Shoppers Drug Mart Corporation

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Shoppers Drug Mart Corporation

243 Consumers Road
Toronto, Ontario M27 4W8
Canada
Telephone: (416) 493-1220
Fax: (416) 490-2700
Web site: http://www.shoppersdrugmart.ca

Public Company
Incorporated: 1962 as Koffler Associated Drug Company
Employees: 31,000
Sales: $2.28 billion (2001)
Stock Exchanges: Toronto
Ticker Symbol: SC
NAIC: 446110 Pharmacies and Drug Stores

Shoppers Drug Mart Corporation is one of the largest retail drugstore chains in Canada, with more than 800 stores, and outlets in every province from the Atlantic to the Pacific. The corporation was the first to build a nationwide chain of drug retailers. Shoppers Drug Mart has outlets in suburban, rural, urban, mall, and strip mall locations, and more than 60 percent of Canadians live within five kilometers of one. Most of the stores operate under the Shoppers Drug Mart name, except in Quebec, where the stores are called Pharmaprix. In addition, the company runs approximately 40 Shoppers Home Health Care stores. About 45 percent of the chain’s overall sales come from pharmacy items, with the remainder coming from over-the-counter drugs, health and beauty aids, convenience foods, and other goods. The company markets several of its own exclusive brands, including its Life brand, Rialto Naturals cosmetics and bath and body care products, QUO brand cosmetics, Life Bear baby care products, and Shoppers Drug Mart herbal remedies. The company is structured in a unique franchise arrangement so that individual store owners, called associates, share profits with the chain. The chain grew rapidly through acquisitions and new store openings from the 1960s through the 1990s. The company was owned by Imasco Limited, itself a subsidiary of British American Tobacco PLC, from 1978 through 1999. Shoppers Drug Mart was then bought out by an investment and management group and taken public in 2001.

Early Years As a Family Drugstore

Shoppers Drug Mart began as a small family pharmacy founded by Leon Koffler in a Jewish neighborhood of Toronto. Koffler’s family was originally from a small village in Romania, and little is known about them except that Leon and his mother and three older sisters moved to Toronto when Leon was about 15 years old. There he delivered groceries in a horse-drawn wagon. He later went to the Ontario College of Pharmacy and graduated in 1921. He opened his first drugstore two years later, and soon moved to a more propitious corner location. Koffler married in 1921, and he and his family lived above the store. Koffler kept Koffler’s Pure Drugs open seven days a week, from eight until midnight or later. In 1930, Koffler opened a second store, on Bathurst Street in the north section of Toronto. The business did well, and the Koffler family became affluent, owning real estate apart from the two stores. But Leon Koffler died suddenly of a heart attack in 1941, when he was only 47 years old.

Running the family business fell to Koffler’s eldest child, his son Murray, born in 1924. Murray was 17 when his father died, still in high school, and unprepared to fill his father’s shoes. But no one else was able to run the stores either, so Murray started attending pharmacy school while learning the retail business from his father’s accountant and lawyer. Koffler graduated in 1946 and continued to run the stores full time. Koffler soon demonstrated a keen eye for retail trends. He was evidently an avid reader of two U.S. trade publications, Chain Store Age and Shopping Center News. These opened his eyes to the potential of the suburban shopping mall. Koffler’s Pure Drugs was still small, and Koffler was turned down from a tenancy at Toronto’s first mall. Disappointed, Koffler tried again to get into another development, the York Mills Plaza being built to the north of the city. The York Mills Plaza was backed by Edward Plunket Taylor, a formidable financier comparable to J.P. Morgan in the United States. His conglomerate owned a large brewery, a sugar company, a chemical company, and many other businesses, including Dominion Stores, a chain grocery that had pioneered the self-service notion in Canada. One of Koffler’s drugstores was next door to a Dominion market, and Koffler had decided that the self-serve plan would work well for a drugstore. Self-serve is now the norm in most retail stores, where the customer walks up and down the aisles picking and choosing. But in the 1940s, Koffler’s Pure Drugs was still run with the pharmacist and assistants behind the counter, handing customers what they asked for. Koffler knew that customers were sometimes inhibited or embarrassed about asking for personal items, and he admired the Dominion model. With some trepidation, Koffler met with E.P. Taylor and explained that he wanted to open a new drugstore in York Mills Plaza that would be run like Taylor’s Dominion chain. After taking some months to think it over, Taylor agreed. Koffler sold the Bathurst Street drugstore, which had been bringing in approximately $150,000 annually, and in 1953 opened Canada’s first self-serve drugstore. Shelving and fixtures for such a store were not available in Canada, and Koffler had to go to a furniture maker in Grand Rapids, Michigan, for some of what he needed. Koffler gave his new store a more modern design, with a black-and-white color scheme.

