Farmacias Ahumada S.A.

Avenida Vicuna Mackenna 585
Telephone: ( + 56) 2 222-1122
Fax: ( + 56) 2 661-9410
Web site:

Public Company
Employees: 11,762
Sales: CLP 605.67 billion ($1.08 billion) (2004)
Stock Exchanges: Santiago
Ticker Symbol: FASA
NAIC: 325412 Pharmaceutical Preparation Manufacturing; 325620 Toilet Preparation Manufacturing; 445120 Convenience Stores; 446110 Pharmacies and Drug Stores; 446120 Cosmetics, Beauty Supplies and Perfume Stores

Farmacias Ahumada S.A. (Fasa) is the largest drugstore chain in Latin America and one of the largest in the world in number of outlets, with a network of nearly 1,000 pharmacies in Chile, Peru, Brazil, and Mexico. These well-lit stores function like U.S. and British drugstore chains, offering a large variety of merchandise besides their core business of providing the consumer with cosmetics and chemical and pharmaceutical products. They accept a variety of credit cards, including Fasa's own, and most of them stay open all night, aided by highly visible security. Fasa manufactures some of the products that it sells. The company is based in Santiago, the capital of Chile.

Starting Out in Chile: 1968–96

The son of immigrants, José Codner Chijner began working as a boy in his family's pharmacy in Rancagua, Chile. Long before enrolling in the department of chemistry and pharmacy at the University of Chile, he had learned the ins and outs of sales technique and the importance of quality of service. After attending morning classes, he worked in his father's two Santiago pharmacies, Santo Domingo and York. Immediately after receiving his degree in 1966, he became technical director of Farmacia York.

However, Codner was not satisfied with working in the family business. One day in 1968, he called his father and said he was going to strike out on his own. A year after acquiring his first pharmacy, he opened another at the corner of Ahumada y Huérfanos in Santiago, naming it Farmacia Ahumada (Fasa). During the beginnings of the new company, Codner's wife, Perla Dujovne, played an indispensable part in the business.

There were ten Fasa outlets in 1980, when the company introduced what became one of the most modern prescription-filling services in South America. Eventually this led to the first pharmacy-benefits management system in Latin America, with two million members in 2001, allowing customers to discount the part of their medications covered by insurance at the moment of payment. In 1982, the chain introduced its first private-label products. Although Codner hated to contract debts, around this time he borrowed $3 million from the Banco de Santiago for further expansion. Then the overvalued Chilean peso virtually collapsed in the wake of the high interest rates imposed by the U.S. Federal Reserve Board to put an end to double-digit inflation. Codner's debt now came to almost $30 million. Since the company could not make payments on its loan, the bank appointed a receiver who knew nothing about the pharmacy business. Working with him, Codner was able to keep moving his enterprise forward, but he was not able to retire the debt and recover his business until 1992.

Codner had become convinced in the 1980s that Fasa could not grow further unless it imitated the Anglo-American model. He sent his executives abroad to study U.S. chains like Walgreen Co. and British ones like The Boots Company plc. They noted the store layouts and what kinds of merchandise these chains carried, and they interviewed shoppers and employees. The result was not only that Fasa began carrying a much larger array of products but also that it began selling hundreds of products under its own brand name and logo, from dental floss to diapers. Eventually the chain started selling food as well. "At first it seemed strange to see milk and bread for sale in a pharmacy," a Brazilian woman told Leslie Moore of the New York Times in 2003. "But then you see how convenient it can be."

Fasa revolutionized retail distribution in the pharmaceutical sector in Chile, which had traditionally been composed of a large number of small family enterprises. The U.S. drugstore model it adopted called for bigger, self-service outlets, many of them open around the clock, and ample space for personal-hygiene products, perfume, pet supplies, snacks, and drinks. By 1992, Fasa had 44 outlets in the Santiago metropolitan area and was ready to move into other parts of Chile, starting with a branch in Viña del Mar, the nation's premier beach resort. There followed stores in Chillán, Rancagua, and other cities. In association with the local subsidiary of Royal Dutch Shell, Fasa opened a pharmacy in each Shell service station. In 1996, it established a corporate distribution center.

By 1998, Fasa was roughly equal in size to its chief rival, Farmacias Salcobrand S.A., another drugstore chain. Much of its growth was coming from its own Fasa brand of generic drugs. Chile's health regulations allowed pharmacies to substitute the drugs specified in doctors' prescriptions with chemically identical alternatives, and Fasa took full advantage to offer its cheaper generic drugs. It also offered its own credit card and, in 1998, established a subsidiary to manage the prescription-drug benefits programs tied to alliances with healthcare providers. Although the dispensation of prescription medications was a money-loser for the chain, and the profit margin for Fasa's own drugs was very small, the company compensated with high earnings on other products, including Fasa's proprietary brands of health-and-beauty aids. The stores even sold calculators, blank CDs, and small portable television sets. Once again, however, Codner perceived that his chain, which along with two others had swallowed a majority of the independent pharmacies in Chile, had reached its limits of growth. The next step was to take it to other countries.

