfo Alejandro Autrey Rena, joined the firm. The latter Autrey and his brother-in-law Gilo Davila de la Garza administered the business during the difficult years of the Mexican revolution that followed the overthrow of President Porfirio Diaz in 1911. During this period the enterprise had to contend with a change in money every time a new revolutionary band took control of the port. By the 1920s, however, stability was returning to Mexico, and Tampico prospered as never before.

Adolfo Autrey Rena’s oldest child, Adolfo Eduardo Autrey Davila, was educated in the United States and graduated from the Philadelphia School of Pharmacy in 1925, following which he joined his father and uncle in the family business. During the 1920s the firm produced 80 percent of the medicines it sold, but by 1940 competition from drug manufacturers and laboratories had reduced this proportion to only 30 percent. Accordingly, Botica Americana—as the firm was renamed on its incorporation in 1937—became a small-scale wholesale distributor of medicines as well as a retailer and manufacturer. In 1941 the company purchased Drogueria Azteca, S.A., a small drug distributor based in Mexico City, renaming itself Casa Autrey, S.A. in 1944, when the businesses officially merged. Autrey Rena remained proprietor of Botica Americana in Tampico until 1944, when the store closed following a labor dispute.

Nationwide Wholesaler: 1948–92

Casa Autrey dedicated itself to wholesaling drugs just at the right moment, because the industry was dominated by Germans who lost their foothold when Mexico declared war on Germany in 1942, six months after the United States entered World War II. But the business also entered its most difficult moment because of a recent decree—the imposition by the Mexican government of a price ceiling on medicines. The Mexican business magazine Expansion later quoted Autrey Davila in these words, “Owing to the price regulation on medicinal products… the margins received by manufacturers have been reduced to such an extent that the business is in grave danger of a serious blow to its operations.… In order to confront the situation now existing, it is necessary to make up in volume the lack of profit in each operation. In order to obtain greater volume of sales, it is necessary to augment capital.”

Autrey Davila was as good as his word. In 1948 Casa Autrey established two lines of distribution: one for Mexico City, the other for the rest of the country. Its list of suppliers grew steadily larger and included Johnson & Johnson, Eli Lilly & Co., Roussell Uclaf, and Bristol-Meyers Co., to name just a few. In 1958 the business opened its first branch, in Monterrey, followed by four others in the next dozen years. By 1970 Casa Autrey was the largest of the 66 pharmaceutical distributors in Mexico. Distributors handled 90 percent of the annual 4 billion pesos ($320 million) in sales to pharmacies, typically taking a 23 percent markup from the manufacturer’s price. Casa Autrey claimed to take only 18 percent and to offer discounts. It was employing more than 1,400 people and, according to Autrey Davila, had grown by an average of about 12 percent a year over the last 30 years.

By this time Casa Autrey was providing more than 16,000 products to about 6,500 of Mexico’s 7,500 pharmacies. Interviewed by Expansion, Autrey Davila observed, “Half these products didn’t exist 10 years ago. As a result, one of the most serious problems of distribution stems from the constant progress that the pharmaceutical industry has attained in recent years. We have to be very alert to changes… and to alert our clients so that they don’t keep ordering obsolete products.” Without distributors such as Casa Autrey, he went on to say, pharmacies would be overwhelmed by the task of choosing products from 450 laboratories with a presence in Mexico. “We don’t think of ourselves as selling medicine but as selling service.”

Casa Autrey at this time employed a network of 200 sales agents who visited an average of 25 pharmacies, sometimes as often as twice a day. They not only took orders but also instructed the personnel about the tendencies of the market and the appearance of new products. “The laboratory,” Autrey Davila continued, “can’t estimate the volume of sales for a new drug. But we’ve already made the promotion.… We do special promotions above all in medications of a popular character or cosmetics.” In this way, he added, the agents acted as marketing consultants, ensuring that the pharmacies did not select merchandise that would not sell well. Casa Autrey also extended 30- to 60-day credit to its customers, receiving 30-day credit itself from its suppliers.

