Chain's president is bullish on opportunities with Loblaw

TORONTO — Interviewed in his office some three months into his mandate as president of Shoppers Drug Mart (SDM), Mike Motz exuded the energy and enthusiasm that his colleagues say has typified his approach to his whole career in retail management. He was clearly excited about the opportunities that SDM’s acquisition by Loblaw Cos. has opened up for both the acquired and the acquiring company.

Mike Motz

Motz has been with SDM since 2003, holding down a variety of senior management positions. Immediately before his appointment to president, he was executive vice president and chief merchandising officer with responsibility for marketing, merchandising, analytics, global procurement, supply chain and logistics.

When he handed over his responsibilities to Motz in January, former president Domenic Pilla was quoted as saying he had never worked with a more gifted merchant than Motz. Quite a compliment, coming from such a seasoned executive as Pilla who, before being recruited by SDM, had been chief executive officer of McKesson Canada.

When the takeover was announced, there was considerable speculation whether it would be welcomed by the SDM associate-owners who own and operate the stores. Close cooperation between central office and the associate-owners has, as Motz emphasized, been a key component of SDM’s success over its more than half a century of ­operation.

Motz said the reaction of the associate-owners has been overwhelmingly positive. “They were very pleased that the acquiring company was Canadian, which minimized cultural issues. They were also pleased that the acquirer was Loblaw, with its great strength in the Canadian market and its strong ­leadership.

“They could see the opportunities in cross-marketing of products and improved gross margin on some products, like food. The two companies had complementary strengths: pharmacy and beauty, obviously, for Shoppers, and food — particularly its President’s Choice label — in the case of Loblaw. The associate-owners see this as a win-win situation, and they are bullish about the future.”

No doubt another, if secondary, influence on the positive reaction of the associate-owners was the fact that the value of their respective personal holdings in SDM’s stock increased by some 24% on the day of the announcement of Loblaw’s bid.

Not unexpectedly, a major focus for Motz in these early months has been working to achieve the efficiencies and savings that were predicted by Galen Weston, now Loblaw’s executive chairman and president, when the $12.4 billion (Canadian) takeover of SDM was announced last July.

“In the first two years of this process our priority has to be focused on aligning the departments that really should be central services,” Motz said.

Shoppers Drug Mart is testing a fresh food concept at six stores in Toronto.

He identified target departments as legal, human resources, finance, real estate and logistics. “We are going through all that with a keen eye on not disrupting the business as we go about it. Each function has to be handled at a different pace. If you look at the complexity of the logistics infrastructure between the two organizations, for instance, it is easy to say we brought the two together, but they are still running almost as two separate entities.

“Over time, we will look at the opportunities and synergies that present themselves, but at present, while we have common leadership, we haven’t done anything so far as actual integration of logistics is ­concerned.”

The merchandising and marketing functions remain separate in the two companies. “Retail is retail, but the two companies have different programs, different consumer propositions, in their merchandising and marketing functions,” Motz said. “These functions remain divisional. Procurement is also still divisional at this time.”

However, both companies see great opportunity in exploiting each other’s strong private brands. “When being acquired by Loblaw you are blessed to be getting the No. 1 private brand in Canada,” Motz said. “As we looked at the brand portfolios of the two organizations, we saw the opportunities for a positive rationalization. Loblaw has President’s Choice, No Name and Joe Fresh. We have the No. 1 health brand in Life. We have taken our Simply Food brand and replaced it with President’s Choice or, if the product was in a price-sensitive category, where our brand was Every Day Market, we replaced it with No Name.”

Motz noted that with the introduction of the Loblaw brands and the realignment of the labels, SDM is seeing a significant lift in its private brand sales. The new alignment is being received well by the ­consumer.

SDM is also experimenting with a new food concept — an enlarged food department with a small but convenient representation of fresh departments. It has been testing consumer reaction for some months with six stores in Toronto. For these stores it has not given coverage to the concept in its flyer and did not make any special announcement of the test’s beginning, relying on walk-in traffic for sales.

The company is taking a different approach to the nine stores serving the Regina, Saskatchewan, market. Those stores exposed the public to the concept with a soft launch earlier this month. A hard opening is scheduled for next month. In the Regina test the company will see if it is more advantageous to stimulate sales with high/low promotions in the flyer or to go with everyday prices.

Shoppers Drug Mart’s upscale Beauty Boutiques boast a range of premium brands.

It is still too early to draw firm conclusions from the Toronto test, but so far the results have been very encouraging, said Motz. He pointed out that Toronto has many areas of high-density population where the residents are single or time-pressed young parents who value the convenience that the enlarged food departments ­offer.

