TORONTO — Loblaw Cos.  here said it sees opportunities to expand its food offerings to more locations and to gain expertise in health  and pharmacy  through the acquisition of Shoppers Drug Mart  announced last week.
Loblaw agreed to buy Shoppers, Canada’s largest drug store  chain, for about $11.9 billion (U.S.).
“This transformational partnership changes the retail landscape in Canada. With scale and capability, we will be able to accelerate our momentum and strengthen our position in the increasingly competitive marketplace,” said Galen G. Weston, executive chairman of Loblaw. “This combination creates a compelling new blueprint for the future, positioning us to capitalize on important trends in society, from the emphasis on health, wellness and nutrition, to the imperatives of value and convenience.”
Loblaw said it would retain the Shoppers name and operate it as a separate division of Loblaw. Shoppers licenses 1,242 Shoppers Drug Mart and Pharmaprix stores across Canada, and also licenses or owns 57 medical clinic pharmacies operating under the name Shoppers Simply Pharmacy (Pharmaprix Simplement Santé in Québec) and six luxury beauty stores operating as Murale. Shoppers also owns and operates 62 Shoppers Home Health Care stores.
Loblaw said the acquisition gives it a “powerful footprint in the important and growing small-urban-store sector.” It also said it would expand Shoppers’ offerings to include Loblaw’s private-label and convenience food.
“We did a very in-depth study on what the food proposition would look like [in a Shoppers drug store],” said Vicente Trius, president of Loblaw, in a conference call with analysts describing the planned merger.
He said that Loblaw merchandised a mock store to test the layout.
“We kept all of the core from Shoppers Drug Mart, and we looked at how we can actually leverage the space that they had in food,” he explained. “We feel that we can put a very, very compelling offer based on fresh ready meals, frozen convenience food and healthy products — imagine going to a store and being able to do a very basic, full grocery shop.”
Domenic Pilla, president and chief executive officer, Shoppers Drug Mart, said his company “absolutely likes the combination of food and health, and nutrition and health.”
“Certainly it drives traffic, and it’s been something that’s been very accretive to us,” he said in the conference call. “But as we’ve identified the opportunity of what the customer wants in our food offering, in terms of the elements that Vicente has described, we didn’t have the capability and certainly we didn’t have the access to the sources of supply that Loblaw has. So, the combination of bringing their capability and access to products against what we see as strong customer need and demand, we see as a really winning combination.”
Stewart Samuel, a Vancouver, British Columbia-based senior business analyst with IGD, the U.K. research and consulting firm, said he believed the acquisition was a “great deal” for Loblaw.
“Loblaw had a plan to become a bigger player in smaller format stores, so this is a great strategic fit,” he said.
He noted that Loblaw could bring “value credentials” to the food assortment at Shoppers though its private-label offering, including its popular President’s Choice line.
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In addition, he noted that Loblaw could pick up some learnings in pharmacy and beauty care from Shoppers.
“Shoppers gives them a lot more credibility in pharmacy,” Samuel said.
Loblaw operates and franchises more than 1,000 stores across Canada, including about 500 that have pharmacies.
Loblaw said it would pay $33.18 (Canadian) in cash plus 0.5965 Loblaw common shares for each share of Shoppers.
“For our shareholders, this transaction provides significant and immediate value, as well as the ability to benefit from future upside by virtue of their continued ownership of shares in the combined company,” said Pilla of Shoppers.
Samuel of IGD said it is unclear whether the acquisition of Shoppers — and the agreement earlier this year by Sobeys to acquire Safeway Canada  — would pressure Montreal-based Metro , the No. 3 traditional supermarket chain in Canada, to make an acquisition to gain scale. While he said Metro doesn’t necessarily “need” to make an acquisition, one potential target might be Overwaitea Foods , the retailer based in Western Canada.
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