Once an order was placed in Mexico City, it would be received in 95 percent of all cases at the warehouse early the next morning. The first trucks would depart in little more than two hours. A second shift of delivery vehicles would be sent out in the afternoon to important customers. Outside of Mexico City, orders would be filled and delivered in two days. The warehouse typically received 5,000 orders a day, with more than 12,000 items. A subsidiary, Laboratorios Azteca, S.A., was producing medications on a small scale, such as salves and bronchial syrups. Two of Autrey Davila’s sons joined the company in 1964 and the other two in 1974, all of them after completing postgraduate studies in the United States.

In 1982 Casa Autrey transformed itself into a holding company that, in 1986, was renamed Organizacion Autrey, S.A. de C.V. The firm automated its distribution facilities and, in 1994, had 40,000 square meters (about 430,000 square feet) of warehouse space, more than 33,000 square meters (about 355,000 square feet) of shelf space, 4,723 meters (15,495 feet) of chutes and belts, and two Austrian-made robots handling more than 110,000 units a day of such high-demand items as Kodak film, cold remedies, and prescription drugs. In order to earn larger profits, Organizacion Autrey began distributing merchandise not subject to price controls in 1989, when it added nonprescription pharmaceutical products, usually sending them to supermarket chains, department stores, and local wholesale establishments. (Price controls on domestically manufactured pharmaceutical products began to be lifted the following year.) Also that year, it became the exclusive distributor of M& M and Mars chocolates in Mexico. By 1992 it had negotiated similar deals with Procter & Gamble Co. and Eastman Kodak Co. The company was renamed Grupo Casa Autrey in 1992 and made its initial public offering on the Mexico City and New York stock markets in 1993, selling 27 percent of the stock at $17 a share for a total take of $73 million. The value of the stock nearly doubled within a year. The sale of more stock in 1996 cut the Autrey family’s share of the company to 60 percent.

Company Perspectives:

Casa Saba’s mission is to anticipate the requirements of our customers, suppliers and commercial partners in order to meet or exceed their value expectations when distributing and commercializing products or services. To expand our markets and create new relevant ones. To strengthen efficiency and technology and recognize our employees as the most important resource in order to achieve the company’s highest profitability and its competitiveness.

Public Company: 1993–2000

Casa Autrey’s sales reached about $843 million in 1994. Its net income was about $23.5 million. It was now distributing more than 200 foreign products and had added clients such as Lysol Brands (household products), Brown & Williamson Tobacco Corp., Duraceli Inc. (batteries), and Gillette Co. (razors). Although supplying small retailers such as drugstores remained its staple business, it also was distributing products to one-quarter of all Mexico’s supermarkets and big general merchandisers such as Cifra, S.A. de C.V. and Wal-Mart Stores Inc. Autrey trucks, based at 19 distribution centers, were delivering to points as far as 200 miles in any direction and making 30 to 40 deliveries in a single day.

Autrey Davila died in 1990. His eldest son, Adolfo Autrey Maza, was chairman of the board in the 1990s, and another son, Sergio, was director general (president). It was the two other sons, however—Carlos and Xavier—who were credited with redirecting the firm into other fields. They purchased the brokerage subsidiary (renamed Bolsa Mexico) of Grupo Financiero Bancomer, S.A. de C.V. in the early 1990s and used this vehicle to purchase stakes in Transportes Aeromar, Mexico’s first regional airline; Minera Real del Monte; Mexico’s largest steel manufacturer, privatized Altos Hornos de Mexico, S.A.; Grupo Financiero Inverlat, S.A.; Multibanco Comermex; and Satellites Mexicanos (Satmex), a satellite-communications system. Carlos ran the financial interests, Xavier the mining and steel businesses, and Sergio the telecommunications interests such as Satmex. The Autrey family was believed to be worth close to $1 billion.

Net profits dropped in 1995 as Mexico entered a severe recession and many of Casa Autrey’s pharmacy accounts defaulted on their bills or went out of business. Nevertheless, Casa Autrey began distributing books and magazines that year after purchasing Publicaciones Citem, S.A. de C.V. The following year it purchased Uno a Uno, S.A. de C.V. (formerly Tecnografix S.A. de C.V.) and began distributing office supplies to corporate customers. This area was expanded in 1998, when the company acquired Papelera General, S.A. de C.V., a regional wholesale distributor of office supplies. In 1997 Casa Autrey purchased a competitor, Drogueros S.A. Analysts questioned the rationale for acquiring this distributor of pharmaceutical products, perfumes, cosmetics, beauty aids, school supplies, foods, and sweets, but the purchase enabled the company to stay No. 1 in sales in its field in the face of a challenge from Nacional de Drogas, S.A. de C.V. (Nadro). Publicaciones Citem had added distribution of Warner Bros. In addition, 20th Century Fox contributed movie videotapes to its offerings, and Casa Autrey was now distributing such food brands as Danone, Kraft, Pringles, and Uncle Ben’s, plus household products such as Mop & Glo.

