On July 15, it was announced that Loblaws, the largest grocery retailer in the country, would acquire Shoppers Drug Mart, the country’s biggest pharmacy chain. The deal between the two retail giants will cost the Toronto based company an estimated $12.4 billion. To give a frame of reference for the financial magnitude of this deal, last summer the Canadian oil and gas company Nexen was acquired by CNOOC Ltd. based in Beijing. This Loblaws deal is worth almost as much as that one, but unlike oil and gas companies which carry outrageous price tags, here we are dealing with two Canadian companies whose main interests are groceries and pharmaceuticals.
The deal will add 1242 Shoppers Drug Mart and Pharmaprix locations to the 22 banners the company already operates, which include: Extra Foods, NoFrills, Real Canadian Superstore, T&T Supermarket, Wholesale Club, Zehrs, Independent, ValuMart, Fortinos, Provigo, Maxi, SaveEasy, and Atlantic Superstore. Loblaws is not the only supermarket chain making moves in an attempt to compete with megastores such as Wal-Mart and Target, the latter of which just opened its doors in Canada in March of this year. Sobeys reached a deal with Safeway to buy more than 200 of its stores in Western Canada last month for $5.8 billion.
Shoppers Drug Mart stores will not be changing their name; instead they will be operating as a separate company while adding selected Loblaws products to its shelves. In recent year, Shoppers Drug Mart has been decreasing its reliance of sales of pharmaceuticals and focusing more on common items such as food and cosmetics. In 2012, the store reported that 51% of its sales came from non-pharmaceutical items. The deal with Loblaws should give the chain an opportunity to continue to diversify the products that they offer while maintaining the name of their stores. Consumers will now have the ability to find President’s Choice Products at Shoppers Drug Mart and Life brand products at Loblaws.
The takeover will also not result in any store closures or layoffs of Shoppers Drug Mart employees, as was stated last Monday at a press conference. Grocers all over the country are catching on to the fact that at this point it is foolish to try to follow a Wal-Mart retail model and instead are promoting a health and wellness model. For example Metro has expressed interest in a similar grocery-pharmaceutical partnership with Jean Coutu.
Part of the attraction for Loblaws in this deal was an opportunity to penetrate seemingly saturated urban markets in which a number of Shoppers Drug Mart locations exist. In these locations, constructing an enormous supermarket isn’t practical and instead, they hope to take advantage of the ability to have their products on display to urban residents who use Shoppers Drug Mart as their convenience store. This small store strategy differs from the company’s obvious strength of providing a one stop shopping experience but gives the two companies involved in the deal the opportunity to complement each other and build on their successes. Loblaws continues to diversify their company with the additions of banking (President’s Choice Financial), clothing (Joe Fresh), and discount grocery stores (NoFrills), and now pharmaceuticals. Let’s not forget that Maple Leaf Gardens became the chain’s most breathtaking superstore in November of 2011 when they finished converting the historic hockey landmark into an urban shopping experience unlike any that Toronto shoppers had seen before. With this landmark opening the company made it clear to Canada that they were willing to step outside the box in order to provide a new shopping experience.
The deal still needs the approval of a minimum of two-thirds of the votes cast by Shoppers Drug Mart shareholders at a special meeting expected to take place in September. The requirement of this approval is a product of the number of shares being issued as a result of the deal.
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