Snyder's goes Chapter 11, but owner eyes U.S. growth

Drug Store News,  Oct 6, 2003  by James Frederick

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MINNETONKA, Minn. -- Swallowing a bitter, but needed prescription for future success, Snyder's Drug Stores filed for Chapter 11 bankruptcy protection Sept. 12 and announced it would sell or close its 77 Drug Emporium discount drug stores, plus its F&M and Vix stores, in a bid to shore up profitability. But the founder and chairman of Snyder's Canadian parent company said the U.S. drug chain would continue to expand and seek acquisition candidates.

"By no means do I want this to be viewed as slowing our progress down in the States," Katz Group chairman and chief executive officer Daryl Katz told Drug Store News. To the contrary, it will provide additional resources and capital to expand, and in fact, we are pursuing a number of acquisition opportunities in the States that we would put together with ... Snyder's."

The moves came two years after Snyder's bought the Drug Emporium stores and followed a long and fruitless campaign to win back Drug Emporium's customer base and to rejuvenate the deep-discount drug store concept. Instead, the stores proved a drag on Snyder's performance and, perhaps, a retail anachronism in the take-no-prisoners era of Wal-Mart Stores' supremacy throughout most of the United States.

The fact that Drug Emporium no longer could compete effectively against Wal-Mart--with its massive buying power, economies of scale and pricing latitude--was a sad postscript to the deep-discounter's 26-year history and to its highly motivated employees.

"The actions we are taking at Drug Emporium are difficult, but necessary," said Snyder's president and chief executive officer Gordon Barker. "Despite significant capital infusions and the efforts of our employees, Drug Emporium's performance has failed to improve since we acquired it out of bankruptcy in September 2001.

"[The] filing recognizes that unfortunate fact and sets a decisive course of action to exit the Drug Emporium business and dedicate our full resources to the continued growth of the Snyder's Drug Stores chain."

Katz characterized Drug Emporium as a small if unsuccessful investment for the Edmonton, Alberta-based drug store operator.

"To be frank, over the last two years, the turnaround we expected did not materialize. We bought it out of bankruptcy for the right price to turn around and didn't turn it around. So we've decided to reallocate our capital to our performing divisions.

"We have enough assets in our business--Snyder's included--that this was a strict asset allocation decision whereby we have decided to reallocate assets to our other divisions that provide the necessary return on investment--Snyder's of course being one of them," Katz added.

Drug Emporium employees and customers would be advised about store sales and closings as they occur, the company noted. "Until such time, stores will continue to operate, employees will continue to receive their wages and benefits, and prescriptions will continue to be filled," Snyder's noted in a company report.

"We are disappointed that we were unable to bring Drug Emporium back to financial health, but [we are] proud of the Barker employment and service we have brought to Drug Emporium's communities over the past two years," said Barker.

In its bankruptcy filing before Judge William Bodah in U.S. Bankruptcy Court for the Northern District of Ohio in Youngstown, Snyder's said it was undertaking a voluntary reorganization with the full support of its major creditors and its largest supplier, McKesson Corp. The company stressed that the reorganization does not involve its 78 core Snyder's drug stores or the 53 independently owned stores that operate under the Snyder s banner and service network.

Company officials also noted that it has lined up financing from its principal lender and that Snyder's stores would remain fully staffed, stocked and open during the restructuring process."

Snyder's retained Melville, N.Y.-based liquidation firm DJM Asset Management to dispose of Drug Emporium's 77 leases in nine states. "The locations that we are marketing include properties of between 7,975 square feet to 41,278 square feet in both free-standing and strip center locations," explained DJM principal investor Emilio Amendola. He described the stores as "high-profile locations with below-market lease terms" and said the company would invite offers on the properties until Oct. 21.

According to one report in the Detroit Free Press, the chain already has begun liquidation sales at its 11 F&M stores in metro Detroit, in what was described as an eight-week process.

Not affected by Snyder's filing are independently owned and operated Drug Emporium stores in Texas and West Virginia.

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