Shoppers Drug Mart’s pharmacist associate model a hidden jewel for Loblaw

Shoppers Drug Mart’s pharmacist associate model a hidden jewel for Loblaw

Armina Ligaya | 13/07/20 | Last Updated: 13/07/19 4:46 PM ET
If Loblaw Companies Ltd. successfully buys Shoppers Drug Mart, it will not only inherit the pharmacy retailer’s vast network of stores — particularly key locations in the hearts of Canada’s urban centres — it will also benefit from the advantages afforded by the owner-operators of those stores: pharmacists.

While pure-play food and drug retailers such as Metro and Rexall appear to have the most to lose in the impending nupitals of Loblaw and Shoppers Drug Mart, Monday’s $12.4-billion deal stands to challenge a far broader swath of retail companies — from Old Navy to Sears to Sephora — as the two Canadian retail giants begin stocking their strongest brands and categories in each other’s stores.The majority of Shoppers’ stores are operated under the so-called associate model, in which a pharmacist is licensed to operate a retail drug store using the brand’s trademarks.

This unique pharmacist-owned model has been successful for Canada’s largest pharmacy retailer, in part, because it puts a relatable name and face to the corporate brand, said Bobby Hagedorn, an equity analyst with St. Louis-based Edward Jones. This daily interaction gives the store owner key insights into the population they serve, he added.

“You’re not going to know the franchisee of the location of the grocery store that’s near you. But you are definitely going to know the pharmacist, if that’s where you go and that’s where you get your scripts … They’re basically the face of that store and that brand in the community.”

Loblaw, Canada’s largest grocery retailer, on Monday announced a $12.4-billion deal to buy Shoppers Drug Mart, which would form a mass-retailing powerhouse. The deal, which is subject to regulatory and shareholder approval, will see Loblaws add 1,242 Shoppers Drug Mart/Pharmaprix associate-owned stores to its network. Shoppers also licenses or owns 57 medical clinics and six luxury destinations, operating as Murale.

The news of the deal was welcomed by its associate owners, who “see the complementary nature” of the two retailers’ strategies, Shoppers chief executive Domenic Pilla told analysts on a conference call Thursday.

“Generally, the central office employees and the associates are very excited about the possibilities,” he said. “Their concern was around the support of the associate model and franchise model. We reassured them that that is something we are absolutely planning to continue.”

Under this model, Shoppers provides associates — who must be licensed pharmacists — with the capital and financial support to operate one of their stores without any initial investment. Shoppers also provides services, such as operational support and marketing, to help associates.

Associates are guaranteed a minimum level of earnings, at $120,000 annually, plus additional earnings depending on store performance, according to Shoppers’ website.

The average starting salary for a pharmacist in Canada is $90,000 to $100,000, but that has slipped by as much as $20,000 in urban centres where there are many available candidates, said Phil Emberley, director of pharmacy innovation at the Canadian Pharmacists Association.

Loblaw will now be able to leverage all the success that Shoppers has had over the years with this model

Licensing a Shoppers store is an attractive proposition for many pharmacists, one that avoids the hefty cost and risk involved in starting an independent pharmacy, said Mr. Emberley, himself a former Shoppers associate.

“It’s an option to owning your own business, one that for the most part carries less risk. At the same time, you have that autonomy,” he said. “As long as you can live with the corporate mandate, you can live within those parameters, you’re basically running your own show. And I think that’s something that’s really attractive to a lot of people.”

Meanwhile, independent pharmacies are “under tremendous pressure” due to government drug reforms regarding pricing of generic drugs, which have hurt pharmacies’ profitability, he added. Independent pharmacies are harder hit, as they don’t have the support of a wider network, or a large front of store selling other items to make up sales, he said.

Shoppers must be licensed pharmacists, and have some experience working at Shoppers, said Mr. Emberley. Employees can enroll in a training program to become an associate, he added.

The result is an engaged merchant who knows the area and community, a valuable advantage Loblaw can learn from and apply in their own stores, said Mr. Hagedorn.

“That generates customer loyalty and repeat visitors… Loblaw will now be able to leverage all the success that Shoppers has had over the years with this model,” he said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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