Crain's NY Business Magazine-September, 2002

QUEENS DRUG KINGPIN
CEO adds flash to pharmacy shipping empire

Queens pharmacy distributor Kinray Inc. displays more star-studded photographs than a stack of supermarket tabloids. Hanging on the walls of the lobby and hallways, the photos show startled-looking celebs, from Michael J. Fox to Mikhail Gorbachev, caught in the angular embrace of Kinray Chief Executive Stewart Rahr. Cheesy self-promotion on Mr. Rahr’s part? No doubt. But there’s substance behind the man’s image of himself. Mr. Rahr has built the largest private pharmaceutical distributorship in the country, thriving in a brutally competitive, fast-consolidating industry. Kinray, which is based in Whitestone, has grown to be among the dozen or so biggest private companies in the New York area. “Stewart is no scholar, but he is a genius,” says friend Doug Crawford. “He is one of those lucky people who discovered early in life what his real talent was: people. He can manage people, energize people and excite people. He can get people to follow him to hell and back.” Mr. Rahr took over from his father 33 years ago, when Kinray had 10 employees and $1 million in sales. Today, the company has 700 employees, $2.5 billion in projected sales, and revenues that have been growing every year in double-digit percentages.

Kinray has driven much of its own growth, by picking up customers and employees from other wholesalers that had failed. Despite the shrinking opportunities in the market—consolidation has weeded out all but a few companies— Mr. Rahr vows his firm can still get bigger. He’ll just grab business from the troika of distributors that together have more than 90% of the market: McKesson Corp., AmerisourceBergen Corp. and Cardinal Health Inc. “My prediction is that in three to five years, there will be only two public companies,” Mr. Rahr says. “I will still be around to pick up the pieces.” He has more than hubris to back up that statement. “The proof is in the pudding,” says friend, Kinray’s health insurance broker, David Sterling, who’s seen the company grow its revenues 20-fold over the past 20 years. “I have never picked my jaw off the floor.” Pharmacists in Kinray’s seven-state region say the company fills orders more accurately, more personably and often less expensively than its competitors. The industry average for annual inventory turnover—a ratio that describes how quickly a distributor moves its inventory—is 7.7. Kinray demolishes that rate with a turnover ratio of 16, says Mr. Rahr. That gives the company a huge advantage because it doesn’t have to use as much money to finance its inventory. It also helps that he requires all his customers to pay on time.

Conveying wonder
Mr. Rahr doesn’t try to hide a kid-like awe as he bends over one of the hurtling conveyors. Precise allotments of pharmaceutical packages slide on every few feet. “Can you believe that ?” he asks. “Isn’t that amazing?” The 400,000-square-foot operation cranks out everything from candy to cancer drugs, an average of $1.25 million worth per hour. Mr. Rahr greets an employee with a slick, “How are you sweetheart?” The consummate schmoozer uses his chosen term of endearment for men and women. “Great, great great,” he says in reply to the reciprocal query. Nasally he stretches out the “r” in “great,” sounding like Richard Lewis doing a Tony the Tiger impression. “I would cut my heart out for that man,” says Lenny Romano, Kinray’s Vice President of Operations. Mr. Rahr bought Mr. Romano a condo after he lost his house in a painful and expensive divorce. Mr. Sterling, who is Chief Executive of Sterling & Sterling, an insurance brokerage with $200 million in annual sales, says he has studied Mr. Rahr ever since he first sold health insurance to Kinray. Mr. Rahr, he concludes, has a motivational purpose for everything he does, even all the photos he puts on display: “All of that publicity stuff has to do with helping everybody on the team understand how they are gaining on the competition and winning.” For his part, Mr. Rahr, who has been married for 33 years and has two children, denies having any business purpose in mind. “That’s just what I like to do. I successfully raised my family, and now this company is my family.”

Wrong man to anger
Maybe it’s an instinct. Mr. Rahr was the captain of the baseball and basketball team at Brooklyn Poly Prep. At summer camp, he won a team straight line competition with his wits—and by breaking the rules. Using a rope, young Mr. Rahr had everyone stand with their toe’s on the rope, then removed it before any of the judges saw it. The straight-line formed by the team aced the competition. Mr. Rahr brought the same driving spirit to the business world, as two Texas business men can attest. In 1999, he lost $12 million when a Texas firm in which he invested, Continental Investment Corp., filed for bankruptcy. The same year, he brought a civil case against the men running the firm. He felt they had wronged him by creating an elaborate illusion that Continental could make money by turning a rock quarry into a landfill. The suit resulted in a $200 million jury award, as well as criminal grand jury indictments of R.D. “Dick” Sterritt Sr. of Garland, Texas, and his son, for securities fraud, tax fraud and money laundering. “He pursued them relentlessly,” Mick Mickelson, the attorney for 70-year-old Dick Sterritt, told the Dallas Morning News in July. “This was the wrong man to anger. I’ve never seen anything like it.” Even though he acknowledges that he may not collect a dime of the jury award from the defunct company, Mr. Rahr is well pleased. “Now they’ll never hurt anyone again,” he says. “They ruined plenty of lives.” He’s not likely to need money from the settlement. Kinray is debt free, and Crain’s analysis of its revenues and industry margins puts the company’s profits at about $50 million a year. Mr. Rahr indulges in few of the trappings of wealth, say his friends: He drives a jeep and has worn the same watch for 30 years.

In his spare time, Mr. Rahr makes grand gestures. On the anniversary of Sept. 11, he had Police close off the block in front of his plant, and he presented $100,000 in donations from independent pharmacies, Kinray employees and others, to help the families of four Queens firefighters and police officers who had died. Hundreds of people including a Congressman and the Queens Borough President attended the event, which took Mr. Rahr only six days to pull together. Now Mr. Rahr is busy planning a charity golf tournament in his father’s memory at one of Donald Trump’s golf courses. This year’s inaugural tourney will be low-key. But count on some celebrities to attend Mr. Rahr’s event next year, maybe to get their pictures taken with him.