Shoppers staff ‘excited’ about merger
$12.4-billion Loblaw deal comes during competitive retail year in Canada
TORONTO — The workforce at Shoppers Drug Mart Corp. responded with enthusiasm to a proposed $12.4-billion takeover offer from grocery giant Loblaw Cos. Ltd., the pharmacy chain’s executives said Thursday, despite voicing some concerns that the company’s business model would change.
“They see the complementary nature” of the two retailers’ strategies, chief executive Domenic Pilla told analysts on a conference call to discuss improved second-quarter results at the country’s biggest pharmacy chain.
“Generally, the central office employees and the associates are very excited about the possibilities,” he added, when asked about employee reaction in the wake of a town-hall meeting Wednesday to discuss the Loblaw merger.
“Their concern was around the support of the associate model,” Pilla added, which sees individual pharmacist franchisees own their own stores. “We reassured them that that is something we are absolutely planning to continue.”
Given the sensitive nature of the Loblaw deal, which is expected to take about seven months to close and is subject to a review from the Competition Bureau, the company
“The consumer continues to be very value-conscious.” SHOPPERS CEO DOMENIC PILLA
was not in a position to disclose any further information, executives said.
The chains are gambling they can capitalize on each other’s strong suits — strong private label programs, loyalty card programs and convenient urban retail space — in what has become one of the most competitive years in Canadian retail history with the entry of Target into the market.
The quarter ending June 15, which banked a solid performance in Shoppers’ beauty and food businesses, was a highly competitive one given the added square footage coming onto the market, Pilla told analysts. “Clearly, the consumer continues to be very value-conscious and price-sensitive,” he said. “Our proportion of sales on promotion continues to increase.”
Prices have been more competitive, he added, “as an unintended result of the rivalry that has been set up in particular categories, and that has affected our margin.”
Nevertheless, the retailer beat mean analyst expectations from Thomson Reuters by a penny, with profit rising 5.8 per cent to 73 cents in the period, or $147 million, compared with 69 cents ($145 million) in the same period last year.
Sales increased 3.3 per cent to $2.5 billion and same-store sales, a key measure of retail health calculating volume at outlets open for more than a year, rose 1.3 per cent in its pharmacy and 2.6 per cent in the front of the store.
The retailer, which has 1,367 stores across the country, said a combination of added pharmacy traffic and concurrent promotional marketing campaigns drove an increase in customer transactions and higher average basket size at the checkout.
The upside from merchandise sales growth was offset in part by downward pressure on margins in pharmacy, largely due to provincial drug reform measures.
The average retail value of prescriptions declined 4.2 per cent during the second quarter of 2013, largely due to provincial government reductions in generic prescription reimbursement rates.
This year, nine provinces and the three territories have capped the prices of widely prescribed generic drugs to 18 per cent of their branded equivalents from a former level of 25 per cent to 40 per cent.