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François Coutu got his start in the family drugstore business at an early age, delivering pamphlets door to door with his older brother Michel. As they trudged up and down the chilly streets of Montreal, the boys' father, Jean, followed behind to make sure they were doing a good job. By the time François was in his early 20s — after attending boarding school where he was a budding basketball star — he had made up his mind he would become a pharmacist, hoping to one day join his father at the helm of the Quebec company he founded in 1969. When he eventually took the reins, becoming chief executive of the Jean Coutu Group (PJC) Inc. in 2002, dad would still be watching — but this time from the sidelines.
François knew he had big shoes to fill. As a member of Quebec's first family of retail, he was well aware of his obligations to carry on a legacy that began with a single discount drugstore in Montreal's east end and eventually grew into a $2-billion pharmacy powerhouse with more than 2,000 stores across Canada and the United States.
In 2004, in his first real test as CEO, François made a bold thrust into the U.S. with a highly leveraged US$2.4-billion purchase of the struggling Florida-based Eckerd pharmacy chain. The move vaulted the Coutu Group into the No. 4 spot in the North American drugstore market by revenue, behind U.S. giants Walgreen Co. (NYSE: WAG), CVS Caremark Corp. (NYSE: CVS) and Rite Aid Corp. (NYSE: RAD). But things didn't exactly go as planned. A disastrous U.S. integration sent Coutu shares (TSX: PJC.a) into a tailspin. The company blamed poor market conditions stateside; analysts said Coutu had bitten off more than it could chew.
Although François insists there were no hard feelings when his father pushed him aside to reclaim his president and CEO titles in November 2005 in a bid to turn things around, comparisons to other second-generation business breakdowns were inevitable. But if François's ego was bruised by the criticism, it certainly doesn't show, as he brushes off any suggestions that he wasn't up to the job. Instead, he insists his father was simply doing what was best for shareholders — and for the company. "Yes, it's true Dad came out of retirement, but he never really left," says the 52-year-old pharmacist and father of three at the company's sprawling headquarters in Longueuil, just outside of Montreal.
Eventually, though, it will be time for Coutu Sr. to hang up his trademark white lab coat, which he has hinted in the past will happen when he turns 80 at the end of May. With the sale of the Coutu Group's ailing U.S. network to Rite Aid expected to close around the same time, Jean's heir apparent is taking over a family empire in good shape to move forward.
Whether he admits it or not, François Coutu has something to prove. And now, finally, it looks like he might get his chance. As he prepares for a possible assault on the Canadian drugstore market — venturing into the coveted and highly competitive Ontario retail landscape — he is more determined than ever to show he's more than just the boss's son. Having learned the hard way the consequences of overstepping one's bounds into relatively unfamiliar territory, he'll have to do better this time around if he intends to transform Coutu, a household name in Quebec, into a national retail brand. Putting his own stamp on the company is of utmost importance — but so is preserving his father's legacy.
In some ways, the third-born son of Marcelle and Jean Coutu has been trying to prove himself ever since he came into this world. "When I was born, my mother expected a girl, and she was extremely disappointed," François says, with only a hint of jest in his voice. "But when I opened my eyes and she looked at me, she finally accepted me."
Earning the approval of his father was very important, too. From the beginning, Jean made it abundantly clear that any children of his (he has three sons and two daughters) would have to earn their way into the family business. In 1976, after completing an undergraduate degree at Montreal's McGill University, François headed off to Samford University in Alabama to study pharmacy. "I was the first French-Canadian — actually, the first Canadian — ever to attend Samford University," he says with a laugh. "So I quickly learned the southern French accent."
After graduating in 1981, François took his first job as an intern at a Walgreens pharmacy in Hollywood, Fla. Two years later, he returned to Montreal to become the pharmacist and manager at his father's Parc Avenue franchise. Conscious of his surname — and the privilege it implied — he worked hard to prove to his employees that he deserved to be their boss.
His father was impressed with what he saw, eventually promoting François to CEO of the Jean Coutu Group in 2002 after a series of increasingly senior roles with the company. In the meantime, older brothers Louis and Michel, neither of whom are pharmacists, worked in their respective roles as vice-president of commercial policies and president of U.S. operations.
Although Jean held on to his chairman title, continuing to oversee the family's stake in the company (currently at almost 50%), the show was mostly his sons' for the running. And for the first couple of years, things went well. But then François made the pivotal decision to dramatically expand the Coutu Group's presence in the U.S. with the purchase of the 1,549-store Eckerd pharmacy chain in 2004.
François's intentions to transform the Quebec retailer into a major North American player were both ambitious and bold — but his decision puzzled some in Canada's retail community. After all, why would the Coutu Group decide to gamble in the cutthroat American pharmacy market before attempting to expand outside of Quebec and westward into Ontario? Perhaps François was buoyed by the company's early success in the American market after its US$147-million acquisition of the Brooks Pharmacy chain, based in Rhode Island, in 1994. Or maybe he still felt stung after losing out on a bid for Toronto-headquartered rival Shoppers Drug Mart Corp. (TSX: SC) in 1999 to private equity giant Kohlberg Kravis Roberts & Co. of New York, which paid $2.55 billion.
Whatever the reason, some predicted the Eckerd acquisition was doomed from the start. "Jean Coutu was on the Titanic," says Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm based in New York. "Unlike CVS, which looked at its acquisitions from a pure real-estate perspective, Jean Coutu acquired the entire [Eckerd] office in Florida with all the services. It inherited a system that didn't work."
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