Expanding into Peru and Brazil: 1996–2001

Codner studied the possibility of opening stores in other South American countries, including Argentina, Brazil, Colombia, and Ecuador. Finally, he settled on Peru. Codner later explained to Lorena Medel of the Chilean business magazine Capital, "I'm always asked why we're not in Argentina. You know why? Because the level of corruption is incredibly high. The entire pharmaceutical market is surrendered to something called "social works," which are the unions.… Peru, on the other hand, was like Chile 30 years ago. There wasn't anything. The growth potential was enormous, and it was possible to repeat what was done here." Fasa opened its first Peruvian outlet, in Lima, in 1996 in association with the Chilean supermarket chain Santa Isabel. It also reproduced its collaboration with Shell in Peru, once again opening a pharmacy by the side of each Shell gas station. The situation in Peru was not ideal because of what a company executive described as tremendous anti-Chilean sentiment in Peru stemming from a 19th-century war in which the latter lost territory, but by the end of 1999 there were 45 Boticas Fasa pharmacies in Peru, generating sales of about $16 million a year.

Fasa went public in 1997, raising $21 million by selling shares on the Santiago Stock Exchange. In 1999, the company sold another $47 million worth of stock, increasing the stake of outsiders in the company to almost 50 percent. The biggest investor was Falabella, Chile's largest department-store chain, with 20 percent of the stock, purchased for $25 million. The alliance gave Fasa a powerful competitive edge against its rivals, since it was now accessible to holders of Falabella's popular credit card, CMR. After this augmentation of capital, two other large U.S. shareholders, the insurance company American International Group, Inc. and Latin American Healthcare Fund, pressed Fasa to expand into other countries. The logical target (since Argentina, now in recession, remained a poor prospect) was Brazil, which was the sixth-largest pharmaceutical market in the world and at that time was being served by a fragmented system of 46,000 pharmacies. In 2000 and 2001, Fasa, in partnership with AIG, purchased Drogamed, the largest drugstore chain in the state of Paraná, with the former taking 65 percent and the latter the remainder. In 2000, Fasa had also purchased a half-share of the Chilean subsidiary of General Nutrition Co. and become the exclusive distributor of GNC's nutritional supplements in Chile and Peru. It bought an additional 17 percent share the following year and acquired the rest in 2002.

Under the direction of Fasa, Drogamed, by mid 2002, had grown into a chain with 107 pharmacies and $75 million in sales per year. Fasa intended to follow this acquisition with two more in Brazil by the end of 2004, but it came to the conclusion that the Brazilian market was too fragmented to serve as a platform for the company's growth. Enrique Cibié, Fasa's general manager, told Medel that the firm was at the point of closing a deal for another Brazilian chain when it decided that doing business there was too complicated and bureaucratic. Instead, he suggested that Codner take another look at Mexico, which had previously been ruled out because the business was dominated by supermarkets. A company executive dispatched there came back with a favorable report, including the news that with the North American Free Trade Association the price of medications was going to rise.

Company Perspectives:

The principal objective of Farmacias Ahumada is to better the quality of life of our customers, and to see to it that most people have access to medications and to good health. In order to accomplish this role in the community, Farmacias Ahumada has developed products and services that offer the most economic and highest quality choices for consumers.

Moving into Mexico: 2002 and Beyond

The company that Fasa had in mind was Far-Ben S.A. de C.V., the corporate name of the Farmacias Benavides chain. This chain, the largest in Latin America, comprised over 600 drugstores yet held only 4.5 percent of Mexico's pharmaceutical retail sales market, which was dominated by that country's supermarkets. Deeply in debt and falling in annual sales, Far-Ben S.A. de C.V. was being pulled apart by the seven brothers and sisters who owned it. Codner was unwilling to consider buying the company until Jaime Benavides was able to get permission from his siblings to close a deal. Even then, negotiations remained complex because some 30 family members had a stake in the company and restive bondholders, who held $71 million in debt, were threatening to drive it into bankruptcy. The situation remained so difficult that the Benavides family contracted a New York investment bank to act as its negotiator. A deal was struck in late 2002. The bondholders recovered their money, the Benavides family members kept 20 percent of their company, and Fasa purchased 62 percent of the shares for 510 million Mexican pesos (about $45 million), plus the assumption of $30 million in debt. It paid for the acquisition by issuing seven-year bonds in Chile.

