How to run a drugstore – and sell it for a strong return
An independent drugstore owner shares the secrets of his success and how his six drugstores became a key part of the small-town economy in two Midwest states
While the tech sector seems to attract all the media coverage, there are still many ways to achieve the American Dream that don’t involve developing an app or building a self-driving car.
For example, while huge chains like CVS Pharmacy and Walgreens dominate the market in many areas, there are still plenty of ways in which a well-placed independent drugstore can carve out a place in its local economy.
One encouraging success story comes from Arvid Liebe. A pharmacist and drugstore entrepreneur who helped build a chain of six stores in South Dakota and Minnesota over more than 45 years, he built his success on these core principles:
● The customer is always right
● Keep learning
● Be fair
Background on Liebe Drugs
As a freshman in college, Arvid Liebe decided to pursue something in the chemical field and settled on pharmacy school. He attended South Dakota State University after completing Evangel College in Missouri, completing his five-year program in 1965.
Liebe spent two years as an intern at Joan’s Drugs in Aberdeen and two as pharmacy officer for the Armed Forces in Okinawa, overseeing a medical warehouse providing supplies for soldiers and support staff during the Vietnam War.
“In 1969, I came back home. The owner of the drug store in Milbank called me the first day I was back and asked me if I was interested in owning the drugstore and I said yes,” Liebe recalls.
“The military wanted me to stay, but I came home and he gave me a wonderful buy and a great beginning. He wanted me to be successful.”
Liebe says growth over the decades has been gradual, steady and organic. “Every 4-5 years, there were other opportunities.
“We ended up with six drug stores, [including] a Hallmark Gold Crown Store and a small café in a Milbank, SD location. I ran those for 45 years. I sold them in 2014.”
The customer is always right
Maintaining and growing a small business in the increasingly competitive pharmacy market is an impressive accomplishment. With all his stores in small towns, Liebe realized early on that maintaining excellent customer relationships was a key to success.
“We did whatever was needed for our customers,” he says. “Delivery, mail, go to their home, careful packaging for older people – all of those things you do in the independent pharmacy that the Walmart doesn’t do.
“I was always of the opinion that in the small town, we don’t have a mass number of customers. So you cannot offend anyone. If you do, that one tells 20 others – then you have a problem.
“We ate a lot of crow through the years; the customer is always right.”
Keep learning
As in nearly every sector, the pharmacy industry is constantly evolving and a successful business needs to evolve with it. Liebe’s approach to this need for adaptation was to get involved in the industry and empower his employees to do the same.
“I practiced pharmacy very actively the first half of my career, then I spent more time in administration. I kept up with the industry and what was going on in pharmacy, but my gift was in the business side.
“I’ve helped many people buy pharmacies from an advice standpoint. Whenever I had pharmacists work for me, I told them to let me know when they were ready to go into business for themselves and provided advice when they were buying.
“I was on the Board of Pharmacy (regulatory board in South Dakota) for 12 years and president for about half that time. I stayed active in everything, and in going to national meetings you could see trends coming.
“For the guys not involved, they would get blindsided. Stay involved in the whole political arena so you can see what’s coming.
“We had many students work as interns for us and often hired them. I had 12 pharmacists on staff.
“Whenever I had a new graduate come in, I looked at them as a resource. They had all the new information on drugs and the industry. That’s how I kept learning.
Empower people you work with
Liebe says he “really enjoyed empowering people as well. We had a woman who came to work for us many years ago and she really enjoyed greeting cards. So when we ended up with a little extra space, we separated the greeting cards off the drugstore space, we called it Judy’s Hallmark and she ran it for 40 years.”
Liebe really is big on empowerment. “If you can have people feel empowered, feeling successful in their work, appreciated, it’s not about money,” he says. “It’s about feeling empowered.”
Be fair
While some entrepreneurs facing difficult circumstances may look for any angle to secure profit or market share, Liebe made a point to maintain ethical and fair business practices, which he believes also fuelled his success over the years.
“About 40 years ago, a gentleman came to work for me and we got along very well and thought very similarly,” he recalls. “I sold him some of my shares about 35 years ago.
“Then we had another woman, a pharmacist who worked for us, who also bought a few shares. When we expanded, we had to determine how to purchase the properties.
“I could have owned it all, but I thought: ‘What’s fair?’ So, they bought a few properties in their names. And because that was fair, they stayed all those years.”
Fairness inspires customer loyalty too.
“As far as competing, there are a lot of things that the Walmarts and Walgreens cannot do. Personalized service is lacking. Everything is based on price.
“Early on, we found out they’re very competitive on other things. They took things that were not price-sensitive and priced it up.
There are plenty of “things you” can “do in the independent pharmacy that the Walmart doesn’t do. You don’t always have to be the cheapest. People just want you to be fair.”
The principles applied to the sale of the business
In 2014, Liebe Drugs was bought by a larger chain called Lewis Drug in what Liebe described as “a win-win for buyer and seller”. The same basic principles of fairness and a desire to help the customer proved invaluable during the business-sale process too.
“I always made sure we had good, accurate books and never played games,” he says. “The buyers could see our pattern many years back.
“A lot of people run their business shady: they want to dip into the till and take money home. Then they’re penalized whenever they want to grow or expand because the bank wants them to prove that they’re making money.”
Getting the right advice was imperative too.
“We valued the business every year,” he says. “From an accounting standpoint, we were set up well.
“I always said the most important person to find is the right CPA when you start. Anytime I wanted to do something, I called them and got good advice and I appreciated that.
“I wanted to stay ethical and do things right. Finding the right attorney was also very important.
Remarkably, insists Liebe, his small drugstore actually outshone his larger, chain-store acquirer in terms of technology.
“We were more tech-savvy than Lewis when they bought us,” he recalls. “We had point of sale, multi-store software, monitoring every day and every hour.
“So we were actually a little ahead of them. We knew it was important.
“That’s a compliment to the young pharmacists. We quizzed them as a resource and stayed on top of it that way.”
He was also keen to ensure his employees and the local community were looked after he departed. “I asked two questions when it came to selling: ‘What about the people? What about the other locations?’
“They bought the business, but didn’t want to buy the property, so we settled on a 10-year lease on the buildings. By doing that, I was able to make sure that these small towns would have a local pharmacy for at least 10 more years.
“With all those pieces in place, selling was not a difficult process at all,” he continues. “We had a total of three meetings. In the first meeting, we had an overview, talked about the employees and locations.
“In the second meeting, they made an offer.”
“Paying so much per prescription is very common when valuing a pharmacy business. I told them how many we filled, the total in all locations. The numbers supported it.
“I’m always of the opinion that the buyer has to buy it at a number where they will be successful, because I’ve done that a number of times, but not so much so that it leaves the buyer impaired in their success. It has to be a win for both the buyer and the seller.”
By approaching the sale of his business in the same way he ran it, Liebe was able to earn a more-than-fair return on investment for himself and his partners, while setting up Lewis Drug to succeed – and in turn ensuring a good deal for both employees and customers.
This inspiring story underlines the point that the US economy still offers untold opportunities to smart, business-savvy entrepreneurs willing to put the effort and time into building a company to be proud of.
