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Boots adapts its strategy with Farmacias Benavides

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To quote one of Cortes’ officers when the Spanish first arrived in Mexico, they came “to serve God and His Majesty and also to get riches.”

While the Boots/Walgreens story was playing out in the U.S., ultimately ending in Walgreens Boots Alliance, Boots was also busy south of the border acquiring Farmacias Ahumada in Chile and its subsidiary Farmacias Benavides in Mexico. The deal closed a little more than two years ago, in August 2014.

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Farmacias Benavides is Mexico’s No. 3 drug chain.

So the question is, are there riches in Mexico? Boots’ path with Farmacias Benavides will be challenging and, to paraphrase a famous U.S. political quote, Benavides is no Walgreens.

Given the No. 3 position in the Mexican chain drug world, the approach has been quite different. Unlike the U.S. situation, most of the standard Boots playbook — centralizing marketing, tightening regional trade promotion flexibility and reducing brand assortment in favor of private label and top global brands — is not accessible.

And, perhaps recognizing this, Boots has not brought in a cadre of experienced U.K. executives to man senior roles. It has followed a strategy of guidelines from abroad but manage locally. The Latin America general manager, Nicholas Osario, a U.S.-educated Colombian, was hired from the outside and joined the organization a little over a year ago in October 2015.

Benavides is, however, consistent with the Boots beauty category strategy. The No7 brand has made it to Mexico.

The struggle is what to do beyond beauty. Various formats are being tested in the home base Monterrey metro area; however, no consistent overall restructured store layout has emerged yet. Beyond No7, there has been no move to Boots brands. A wide assortment of brands and manufacturers remain in store.

cdr-filler-opinion-750Another key question that is still unanswered is whether the stores will be rebranded as Boots or remain as Farmacias Benavides. This may be delaying the private label move; the Boots brand on shelf under a non-Boots banner is a central strategic and marketing issue.
Beyond the private label challenge, many other strategic initiatives don’t fit the Mexican and Benavides reality.

Marketing and trade promotion were already centralized, as Benavides is still a regional powerhouse but not fully national in its store locations. The Monterrey headquarters was already calling the shots. Terms couldn’t be extended, as the Mexican standard was already at 120 days. If anything, Boots has now improved Farmacias Benavides’ reputation for ­paying.

Although Farmacias Benavides tests various store formats, portfolios and product mixes, another looming strategic question is if, when and how to grow within the Mexican market.

The major competition, Farmacias Guadalajara and Farmacias del Ahorro are also homegrown organic drug chains, with bases in the other two major metro areas. Farmacias Guadalajara dominates in its namesake, while del Ahorro is in the Mexico City area.

A closer look at the Nielsen map of Mexico provides a clearer picture of the three top drug chains’ regional strengths and shows the regional makeup of the chain drug market for the time being. There is perhaps another round of acquisition pending in Mexico.

Farmacias Benavides has room to grow in Mexico. In fact, in the Nielsen region 2, which encompasses Monterrey, Benavides dominates within Monterrey itself but actually trails Farmacias Guadalajara in store count. Benavides has no stores in Nielsen region 6, covering the Yucatan peninsula.

In short, there are strategic questions about when and where Farmacias Benavides should look at geographic expansion in Mexico.
Overall, the Farmacias Benavides team has a multifaceted challenge. What parts of the Boots playbook work? Where does it make sense to expand within Mexico (if at all)? And just like Cortes, Boots has landed in Mexico, burned the boats and is moving forward.
It remains to be seen if they find the riches that they are seeking.

Ed Rowland is the founder and owner of Rowland Global LLC, which assists companies in their global growth strategies, tactics and execution. Jaime Cases of Sinax S.A. de C.V. provided helpful insights for this article.


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