Giant Food and Elensys: Looking out for Customers or Gross Privacy Invasions?

Case Study for Chapter 13

GIANT FOOD AND ELENSYS: Looking Out for Customers or Gross Privacy Invasions?

Introduction1

Russell B. Fair, Vice President of Pharmacy Operations for Giant Food Inc., was walking his dog early on a Sunday morning in February. As was his custom, he had brought the newspaper with him to read. When he unfolded the front section of the Washington Post, the headline leaped out at him: “Prescription Sales, Privacy Fears; CVS, Giant Share Customer Records with Drug Marketing Firm.” The story began: “Using technology in a new way to market drugs, CVS Corp. and Giant Food Inc. are sending confidential prescription information to a Massachusetts company that tracks customers who don’t refill prescriptions, a practice that some experts say raises new questions about medical privacy. The company, a computer database marketing specialist, uses the data to send personalized letters—written on pharmacy letterhead and sometimes paid for by drug manufacturers—that either remind customers to keep taking their medicine or pitch new products that will treat the customer’s ailment” [O’Harrow, 1998].

The article quoted a noted physician, “It’s a gross invasion . . . Do you want the great computer in the sky to have a list of every drug you take . . . all without your permission?”

“This is trouble,” Fair thought to himself as he folded up the newspaper and headed for home. Within a few hours, he began receiving phone calls from the supervisors in the stores who reported they were receiving many complaints from irate customers. Fair knew immediately that Giant had a problem with the fledgling alliance Giant’s pharmacy established with Elensys Care Services, Inc. to run a patient education and prescription drug compliance program. When Fair reached Giant’s CEO at home and explained the situation, the CEO asked him, “What do you want to do?”

The Companies

Giant Food, Inc.

In February 1936, N.M. Cohen and Samuel Lehrman opened the first Giant food store on Georgia Avenue in Washington, D.C. The store was based on a novel concept for the times: a large self-service store that could offer lower prices to consumers by substituting high volume for high markups. As of 2005, Giant operated 203 supermarkets including 174 full-service pharmacies in Virginia, Maryland, the District of Columbia, Delaware, and New Jersey. The Delaware and New Jersey stores operated under the name Super G. Giant also operated two large distribution centers, a bakery, a dairy processing plant, an ice cube processing plant, as well as a soda bottling plant, all in suburban Maryland. The company extensive private label line included as many as 9,000 products carrying the Super G label.2 Giant was the market leader in the Washington metropolitan area.

Giant’s reputation is a family business with a strong history of service to the community and innovation. In the late 1980s, Giant was the first supermarket chain to install front-end scanning in all of its stores, a feat which as of December 1991 had been duplicated by only a few others.3 In 1970 it was one of the first food retailers to hire a consumer advocate, former Presidential advisor Esther Peterson. Giant’s current Vice President of Consumer Affairs, Odonna Mathews was a familiar figure from Giant’s newspaper and television ads, in-store promotions and educational materials. Giant contributed more than $6 million annually in cash, goods and services to support charitable and community organizations in the markets it served.4

In 1964, N.M. Cohen, one of the founders, turned the reins of the business over to his son Izzy, who served on the Board of Directors since its founding. Izzy Cohen served as chairman, president, and CEO until 1992 when he tapped Pete L. Manos to serve in the role of company president. Izzy Cohen died on November 22, 1995. Cohen’s commitment to the customer—“There is nothing too good for a Giant customer”—permeated Giant’s corporate culture. Cohen’s guiding principles endures today: quality, value, and especially service in a warm and friendly atmosphere.5

In October 1998, Royal Ahold NV, a Dutch grocery giant, completed a $2.7 billion cash purchase of Giant. Giant’s stock was delisted on the American Stock Exchange on October 30. Pete L. Manos, Izzy Cohen’s successor as Giant’s Chairman and CEO, announced his retirement after four decades with the firm. In 2003, Royal Ahold announced it would merge Giant and its corporate sibling, Stop & Shop Supermarket Co., consolidating the corporate offices at Stop & Shop’s headquarters in Massachusetts.

Table 13.1. Elensys Core Values

Elensys Care Services, Inc.

Elensys, located in Burlington, Massachusetts, was founded in late 1993 by Dan Rubin and Mike Evanisko. Evanisko was an executive with a management consulting firm. Rubin was also a management consultant with extensive experience in the pharmaceutical industry. Based on his experience, he saw an opportunity to address the health care problem of prescription noncompliance, primarily with chronic conditions such as hypertension (high blood pressure), asthma, diabetes, and high cholesterol. Rubin knew that more than half of all patients on these types of medications stopped taking their prescriptions prematurely.

The Elensys programs focused on the development and management of patient compliance programs that educated patients about their medications and reminded patients to refill their prescriptions. The services Elensys offered to its customers, retail pharmacies, included compliance program strategy and planning, communications design, program implementation and performance analysis to ensure maximum program impact. All of Elensys’ programs were designed to provide clear therapeutic or economic benefits for patients as their core values illustrate.6

Better compliance potentially benefited everyone. For patients, it meant better health. For pharmacies and pharmaceutical companies, it meant increased revenues. Pharmaceutical manufacturers often earned very high gross margins on branded products. These companies made significant sales and marketing investments, typically focused on inducing doctors to write prescriptions for their products. For these firms, non-compliance resulted in billions of dollars in lost revenues. Retail pharmacies would increase their revenues through better compliance due to increased prescription refills plus whatever additional purchases their customers made in the stores with each store visit. As a result of managed care, gross margins in the retail pharmacy industry had declined from 35% to 17–20%. The health care system in general and the managed care system in particular would also benefit through reduced costs that resulted from better health of the public. The question was who should pay the costs of running compliance programs?