Expansion Through Franchising: 1950s–70s

Business was slow at first in the new shopping center, which was far enough from town that cows grazed in a field across the street. But Koffler and E.P. Taylor believed in the coming wave of suburbanization, and Koffler negotiated to open more stores in more malls Taylor was developing. Koffler continued to be influenced by retail trends that had not quite made it to Canada yet. Koffler was intrigued by the growing Kentucky Fried Chicken franchise masterminded by Colonel Harland Sanders. Koffler came up with a franchise arrangement whereby his company leased and stocked the store, but it was wholly run by a pharmacist “associate.” The associate paid Koffler Drugs 10 percent of gross sales, but accrued any profits beyond that. The associate had an incentive to make the store prosper, while Koffler had time to devote to advertising and promotion and scouting new locations for the chain. Koffler initiated the franchise arrangement in 1955.

In 1959 Koffler became fascinated by another American retail phenomenon, the Detroit-based GEM (for Government Employees’ Mart) stores. GEM shoppers paid a small sum for a membership card, which entitled them to shop the stores’ deeply discounted goods. Koffler invested in the chain, helping bring the first GEM to Toronto, and arranged to sublease the GEM drug department. Within its first year the GEM drug department brought in roughly $1 million, three or four times what the other Koffler drugstores were doing. Koffler leased drug departments in several other GEM stores in the area.

In 1962, Koffler wanted to run his own drugstore along the lines of GEM, with perpetual discounts and lots of floor space. He leased a spot in a new Toronto mall called Shoppers World. This store debuted with the new name Shoppers Drug Mart. Soon after, Koffler’s other stores became Shoppers Drug Marts as well. In 1966 Koffler opened yet another store, this one a 15,000-square-foot “megadrugstore,” one of the first of the model now known as a “big box” store. Koffler personally wrote handbills advertising his stores, and took out a free subscription to the local community newspaper for all the nearby residents so they would see his store’s advertisement and a store-sponsored medical advice column. That year Koffler also acquired a string of five Sentry drugstores. There were 17 Shoppers Drug Marts in all, under Koffler’s umbrella organization Koffler Associated Drug Company.

At this point Koffler wanted to raise capital to expand the chain even further. He continued to be friends with E.P. Taylor, who advised him to take the company public. This he did, first merging with another chain of drugstores, Plaza Drugstores Limited. The Plaza Drugs chain ran 33 stores in Ontario, but it was having financial difficulties and needed a partner. The two chains came together as a single entity, Koffler Stores Limited, which began to sell its stock to the public on June 20, 1968. The new company became a hotly traded stock. Annual sales were about $28 million at that time.

The chain expanded rapidly through acquisition throughout the 1970s. In 1971 it paid $10 million for the 87-store western Canadian chain of Cunningham Drug Stores Limited. These stores were updated and operated under the Shoppers Drug Mart name. The acquisition put the chain into the provinces of British Columbia, Alberta, Saskatchewan, and the Yukon for the first time. Then in 1974 the firm acquired the 26-store chain Lord’s Supervalue Pharmacies for $2.4 million. Lord’s had locations along the Atlantic seaboard. Shoppers came into Quebec beginning in 1972, under the French name Pharmaprix Ltd. Pharmaprix was run as a joint venture with Quebec’s leading grocery chain, but the arrangement had its difficulties. Pharmaprix lost money through at least 1980, when the joint venture fell apart. Shoppers Drug Mart also grew by opening new stores. By the late 1970s, the company had stores all across Canada as well as a handful of stores in the United States.

