Though no longer involved in management, Murray Koffler, Shoppers Drug Mart’s (SDM’s) founder and a major shareholder, usually makes a cameo appearance from the floor at the company’s annual meeting. This year was no exception.


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Inside This Issue - News

Customer-first attitude pays off for SDM

June 8th, 2009
by Alasdair McKichan

TORONTO – Though no longer involved in management, Murray Koffler, Shoppers Drug Mart’s (SDM’s) founder and a major shareholder, usually makes a cameo appearance from the floor at the company’s annual meeting. This year was no exception.

At the conclusion of the event, in which president and chief executive officer Jürgen Schreiber reported another record-breaking year, Koffler rose to congratulate him, SDM’s management and the associates who own and run the stores for the excellent results and their achievement in perpetuating and enhancing the corporate culture that drives much of SDM’s success.

Koffler noted that he had been involved in the start-up of another Toronto-based company that had gone on to unusual success: Four Seasons Hotels, known for its dedication to customer satisfaction and the caring, involved attitude of its staff, from the chambermaids to the managers of its luxurious properties.

Koffler’s former colleague and partner in that enterprise, Isadore Sharp, had just published a book describing how the organization and its people were imbued with a customer-first attitude. Koffler said he found that the SDM organization today follows virtually every precept on great customer service that his friend laid out in his book.

In the fiscal year just concluded, which covered 53 weeks, the drug chain’s sales rose 11.1% to $9.4 billion (Canadian). Comparable-store sales (excluding tobacco, which is being phased out) grew 5.4%. Prescription sales were up 5.4%, and front-end sales climbed 4.3%. EBITDA (earnings before interest, taxation, depreciation and amortization) increased 13.5% to $1.1 billion, and EBITDA margin rose 24 basis points to 11.54%. Net earnings came in at $565 million, up 15.2%.

Though consumers’ reactions to the deteriorating economic situation were not as severe in Canada as in the United States, and became evident somewhat later, most Canadian retailers of discretionary merchandise had a dismal 2008 fourth quarter, due to the newly cautious consumer and unusually severe weather in December. That made SDM’s performance all the more commendable.

Schreiber noted that although surveys showed that consumers made 5% to 7% fewer shopping trips during the recession, SDM did not experience that effect. In fact, he said, the number of transactions per store increased and the average basket size was up significantly.

Part of that success, he explained, resulted from the tailoring of SDM’s promotional strategy to the times. The company has shifted its emphasis to larger, more meaningful promotions instead of frequent, smaller events. For example, a private label promotion awarded 20 times the usual quota of loyalty points for purchases, and a Mother’s Day weekend special offered customers a $10 restaurant gift card on purchases of over $50.

Schreiber noted with satisfaction that the strongest percentage of SDM’s growth came in Quebec, where the company’s penetration — under the Pharmaprix banner — is lowest. SDM has only one store for every 49,000 residents in Quebec, whereas it has 23,000 residents per store in Ontario.

Growth also was solid in British Columbia, where SDM has been playing catch-up on expansion. The retailer has about 36,000 residents per store in that province.

SDM’s fiscal 2008 capital expenditures of $766 million allowed it to open or acquire 142 new drug stores, 37 of which were relocations, while 14 stores were expanded and 71 renovated. The company also opened two new home health care stores and expanded another. In the fall the retailer opened its first two Murale luxury beauty stores, one in an Ottawa suburb and the other in downtown Montreal. Total retail square footage increased 11.6% to 10.9 million square feet.

Schreiber said the success of the initial Shoppers Simply Pharmacy units, introduced in late 2007, convinced the company to open more of those units, and the retailer had 30 up and running by the end of 2008. At around 1,000 square feet, the stores are located in or near medical buildings and offer over-the-counter products and vitamins in addition to the dispensary. He noted that the Shoppers Simply Pharmacy outlets have proved popular with customers who value ready access to a pharmacy as they emerge from a medical consultation.

Similarly, SDM’s experience with the first Murale stores has encouraged management to roll out more units, despite the recession, according to Schreiber. Five locations are planned for the current year, with the first Toronto store due to open in the third quarter.

When the first Murale store opened in Ottawa, Schreiber acknowledged that the suburban location was intended to be a test of whether this sophisticated concept could thrive in an essentially everyday environment. The answer seems to be: not easily. The excellent results from the downtown Montreal unit are in contrast to the more difficult experience in suburban Ottawa.

Schreiber made it clear that the Murale concept was not designed to be a large-scale operation. “Don’t expect a chain of 200 units,” he said.

Also in 2008, SDM acquired the assets of the Health Access division of Calea Ltd. and its wholly owned subsidiary, Information Healthcare Marketing Corp. Those businesses, which provide specialty drug distribution and patient support services, have been absorbed into a new SDM operating unit, Shoppers Specialty Health Network.

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