Even before UniChem’s erratic deliveries from the new warehouses at Croydon and Kingston had presented the company with its first-ever significant service problems, a very important development had occurred in the field of pharmaceutical wholesaling.
At the end of the 1950’s a small cloud had appeared on the horizon which was going to develop into a threatening storm of great magnitude.
In 1957, British Drug Houses (B.D.H.) had a fleet of vans delivering galenicals and raw drugs twice daily, to many pharmacies in London and the Home Counties. However, as we have seen, since the formation of the NHS, changes in doctor’s prescribing habits had reduced this type of trade, and their vans were operating at well below their capacity.
One of their staff had the bright idea of using the vans to deliver manufacturers’ branded lines, in the manner of a wholesaler. This was such a good plan that they were able to persuade Allen & Hanbury (a well-known pharmaceutical manufacturer) to join them in this venture. The two companies set up a jointly-owned (50% each) undertaking called “Vestric”, to run the project.
Almost immediately, matters were to become worse for UniChem. Glaxo (one of the biggest pharmaceutical manufacturers in Britain) bought Allen & Hanburys in 1958. They instantly liked the Vestric venture, and significant sums of investment money were made available to its management.
This money was invested in modern methods of warehousing and invoicing, and at the same time, into a campaign of geographical growth. Wherever it was possible, they bought up a leading wholesaler in the area that interested them, e.g. Bradley & Bliss of Reading (in 1961), or Woolley & Armfield of Manchester (in 1962). If the local wholesaler would not sell, then a brand new Vestric warehouse was built and opened nearby. This aggressive expansionist policy was extremely effective and a national network was soon completed.
Matters became worse when, in 1968, Glaxo bought BDH as well, and invested even more heavily, particularly in modern technology. They also incorporated the many warehouses of Evans Ltd, their wholly-owned subsidiary, into the Vestric network.
As Macarthys Ltd, Barclays Ltd, & Sangers Ltd, three other national wholesalers, also expanded aggressively during this period, things became very difficult for UniChem. The problem was particularly serious in the company’s heartland of the southern Home Counties. Here, as we have seen, there were already severe pressures on growth, owing to lack of customer confidence at both the Croydon and Kingston warehouses.
UniChem, as a co-operative, had no shareholders other than its customers. It was run by a Board of management, with only four or five executive directors, controlled by eight part-time, non-executive directors, all of whom were retail pharmacists. This meant that the company was very short of corporate or industrial experience.
These factors conspired to make it very difficult for the company to react quickly enough to changing market circumstances, such as the onward march of Vestric, and soon very severe financial problems loomed.
In the mid-1960’s some younger pharmacists, such as Norman Sampson and Michael Frith (both later destined to become chairmen), had been elected to the Board, but there was little or no experienced financial input at Board level. Lewis Watson, the Managing Director, was due to retire in 1967, and Geoff White became General Manager, preparing for this event.
Board reports of the period talk of “steady increases in trading”, but membership was falling, and danger signs were everywhere. The sales at Walthamstow had also been falling and an attempt to expand into the hospital market, begun in 1967, seems to have failed totally.
An additional difficulty at this time, was the fact that members did not need to have a defined minimum shareholding or to give any commitment with regard to their level of purchases, yet still got a rebate on qualifying purchases. This enabled them to “cherry-pick” from both UniChem’s and its competitors’ offerings. This lack of loyalty meant that turnover per customer fell significantly.
In January 1968, Gordon Smith, who owned a group of three prosperous pharmacies in SE London, was appointed as full-time Managing Director. This move was an attempt to stem the decline that had become apparent in UniChem’s efficiency levels, but there was still little or no company experience at Board level.
However, by mid-1968 the danger was at last seen, and despite being professionally advised to put the company into liquidation, the Board courageously appointed a firm of consultants, Robson Morrow Ltd, to make an investigation of the situation, and to report back with suggestions for an action programme. This report was received in November.
Some of their proposals, such as “to reduce chemist’s deliveries to one-per-day”, whilst being perfectly logical, were currently impractical, owing to competitors’ activity. Nevertheless, the report did contain three essential suggestions, which were accepted and acted upon.
They were (1) that additional professional senior management be employed, in the shape of an experienced Finance Director, (2) that the company should be converted to a true Industrial & Provident Society, under the Building Societies regulations, and that members be required to invest money in the form of a minimum shareholding (£400 was subsequently chosen), and (3) that UniChem must stock over-the-counter (OTC) products as well as prescription lines.
The report’s rationale behind the three proposals was respectively as follows :
- The reason for this is obvious – the lack of financial expertise in the Board Room was completely clear
- As a Friendly Society the company would not be liable to corporation tax on its net profits, providing they had been distributed to its members in proportion to their qualifying purchases. Of the 1500 members, some 600 or so accepted the minimum shareholding rule, but among those who stopped trading as a result, were two family-controlled chains of approx. 20 shops each, Cross & Herbert Ltd, and E.Moss Ltd. This was unfortunate because they had both been members since 1938
- Under the terms of the Resale Price Maintenance Act, no discount on prescription products was permitted. Therefore such products could not be qualifying purchases. Many of the members had felt that it wasn’t worth buying from UniChem because they were unable to obtain much in the way of rebatable items. The inclusion of more OTC items into the stock range would afford them a better opportunity of maximising their benefits of membership.
On receipt of these proposals from the Robson Morrow report the Board took admirably swift action, and Peter Dodd was recruited as Finance Director in March 1969. The process of the conversion to a Friendly Society was begun, and extra OTC lines were added to the product range. The actual process of conversion turned out to be a very slow one, and over the next eighteen months a further financial crisis developed, taking the company to the verge of bankruptcy.