One of the first tasks of the new management was to close about 30 unprofitable Farmacias Benavides stores in un-promising locations. Some $14 million was invested to fund a center of logistic control and to remodel the remaining stores with better lighting, new equipment, and the introduction of Fasa's own identifying logo.

While Fasa's hundreds of locales in Chile received their supplies from a centralized distribution system, Far-Ben was at the mercy of its exclusive distributor for pharmaceuticals, Casa Saba S.A. de C.V., the largest such wholesaler in Mexico. Casa Saba supplied each Far-Ben outlet individually, making supervision a time-consuming chore for the pharmacy chain's managers. By the end of 2003, a new distribution center was in place that received goods from more than 100 suppliers of non-pharmaceutical products such as soap and toothpaste. Despite closing 23 outlets, Far-Ben's revenues rose 5.6 percent in 2003 to $441 million, and for the first time in years it earned a profit, which amounted to $7.4 million. The chain's goal for future growth was to combat its reputation as a pricy retailer and thereby to generate higher profits by greater sales volume rather than by increasing profit margin. Medications still accounted for more than half of the revenues of Farmacias Benevidas, and Casa Saba remained in control of which products would go to each store. Nevertheless, the chain's general manager, Walter Westphal, was seeking to bypass Saba by convincing medical laboratories such as Pfizer, S.A. de C.V. and Schering Mexicana S.A. to deal directly with him.

In 2004, the 230 Farmacias Ahumada stores in Chile carried about 300 products with the company logo. Some also housed ATM's, Blockbuster video drop-offs, and GNC booths selling high-margin vitamins. There were 507 Farmacias Benevidas outlets in Mexico. Although the sales volume from these stores now surpassed Farmacias Ahumada's operations in Chile, Cibié made it clear that corporate headquarters would remain in Santiago. He indicated, however, that the company could save $30 million a year, partly by streamlining its operations and dismissing hundreds of middle managers. In an interview with América economía, Codner had said that investors could expect an annual return of at least 20 percent on their capital, adding that "If we don't do it, we prefer to return the money." Fasa had a net profit of CLP3.73 billion ($6.69 million) in 2004. Its long-term debt was CLP42.52 billion. ($76.28 million).

Principal Subsidiaries

Boticas Fasa S.A. (Peru); Compañía de Nutrición General S.A.; Far-Ben S.A. de C.V. (Mexico, 68%); Fasint Ltd. (Brazil, 65%).

Principal Competitors

Drogaría Sao Paulo S.A.; Drogasil S.A.; Farmacias Cruz Verde S.A.; Farmacias Salcobrand S.A.; Raía & Cia. Ltda.

Key Dates:

The first Ahumada pharmacy opens in Santiago, Chile.
Ten Farmacias Ahumada (Fasa) outlets are in operation.
The company begins to market its first private-label products.
With 44 outlets in the Santiago area, the chain begins expanding elsewhere in Chile.
The company opens its first Peruvian pharmacy; by the end of 1999, it has 45.
Fasa becomes a publicly traded company.
Fasa establishes a subsidiary to manage its prescription-drug benefits programs.
The company acquires a majority stake in the Brazilian chain Drogamed.
Fasa buys most of Mexico's Far-Ben S.A. de C.V., the largest drugstore chain in Latin America.

Further Reading

Díaz, Alicia, "Toman chilenos el control de Benavides," Reforma , October 23, 2002, p. 3.

"Farmacias Ahumada 'Thinks, Acts Like a Local,' " Chain Drug Review , December 10, 2001, p. 60.

González, Felipe, "Prueba de fuego," América economía , October 21, 1999, pp. 48–49.

Kaffman, Luis, "Brazilian-Entry Formula," Business Latin America , May 1, 2000, p. 3.

——, "Divergent Formulae," Business Latin America , February 14, 2000, p. 3.

—— , "Lab Brats," Business Latin America , June 8, 1998, p. 6.

Medel, Lorena, "La gran receta americana," Capital , October 24–November 6, 2003, pp. 32–34, 36.

Moore, Leslie, "A Latin Makeover For Staid Drugstores," New York Times , March 16, 2003, p. C5.

"New Script," Business Latin America , September 16, 2002, p. 3.

Ramírez Tamayo, Zacarías, "Sangre en la farmacia," Capital , May 7-20, 2004, pp. 38–39, 41.

"Receta magistral," América economía , September 19, 2002, pp. 46–47, 49.

Suárez, Gabriel, "Cambia de imagen Farmacias Benavides," Mural , October 1, 2003, p. 6.

—Robert Halasz

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