Although Grupo Casa Autrey’s net sales recovered in subsequent years and its net income increased in 1996, the following year net income fell slightly, and in 1998 it dropped sharply to a disappointing 93.87 million pesos (in constant pesos as of the last day of 1999, or the equivalent of $9.87 million), representing less than one percent of its net sales of 11.79 billion constant pesos ($1.24 billion). The Drogueros acquisition was a drag on Casa Autrey’s profits, and such nonpharmaceutical products as candy bars proved to be low-margin goods. The Autrey family’s portfolio was doing even worse. The family lost control of Inverlat in 1996. By 1999 Altos Hornos and Aeromar were in difficulty. Grupo Casa Autrey’s shares were trading at one-fourth the 1994 peak price.

Altos Hornos, which was held through Grupo Acerero del Norte—50 percent owned by the Autreys—was unable to meet payments on $1.8 billion in debt in 1999 and was sold to Grupo Imsa, S.A. de C.V. Grupo Casa Autrey pledged to restructure its debts after its bankers queried loans and guarantees totaling $140 million to two closely held Autrey family firms. Before the year was out, the Autreys had signed a letter of intent to sell the company for an estimated sum of more than $300 million to Grupo Xtra, the holding company of Isaac Saba Raffoul. The son of a Syrian-born Jewish dry goods peddler, he also had large holdings in flour milling and real estate.

Grupo Casa Autrey’s finances improved slightly in 1999, with net income of 247.22 million pesos ($25.99 million) on net sales of 13.15 billion pesos ($1.38 billion). Sales, by product, consisted of pharmaceuticals, 80 percent; health and beauty aids and other products, 12 percent; publications, four percent; office products, two percent; and food products, two percent. The company had a branch in Mexico City and 19 other Mexican cities. There were 24 distribution centers with a total of 1.36 million square feet of warehouse space. The company’s 725 trucks and vans filled 4.38 million orders during the year. It was buying pharmaceutical products from more than 81 laboratories and manufacturers. Among the products it was distributing on an exclusive basis in Mexico were Coppertone suntan lotion, General Mills granola bars, and Auriga Plasticos blank cassette tapes and diskettes. It was the leading distributor of weekly magazines in Mexico and was offering more than 650 titles from 400 publications. In all, the company was distributing 21,000 different products.

Key Dates:

1892:: A.G. Autrey, a chemist, establishes a pharmacy in Tampico.
1941:: Now chiefly a distributor, the company moves to Mexico City.
1970:: Mexico’s biggest drug wholesaler, Casa Autrey is distributing more than 16,000 products.
1993:: Grupo Casa Autrey makes its initial public offering of stock.
2000:: The company is purchased by Isaac Saba Raffoul

The sale of Grupo Casa Autrey was completed in February 2000. Publicaciones Citem was sold to Sergio Autrey and Papelera General to Adolfo Autrey. Saba Raffoul became chairman of the board. Manuel Saba Ades was appointed chief executive officer and a vice-president. The assistant CEO and two other vice-presidents also were members of the Saba family. The company was renamed Grupo Casa Saba. The new administration reduced the company’s fleet of executive passenger cars from 350 to 150 and centralized the operation of the distribution centers with a Baan software system. An Internet-based business-to-business network was established to link 700 suppliers throughout the country. A business-to-consumer network, estabien.com, was to be established as a joint venture with Grupo Televisa S.A., which was to provide advertising for the system. Casa Saba’s sales growth was expected to come close to eight percent in real terms in 2000, and its share of the Mexican pharmaceutical distribution market was said to have risen from 26 to 29 percent by one count (and 24 to 27 percent by another).