By ALEX DAVIDSON, May 10, 2006
Elephant Pharmacy wants to transform how consumers view retail pharmacies.
Elephant Pharmacy is positioning itself to challenge established chains such as Walgreen Co. and Rite Aid Corp. by pairing traditional aspects of pharmacies with alternative remedies, such as providing in-house acupuncturists and nutritionists, and substituting potato chips on aisle five with organic fruits and vegetables. Elephant is hoping its offerings and trained personnel will get baby boomers and mothers in their 30s to flock to its stores, hang out and, ideally, take a class.
The company, which is based in Berkeley, Calif., and operates two stores in the Bay Area, was founded in 2001. It is being guided through its adolescence by a combination of investors, executives with experience building stores that were bought by Whole Foods Market Inc. Curiously enough, it’s also getting help from drug-store chain CVS Corp., which was one of several venture-capital investors in Elephant’s second round of financing in 2004. CVS has a seat on Elephant Pharmacy’s five-person board, which offers the chain a peek at innovations and industry trends outside the main stream.
What remains to be seen is whether the Californian combination of yoga mats, red wine and acupuncture can translate beyond the Golden State and stand up to the size of well-established rivals, which could either buy up the company or open similar, alternative chains of their own.
“People are beginning to question some of the traditional pharmaceuticals, so they are looking for alternative ways to treat themselves,” said Kathi Lentzsch, chief executive officer of Elephant, which has stores in Berkeley and San Rafael in Marin County. “We’re sort of turning the traditional drugstore on its head.”
Walking through an Elephant Pharmacy, one gets the initial impression that it is organized like any other pharmacy, with a food section, back portion for prescriptions and aisles filled with everything from detergent to vitamins. But that quickly changes when one notices the detergent is environmentally friendly, the medication area takes pet prescriptions and one aisle includes pink, green and yellow fliers on health and wellness classes.
“Elephant Pharmacy just seemed like a concept that would add to the spectrum of healthy lifestyles,” said Jack Murphy, executive vice chairman at the company and co-founder of Fresh Fields, a natural-foods retailer that was snatched up by Whole Foods. “I think because medicine will give us a quantity of life, it is in the quality of life that people are now looking.”
Hoping to capitalize on that trend is CVS, which has contributed both money and brain power to advancing Elephant’s industry presence. Jim Maritan, the CVS executive who sits on Elephant’s board, wouldn’t comment on his activity at the company, but CVS said its involvement in Elephant allows it to experiment in emerging areas of the industry.
“Elephant’s innovative combination of alternative therapies and conventional pharmacy services is a promising model that appeals to a patient population who are taking an increasingly proactive role in their health and well-being,” according to a CVS statement.
Emily Mendell, vice president of strategic affairs at the National Venture Capital Association, said CVS’s relationship with Elephant is “more a strategic than financial investment.”
“While there are many large corporations with venture-capital arms in the U.S. today, we do not often see pharmacy retailers — or any retailers for that matter — making venture-capital investments in young companies,” Ms. Mendell said. “This investment appears to be rather unique.”
Walgreen is one of those companies that hasn’t put venture capital into alternative pharmacy retailers, instead opting to diversify its products at existing stores. “That’s a niche market that we can serve in our regular stores, and we have been doing that,” said spokesman Michael Polzin. He said Walgreen isn’t looking to put money with smaller, more experimental pharmacy retailers.
But that sentiment hasn’t stopped others from putting money into Elephant Pharmacy, including the Bay Area Equity Fund, a $75 million venture-capital fund managed by J.P. Morgan that has contributed at least $2 million to Elephant Pharmacy during the company’s several rounds of fund raising. The fund aims to invest in companies that garner healthy returns and also benefit the area’s low- and moderate-income neighborhoods.
Nancy Pfund, managing director at J.P. Morgan and managing partner of the Bay Area Fund, said the fund invested in Elephant Pharmacy because the company is a training ground for the area’s alternative practitioners of yoga, acupuncture and nutrition. Ms. Pfund, who sits on the board of Elephant Pharmacy, said the Bay Area Equity Fund hasn’t provided recent financing for the company but remains active in its operations.
Indeed, Ms. Lentzsch, the CEO, said Elephant Pharmacy is now going out on its own to seek financing, rather than relying on others to help it raise funds. “We’re doing it on our own because we have people knocking on the door,” she said.
As for competition, executives at Elephant Pharmacy said they welcome, and expect, others to enter its space.
Already, the closely held Pharmaca, based in Boulder, Colo., has established itself as a rival to Elephant with its multiple stores in California and elsewhere along the West Coast. Then there are the likes of CVS, Walgreen and Whole Foods, which already has portions of its stores dedicated to products on Elephant’s shelves.
Elephant’s Mr. Murphy said there are few barriers preventing rivals from challenging his company, but he said Elephant will succeed “regardless of competition.”
Ms. Lentzsch said Elephant Pharmacy is planning to open three Bay Area stores during 2007, with others likely slated for southern California and possibly as far as Cambridge, Mass., a city that she said fits the company’s demographic target.
“We are so committed to the niche,” Ms. Lentzsch said. “We have people who count behind us, people who believe in us.
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