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Fight for pharmacy fierce in Canada

By Susan Thorne

The pharmacy has become the latest retail marketing battleground in Canada, as drugstores square off against new players who are adding prescription drug service to their battle plan for drawing customers.

"The whole industry is beginning to change in its history, dynamics and geography," said Arthur Konviser, senior vice president, public relations, for Shoppers Drug Mart, Willowdale, Ontario. With 819 stores nationwide, the firm is Canada's largest drug-store chain.

Several trends have recently transformed the pharmacy environment, according to Mr. Konviser. The growing participation of mass marketers and food stores is prompting aggressive marketing toward the pharmacy customer, he said. In addition, the shrinkage of health care budgets, which has reduced drug coverage, and the consolidation of drug-store operations in the hands of fewer companies are transforming the way Canadian drug stores must do business, Mr. Konviser said.

Shoppers Drug Mart itself had much to do with reducing the number of players through its acquisitions of the 135-store Saskatchewan-based Big V company in February 1996, and the Prairie-based Pender's and Bi-Rite chains in the early and mid '90s.

New entrants from the United States such as Wal-Mart Stores have joined mail-order drug retailers and food stores such as A&P in an intensifying rivalry, and these nontraditional players are expanding rapidly. Zellers of Montreal, which had 25 pharmacies in its discount stores in 1984, now has 178 pharmacies and will open another 60 this year, with an eventual target of 300. Seven Hudson's Bay Co. department stores have pharmacies at present, and the number will grow. The Toronto-based Loblaws Cos. Ltd., which operates grocery and discount stores under various banners (Loblaws, Fortino's, Value Mart, Your Independent Grocer, Supercenter, No Frills and Zehr's) began putting more pharmacies into its stores three years ago and now has them in around one-third of the total, with further expansion planned.

Medi-Trust, Canada's only mail-order prescription company, was founded in 1992 and has a steadily growing corporate clientele numbering more than 1,500 businesses. Most of the 120 Woolco stores purchased by Wal-Mart for its entry into Canada had pharmacies. These departments have been one of its strongest-performing areas, said Edward Gould, Wal-Mart's corporate spokesman.

These players have discovered that a pharmacy attracts customers and keeps them longer in the store, while adding to their stores' image as one-stop shopping destinations.

"It's a small but strategic department -- very important for enhancing profit overall," said Mr. Gould. While the pharmacy's contribution to Wal-Mart's overall revenues is small, professional service is one of the things customers want, he explained.

Pharmacy service was a natural extension of Zellers' offerings, according to Bob Seibel, director of pharmacies for the Hudson's Bay Co., Toronto.

"We sell more HBA [health and beauty aids] than most drug stores," he said, adding that his company also saw more than $100 million in over-the-counter drug sales last year.

Rivals are using a variety of strategies to increase market share. The latest focus for competition is on the dispensing fee charged each time a prescription is filled, which can be in excess of $10 in many cases. Dispensing fees are an especially hot button in Ontario, where they must be posted by law in the store. This makes it easy for shoppers to make comparisons among retailers.

Some pharmacies are lowering their fees to the break-even point in an effort to attract customers. Wal-Mart Canada and Zellers have adopted a policy of matching the lowest dispensing fee in any market area, and have charged less than $2 in some cases. The Jean Coutu Group, Montreal, which has 90% of its 260 drug stores in Quebec, has lowered its fees in some areas to remain competitive. The average fee for Loblaws' pharmacies is $4. Medi-Trust charges $5 across the board for prescription dispensing, and will provide longer-term supplies of some drugs for that fee, said Norman Paul, its president.

The lowered fees are hurting some pharmacies. François Coutu, president of the Jean Coutu Group, pointed out that profit margins are being squeezed because the government-controlled cost of prescription medications is going up while dispensing fees are being pushed downward. As a consequence, some of his drug stores located in shopping centers find it difficult to meet percentage rent payments, he said, and have been forced to renegotiate leases with their landlords.

"It will get worse," Mr. Coutu predicted.

Some pharmacy competitors are also trying to best each other over user fees for filling prescriptions, which were instituted by the Ontario government last July for people on social assistance and some senior citizens.Both Zellers and Wal-Mart are absorbing the fee at their pharmacies.

But Shoppers Drug Mart is refusing to play the compete-on-cost game, according to Mr. Konviser.

"Anyone who thinks he can build relationships just on fee or convenience is kidding themselves," he said. "We don't regard prescriptions as a commodity. Price isn't the only component -- there's professional service, convenience, our free delivery and longer shopping hours. Yes, we do charge a high fee, but we offer a fair amount of added value which our competition doesn't offer."

Shoppers Drug Mart has positioned itself as a source of information and pharmaceutical advice for the customer with features such as its monthly Healthwatch magazine, the Healthwatch printout of information on a customer's particular prescription medication, and educational programs about management of diabetes, asthma and other conditions. The company also runs the "Osteobus," a vehicle that visits different communities in Canada to educate and advise about osteoporosis.

Mr. Konviser said he sees pharmacies as stepping in to help fill the role of time-pressed medical professionals.

"We believe educating the public about particular health care needs is good for the health care industry," he said. "It is also good for our business because the customer associates SDM as providing this info."

Other pharmacy retailers also are getting on the information and counselling bandwagon. Zellers and Loblaws have blood pressure self-testing, free videos and health-related brochure handouts for customers, plus monthly clinics advising about different diseases. Wal-Mart has a consumer wellness program that provides free information and leaflets. Jean Coutu offers Health Wednesdays with activities and handouts.

Competition is emerging in other forms as well. Toronto-based Pharma Plus is strengthening alternative remedies departments in its stores, showcasing homeopathic and herbal remedies.

Jean Coutu makes a strong selling point of its exclusive Personelle cosmetic line plus exclusive French imported toiletries, makeup and skin-care products under the Rene Garraud and Jean d'Estrés labels.

"These help to solidify customer loyalty," Mr. Coutu explained.

London Drugs Limited, a Richmond, British Columbia-based chain, attracts shoppers through an eclectic merchandise mix. Dubbed "The Wal-Mart of the North" because of the wide range of merchandise carried at its 46 British Columbia and Alberta stores, the 54-year-old company sells electronics products such as large-screen televisions and stereo systems, plus housewares and a significant number of computers.

"In our current big-store model of 30,000 square feet to 32,000 square feet, you can find everything from Calvin Klein fashions to HBA products, and a photo department with a wide range of cameras," said Wynne Powell, London's COO. The company has enjoyed long-term success by changing with the times, he added.

Because of the aging population in Canada, where the age group distribution is similar to that of the United States, pharmacy players say they expect medications and other health aids to be a continuing retail growth area, making it unlikely that the pharmacy competition will abate for the foreseeable future.