Inside This Issue - News
Loblaw-SDM aims to enhance customer experience
August 5th, 2013
by Alasdair McKichan
TORONTO – Executives at Loblaws and Shoppers Drug Mart see the union of their companies as enhancing their efficiency and their appeal to the consumer.
“This transformational partnership changes the retail landscape in Canada,” Loblaws executive chairman Galen Weston said. “With scale and capability we will be able to accelerate our momentum and strengthen our position in the increasingly competitive marketplace.
“The combination creates a compelling new blueprint for the future, positioning us to capitalize on important trends in society, from the emphasis on health, wellness and nutrition to the imperatives of value and convenience.”
Loblaws president Vicente Trius expanded on Weston’s remarks. “Our customer proposition is at the heart of this combination,” he said. “Together, we will be able to significantly enhance the customer experience by offering even greater assortments, service, value and convenience while preserving the unique shopping experiences that make both companies leaders in their respective segments."
SDM president and chief executive officer Domenic Pilla said: “We are delighted to partner with Loblaws to leverage our combined strengths. For our shareholders this transaction provides significant and immediate value as well as the ability to benefit from future upside by virtue of the continued ownership of shares in the combined company. For our associate-owners and employees, who are a valued part of the equation, it provides the opportunity to pursue rewarding careers as we grow together. And for our customers it provides more locations with an enhanced mix of products and offerings that contribute to the good health of Canadians."
The companies say the combination of the two companies is expected to yield cost synergies of $300 million (Canadian) by year three, with these synergies being phased in evenly over the three-year period. There will likely also be tactical and strategic advantages flowing from the arrangement that will be realized over a significantly longer period. Many of the short-term and long-tem opportunities will also carry risk.
The expected savings will come from such areas as logistics; economies in procurement, including higher-level rebates; economies in other central costs; and some back-office consolidation.
The addition of SDM’s stores also will significantly strengthen Loblaws’ position in urban centers. The SDM stores in English Canada and its Pharmaprix stores in Quebec have excellent penetration in Canada’s cities and other major urban areas.
These stores are particularly well represented in the downtown areas of major cities, where space is expensive and store footprints are relatively small. In contrast, Loblaws, though habitually strong in the suburbs of major cities, is less well represented in their cores.
This is an issue that has become more important in recent years as population density in the downtowns of most Canadian cities has intensified rapidly. In Toronto and Vancouver, for instance, the number of people per square kilometer in each city grew by 9% from 2006 to 2011.
Loblaws has been experimenting with a new format suitable to small urban locations, but the SDM relationship provides an opportunity to achieve rapid access to a desirable target market segment through SDM’s well-positioned stores. It is likely that many of SDM’s small convenience food sections in stores in those urban locations will be expanded by reducing or abandoning underperforming departments.
Weston pointed out that “with the urbanization of the Canadian market, small stores can offer a compelling combination of goods and services, and are a fantastic bolt-on for us and a really great advantage to the folks at Shoppers Drug Mart.”