Motz emphasized that the company is by no means aiming at a full-service food proposition. The department will always be catering to fill-in shopping — the customer who needs a couple of apples or lettuce for a salad. The selection will include some fresh meat, not just frozen, but when it is offering beef, for example, it will not be a family-size roast but rather a serving for two — complete with cooking instructions.

In its current larger stores the food departments run to some 3,500 square feet. The enlarged departments will be between 4,500 and 5,000 square feet.

Motz emphasized how enthusiastically SDM pharmacists are embracing the expanded services they are able to offer as a result of the introduction of enabling legislation, province by province. “We are really trying to focus in on patient care services,” he stressed. “Our pharmacists see how they can help make the health system far more efficient. We see how we can free up capacity in the health system. Pharmacists are well positioned to do that. The system now in force in Alberta is where we want every province to be.

“This last winter we had a fantastic flu season. Three years ago when pharmacists were authorized to administer injections, we put a real focus on the service. This winter we administered well over 880,000 flu shots.”

“In pharmacy,” Motz noted, “our focus is currently on Shoppers. Loblaw has its own strong pharmacy business, but as we look at developing programs at Shoppers we want to make sure that if there is anything in them that is applicable to the Lobaw operation, we shall certainly share the information with them.”

The introduction of the new services requires close interaction with provincial departments of health and with the provincial pharmacy associations and the national Canadian Pharmacy Association well as with the representative bodies of the other health professionals. SDM executive vice president of pharmacy and health care Dorian Lo and his staff have been very active in these exchanges, as have their counterparts at Loblaw. It is helpful that Loblaw has a large and experienced government relations department whose resources can be called on as necessary in these ongoing discussions and negotiations.

Both Loblaw and SDM have a substantial number of locations where doctors’ offices are located right beside the pharmacies. Motz said that neither SDM nor Loblaw has attempted to develop mini-clinics within the stores, though he did not rule out that concept for the future. Currently both SDM and Loblaw are giving priority to expanding the number of medical practices that elect to locate close to a SDM or Loblaw store.

Motz has expectations that with the continual and progressive aging of Canada’s population, SDM home health care represents an opportunity for exceptional growth. “We have been into the home health care area in a serious way for some 20 years now,” he said. “We continue to work with the home health care team, trying to integrate key home health care categories within the regular stores. Canadian society is aging — none of us is getting younger, but we are getting more active as we age. We are getting used to hearing stories of the 50-year-old suffering a shoulder separation as a result of playing hockey.”

Motz tied in the integration of home health care and retail. “When you take a look at some of the key categories that home health care has on the pharmacy side, not just the over-the-counter side, but the pharmacy side where you have products for the relief of diabetes, for example, you see a place for those products in the regular stores,” Motz said. “You have to believe the business is going to continue to grow. So we are focused on better integrating base retail and the home health care sides of the business.”

Loblaw is not at present into the home health care business, and while Motz says the two companies have discussed possible opportunities in that sector, there has been no action on the issue. “In any event,” said Motz, “we have enough to do with home health in the Shoppers side to keep us busy for some time.”

Beauty has been a particular strength for SDM. It now has 367 of its upscale Beauty Boutiques, which boast a broad selection of premium brands. “We are focused on continuing to evolve our beauty brand and our beauty image,” said Motz. “We have recently opened four of our new Enhanced Beauty Boutiques, and we are opening another two of these stores this year.

“We have also recently opened two of our Enhanced Triple A Beauty Boutiques — or Triple A Plus, as we call them. We are playing with that concept to see if we can evolve it further in our basic business.”

It is unlikely that Loblaw will wish to emulate SDM’s prestige beauty concept, though SDM has looked at the possibility of adding the Joe Fresh beauty line to its selection and may do so in the near future. Motz explained that Joe Fresh is, as he expressed it, “a high-color fashion brand” aimed at a younger demographic.

“Within the beauty category Shoppers has a lot of opportunity, and we are going to continue to focus on delivering beauty to Canadian consumers,” said Motz.

Motz concluded the interview with a look at the future. “If we sit back and look at 2015, it’s a year of tremendous opportunity as we continue to integrate the private brands, particularly President’s Choice, into our organization and enhance the beauty side of the business. Also, as we continue work with provincial governments and provincial pharmacy associations, aiming at extending scope of practice, the results should be good for both patients and pharmacy.

“Our opportunity bucket is more plentiful than our risk bucket. It’s a pretty big agenda, but an exciting one.”