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Ownership, Management and Strategy

Following the creation of Alliance Boots, the next big change came in June 2007, when the company was bought by private equity firm, Kohlberg Kravis Roberts (KKR). The deal with the US firm went through one month before the first effects of the credit crunch were felt. KKR paid £11.1bn for Boots, which at the time of acquisition was £9bn in debt.

Change of ownership at Alliance Boots also meant change of management, with the removal of the company's chief executive and managing director. KKR installed three of their own people onto the board: Dominic Murphy, head of KKR healthcare and consumer products' team, Mattia Caprioli and Sergio D'Angelo. The rest of the senior management team comprised:

• Stefano Pessina - executive chairman
• George Fairweather - group finance director
• Marco Pagnini - group legal counsel and chief administrative officer
• Ornella Barra - wholesale and commercial affairs director
• Steve Duncan - executive chairman, health and beauty
• Stephen Lehane - group human resources and corporate affairs
• Ken Murphy - business transformation
• Alex Gourlay - managing director, Boots The Chemists

All these figures were members of Alliance Unichem, where Pessina was chief executive before its merger with Boots. None of Boots original pre-merger management remains.

The effects of the changed ownership were felt almost immediately in terms of financial performance:

• Earnings up 17% in 2007-8
• Trading profit up 20% to £854m
• Revenues up 6% to £17.8bn

KKR's strategy is to accelerate the development of the group and build a successful pharmacy-led healthcare and beauty group. Since the buyout the firm has invested over £400m on capital expenditure and acquisitions. It intends to match that investment each successive year, with the aim of growing its European market share and expanding into emerging markets.

In July 2008, signs of the seriousness with which Boots regarded its position emerged, with the announcement of a restructured marketing strategy, aimed at becoming more customer-focused. Reporting to the marketing director would be new directors of:

• Loyalty
• Customer relationship management
• Customer communications
• In-store marketing

Aiming to become a world-class, pharmacy-led health and beauty retailer, Boots also combined its trading and marketing teams, creating a new commercial function. Under the trading director is now a new Boots' 'brands and exclusives' team.

So why did Alliance Boots need such a re-organisation? Had it really lost sight of what its customers really wanted? Where's the evidence that other players were seizing market share from Boots? Read on in the section on The Competitive Threats to find out more.

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