Shoppers Drug Mart deal could mean big changes for consumers

Shoppers Drug Mart customers will soon be able to buy Loblaw private-label food alongside their prescription drugs and toiletries if a proposed takeover announced Monday is approved.

Loblaw, Canada's largest supermarket chain, is offering to buy Shoppers, the country's biggest retail pharmacy chain, in a $12.4-billion cash-and-stock deal. Loblaw is behind the President's Choice, Blue Menu and Joe Fresh brands, while Shoppers is known for its Life-brand products.

The move cheered investors with Shoppers's stock up 26.65 per cent to $61.30 while Loblaw stock rose 8.4 per cent to $51.52 shortly after the opening bell.

While the Shoppers name will stay under the new retail behemoth, customers can expect a number of changes to the now-limited selection of food in the drug store aisles.

"Our customer proposition is at the heart of this combination," Loblaw president Vicente Trius said. "Together, we will be able to significantly enhance the customer experience by offering even greater assortments, service, value and convenience while preserving the unique shopping experiences that make both companies leaders in their respective segments."

The combined companies will have 2,348 stores, 1,797 pharmacies and more than 65 million square feet of retail space across Canada. Executives say Monday they don't expect any store closures or divestitures as a result of the deal.

The deal comes on the heels of Sobeys Inc.’s $5.8 billion purchase of Safeway's Canadian assets announced last month. Canadian retailers are consolidating to save costs and better compete in the face of increased competition, in particular from Wal-Mart and the recent entrance of Target into Canada, both of which sell groceries alongside other discounted products.

"This transformational partnership changes the retail landscape in Canada," Loblaw executive chairman Galen G. Weston, said Monday "With scale and capability, we will be able to accelerate our momentum and strengthen our position in the increasingly competitive marketplace."

Shoppers chairman Holger Kluge said the combination will allow the companies to serve customers "better than we could do alone."

Maureen Atkinson, a senior partner with the J.C. Williams Group retail consultancy, said this latest deal demonstrates the measures retailers must make to better compete, while at the same time satisfying shareholder demand for growth.

"The challenge really for this business has been to maintain their margins, which they haven't, which is part of the reason why I think Shoppers was open to being bought," she said.

Atkinson said consumers shouldn't expect lower prices as a result of this latest round of consolidation, given that margins are already tight across the industry.