The Canadian retail landscape was transformed today, with this mornings’ surprise announcement that Loblaws is acquring Shopper’s Drug Mart. Pending Industry Canada and Shopper’s shareholders’ approval.
Brilliant? Loblaws realized the challenge of continuing to compete within a food segment that delivers single digit margins. And that’s before Target rolls out its stores nationally. Loblaws tried electronics in its general merchandise section, but is essentially a non-player at this point. The Home section expanded then contracted to a more margin-friendly shelf and retail space within its various banners.
Then Loblaws turned its focus to the beauty and drug segments, where a retailer can enjoy 35+% margins, and that’s not including private label brands. Presto, Joe Fresh appeared in beauty, extending the brand beyond the apparel that captured Canadians imagination and share of wallet.
This is where the focus comes in. The drug segment is a different beast altogether. Drug and new supplement/vitamin safety regulations make this a costlier segment within which to create and establish a private label brand. True, margins can mirror the beauty segment, but beauty doesn’t bear potential recall or expiry dates costs that can quickly rise to the millions of dollars.
Besides, why go to all that trouble if you can purchase an established brand, with national awareness, loyalty, longevity and a multitude of brand extension possibilities.
Life, Shopper’s Drug Mart’s private label, is the long-term focus. As are the Shopper’s Optimum Loyalty Members, the prescription drug customer base and the neighbourhood store format, which can serve as a new distribution channel for the President’s Choice Healthy Menu, Joe Fesh beauty products and a myriad of other possibilities depending on where they choose to invest in next, within the realm of organic foods or natural supplements.
The Life brand can be carried across all Loblaws grocery banners, taking shelf space and sales from the lesser or even primary brands on their shelves today, such as Webber, Swiss, Jamieson and Quest.
I can also see Loblaws completely reImagining and expanding the underutilized Shopper’s Home Health stores and programs. Mostly high margin, mass-produced items brought to you by……your neighbourhood Life representative? Need an adjustment to your wheelchair or your remote for your lift chair not working, they’ll be happy to send you a Life representative to your home.
By the way, that customer base currently served by Shopper’s DrugMart happens to be a segment underrepresented at Loblaws banners. Seniors, or those 55 and over, prefer the smaller, neighbourhood stores where location, service and accessibility are important. With the pending purchase, Loblaws could easily carry that segment as well if you, say, add in free home delivery of drugs and food to a growing aging demographic.
Could you also see a future where your pharmacist plays a bigger role in healthcare, working more closely with family health teams and hospitals in dispensing, monitoring and adapting your prescription needs accordingly? What about national Life flu prevention clinics, Life weight loss or diabetes centers, or working with the federal and provincial government’s pandemic flu crisis teams?
Loblaws understands with this purchase, that future public monies will be diverted from reactive health spending by publicly-funded healthcare agencies, to preventative healthcare investments by Canadians and government agencies alike. Life is perfectly positioned to be a major contributor to that space, and to Loblaws bottom line.
Life, President’s Choice, No Name, Joe Fresh. In 30 years these could all be recognized as iconic Canadian brands that shook the retail landscape, if Loblaws is able to extend these brands beyond the practical into the experiential and aspirational spaces in consumer goods and services.
Notice we haven’t even touched upon financial services.
Life just refreshed Joe Fresh.