The acquisition of Shoppers Drug Mart by Loblaw Cos. will benefit both companies, says SDM president Domenic Pilla.

Shoppers Drug Mart, Loblaw, acquisition, Domenic Pilla, Canadian drug chain, grocery, pharmacy, Presidentís Choice, Life brand vitamins, Health Watch NG, health care, electronic medical records, beauty merchandising, Murale, e-commerce

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Pilla: Canada to gain from SDM, Loblaw merger

June 2nd, 2014

TORONTO – The acquisition of Shoppers Drug Mart by Loblaw Cos. will benefit both companies, says SDM president Domenic Pilla.

The Canadian drug chain will bolster its food offerings with Loblaw’s grocery expertise and experience, while the supermarketer will enhance its health care offerings by tapping the drug chain’s pharmacy capabilities.

“It’s about complementarity,” Pilla says.

Canada as a whole should gain from the deal, he adds, because the combined entity will foster a convergence of health and nutrition. “It’s a huge opportunity, and it can have a much larger impact than either of us could have on our own on Canada’s health care system.”

Loblaw has pioneered the reduction of sodium and processed sugars from food as well as the elimination of additives, especially in private label products. Says Pilla, “It’s fun to be working with another company that is just as iconic and has made so much progress in its area of expertise.”

The nearly nine months it took for regulators to approve the purchase has allowed for extensive planning. One result is that SDM will add food this year, especially from Loblaw’s President’s Choice private label line. The brand’s well-known Decadent Chocolate Chip cookies already are selling well at the drug stores. SDM’s Life brand vitamins, meanwhile, have caught on at Loblaw.

“We were ready to go and pulled that trigger and it was executed brilliantly by both teams, and the response by the customers has been overwhelming,” says Pilla. “We were very pleased at the response of the customer to the brands in each other’s formats.”

One distinction between the retailers will be in pharmacy. Loblaw and SDM pharmacies will retain separate banners, although the chains will collaborate on programs. To that end Jeff Leger, who was SDM’s senior vice president of pharmaceutical partnerships, has been promoted to head of Loblaw pharmacies.

While Health Canada administrators trying to curb costs have targeted pharmacy reimbursements, the pricing of generics has been stabilized. “What we have now for the first time is a three-year national arrangement,” Pilla says. “That’s going to be very good for the ­industry.”

Also, five provinces allowed pharmacy reimbursements for flu shots last season, and three more will join them this year. Negotiations are ongoing with the two holdouts.
Alberta has taken the lead in granting pharmacists a wide range of prescribing rights, making it “a world leader in terms of expanding the scope of practice,” notes Pilla. “It’s a great model we’d like to see elsewhere.”

Already, other provinces are allowing pharmacist prescribing for minor ailments. Also, authorization for other inoculations besides flu shots is on the horizon.

“We’re quite encouraged by the new reimbursed services,” Pilla remarks, noting that some provinces have committed to reinvesting generics savings into expanding pharmacy practice. In New Brunswick, 30% of savings will go to expanded services, he points out. “That kind of target setting is very encouraging. That is the silver lining of the drug reform initiatives.”

SDM is responding to the trend by transforming its pharmacy business from a product-centric to patient-centered, service-oriented operation.

“We’ve been on that path,” Pilla says, noting that its foundation will be the chain’s relaunched Health Watch NG pharmacy system. “When we launch that in 2014 we think it will give us the functionality and capability to truly expand our new professional services and deliver them seamlessly and efficiently. Clearly we would like the governments to come along with us, but we made that decision regardless. Our pharmacies are going to be transformed.”

The transformation will include significantly greater use by pharmacies of electronic medical records, he notes, especially as doctors increasingly use the technology for disease state management. Already pharmacists have provided tremendous support to multidisciplinary family health care teams.

In the front end, SDM sees an opportunity to bring its market-leading beauty merchandising to Loblaw. It can offer capabilities in product innovation, store-level support and sourcing to grow Loblaw’s beauty business, says Pilla.

“We don’t see just taking share, but actually growing the categories. That’s what makes us excited. We’ve shown that our partnerships with vendors are not just about growing share. We’ve added incremental sales. We’ve exposed more Canadians to new products and product regimens.”

The latest beauty trends come out of cities, and Pilla notes that urbanization is reshaping Canada nationwide. SDM has a significant presence in urban markets, and the economies of scale it’s gaining from Loblaw are bringing its urban customers a new value proposition, he says.

The drug chain’s beauty advisers have won over consumers with unbiased service and personal relationships. The relationships have been enhanced with digital technology, Pilla says, noting that SDM’s upscale Murale beauty business is providing a laboratory for ­e-commerce.

Generally, he adds, SDM stands to benefit substantially from Loblaw’s e-commerce capability. “Becoming an omnichannel company where people can experience our brand across any platform that they wish to interact with will be an important part of our ­development.”

The overall relationship between the two chains will be mutually beneficial, he emphasizes. “We’re going to look at best practices across both organizations and help each other get better.”

The acquisition at heart is more about sales growth than cost cutting, he adds. “Long term, that’s by far the biggest synergy, which makes it exciting and engaging for employees.”