In search of an identity

Not many brands can boast of touching the lives of their consumers from the cradle to the grave, but Boots – which dispenses a range of health and beauty products along with drugs and healthcare advice – has been trading on that trust and expertise in the UK since the 19th century.

Little surprise, then, that when the high street chemist was bought out by an Italian billionaire Stefano Pessina backed by private equity firm Kohlberg Kravis Roberts & Co (KKR) less than a year ago it created more than a little unease.

The £11.1bn takeover deal was Europe’s largest leveraged buy-out, and at the time chief executive Richard Baker pledged his future to the company. Weeks later Baker announced his departure, following reports that he did not wish to continue as the chief executive reporting to Pessina, who was taking a hands-on role. And now, one of its most high profile marketers, Andrew Brent, has also bid goodbye to the company (MW last week).

Insiders say that his fate was sealed after the takeover when Boots drafted in Elizabeth Fagan, the then managing director of Boots Opticians, to replace Brent as UK marketing director. In the new corporate structure, Brent was handed a group brand role.

One City analyst says: “It is coming up to a year since the company was taken over by that Italian [Pessina] and not much has happened. It was an asset takeover, even though Pessina and KKR said they have a long-term vision for the company. There are definitely signs of asset stripping.”

Yet Alliance Boots again reiterated last month that no major redundancies will take place following the integration of Alliance Pharmacy shops into the Boots portfolio. The company is rebranding 900 Alliance Pharmacy stores and about 200 smaller Boots stores to Your Local Boots Pharmacy.

Pessina was also reported to have recently pledged to ramp up earnings by “at least 10%” a year while he runs the business. Earlier this month, he is reported to have said that private ownership was the best structure for Alliance Boots and added: “The company was progressing well, but not as much as I wanted and the healthcare environment was changing very rapidly. We’re doing what we’ve done, but more rapidly and on a larger scale.”

One insider says that Boots “always had big ambitions, much before the private investors bought into the business”. Boots is already developing “health zones” in its bigger stores, to include waiting areas for customers collecting prescriptions and is understood to have been in talks with the Government about projects such as anti-obesity and anti-binge drinking.

Boots’ “Change One Thing” marketing initiative, launched by Brent in 2006 and designed to get customers into stores in the post-Christmas lull by promising to help them keep their health-related New Year resolutions, was one such plan, by aiming to bolster its trusted role as the high street pharmaceutical specialist. The retailer heavily relied on advertising, created by Mother, to reinforce its health credentials with the “Change One Thing” ads pin-pointing its expertise on everything from hay fever and smoking, to weight loss, exercise and vitamin courses.

However, experts point out that its position on the high street has been eroded over the years as competition from supermarkets has intensified.

“The problem with Boots is that there is no clarity over is proposition, as it has been outstripped by not only supermarkets but also by the likes of Superdrug and discount chains. It may be a fantastic heritage British brand but is it a serious pharmacy, a health and beauty store or somewhere where you go for Christmas shopping to buy the Wagamama wok?” asks Simon Threadkell, creative director at design agency Fitch.

Mintel director of retail research Richard Perks disagrees: “There is still great trust in the Boots brand. Some of its own brands such as No7 have been the UK’s fastest growing cosmetics brands.” However, he is “worried” about the “present shareholders” because he “can see signs of money being taken out of the business”.

Pessina is thought to be interested in expanding the retailer outside Western Europe, including in Russia and Latin America.

Threadkell says that private ownership presents an opportunity for the retailer to “stop tinkering at the edges” and instead carve out its credentials. He adds: “Even in its core health and beauty, Boots cannot compete with the department stores. It needs to focus on transforming itself into a service-led retailer. It also needs to evaluate its retail space and look at the option of a smaller retail footprint, and in the process make itself more profitable.”

In Threadkell’s view, Boots’ privately managed status should give it the flexibility to ramp up the business without the distraction of having to justify every move to shareholders. 

 

Facts and figures

Boots

• In 1849, the Boot family began selling herbal remedies from a small store in Nottingham. In the 1870s, Jesse Boot employed qualified pharmacists and opened a network of stores
• The retail business was supported by a burgeoning manufacturing capability and pharmaceutical research and development. By the 1930s, there were over 1000 Boots stores selling a wide range of products, including the No7 cosmetic range. In 1936, the first overseas store opened in New Zealand 
• The creation of the National Health Service in 1948 led to a vast increase in dispensing. More recent decades have seen the introduction of brands such as 17 cosmetics and ventures such as Boots Opticians 
• Alliance Boots was formed through the merger between Alliance UniChem and Boots Group in July 2006. The business was acquired by AB Acquisitions in June 2007 and withdrawn from the London Stock Exchange.