Company Perspectives

Built on a foundation of professional expertise and personal service, the Shoppers Drug Mart/Pharmaprix organization has been meeting Canadians’ health care needs for over 30 years. What was once a small pharmacy in Toronto has grown into an organization of over 800 stores from coast to coast, becoming an indelible part of the lives of Canadians, young and old. Yet despite our growth, we have never forgotten our origins. We have always remained true to our belief that the personal satisfaction of each and every customer is at the root of our success—and it can only be ensured by the commitment of people who realize that success is built one customer at a time.

Under the Intasco Umbrella: 1980s–90s

By 1978, Koffler Stores had about 300 locations, and it was Canada’s only nationwide drugstore chain. Murray Koffler was in his 50s, and wondering what would happen to his company after his death. He had five children, and half of Koffler Stores stock was owned by family members. Koffler, his children, and his top managers agreed that the wisest plan would be to sell the company now, to avoid fights between his heirs that might force a sale inopportunely. So that year Koffler Stores Limited became a wholly owned subsidiary of Imasco Limited. The price was approximately $70 million. Murray Koffler stayed on as CEO of the division until 1983, when he was succeeded by

David Bloom. Koffler retired from the company altogether in 1986, and Bloom became CEO and chairman.

Imasco was a Montreal-based conglomerate that had been formed in 1970 by Imperial Tobacco. Imperial Tobacco, which was partially owned by British American Tobacco (BAT), controlled about 50 percent of the Canadian tobacco market, and it had a stable of leading cigarette brands including Players and Du Maurier. With the possibility of a decline in tobacco consumption as health warnings began to appear, the company decided to diversify into several different industries. By the time it bought Koffler Stores, Imasco owned a chain of cigar stores, the Hardees restaurant chain in the United States, and a chain of 63 Top Drug Marts. With the merger, the Top Drug Marts were converted to Shoppers Drug Marts, giving the whole chain close to 400 retail outlets.

David Bloom started his career as a pharmacist at a Shoppers Drug Mart in 1967. He later ran his store as an Associate, but by 1971 he had been recruited for management training. He was only 39 when he became president and CEO in 1983, and he was apparently on a par with Murray Koffler in terms of energy and retail vision. The company had grown rapidly through the 1960s and 1970s, starting as a public company with slightly more than 50 stores and entering the 1980s with about 400. Now with the secure financial backing of Imasco, Bloom planned to double the number of stores. The chain continued to grow by acquisition. In 1986 Shoppers Drug Mart bought up the Super X Drugstores, an Ontario-area chain of 72 stores. Shoppers Drug Mart moved further into the U.S. market in the early 1980s as well, opening about a dozen new locations in Florida. Elsewhere, independent pharmacists became Shoppers Drug Mart associates, giving the chain about a quarter of the Canadian drugstore market by 1980. Sales that year had grown to $700 million, doubling from $350 million two years earlier. Bloom laid out a long-term plan for growing the chain, aiming to triple sales by 1995.

The company continued to advertise heavily, taking advantage of its position as the only Canada-wide drugstore chain. It introduced several in-house brands and positioned itself as a convenience store, with many special promotions, late hours, and the introduction of more food and snack items. In 1993 the company bought up a chain of ten drugstores called Pinder Stores, and followed this in 1995 with a chain of 24 Bi-Rite Drug Stores based in western Canada. Its largest acquisition was the 135-store Big V Drugstores chain it bought in 1996. Bloom initiated a major reorganization of the company in the mid-1990s to enable it to take better advantage of its nationwide reach. Because each store was run by an individual associate who had lots of independence, the corporate structure was not as tight as that of some other comparable chains. Shoppers Drug Mart overhauled its distribution system in the mid-1990s to give it just three distribution centers, one in the East, one in the West, and another in central Canada. The company also revamped its information technology for handling inventory and accounting, and moved toward a more centralized management, doubling the number of workers in its Toronto office. The chain also moved toward a new store format, with a bigger floor plan. By the late 1990s, the Shoppers chain had more than 800 stores and revenue of C$4 billion.

Public Company Again in the 2000s

Shoppers Drug Mart continued to open new stores in 1999, moving out model stores with redesigned shelving and lighting, a new color scheme, and other features. The company developed new prototype stores for each of its five typical locations—urban, rural, suburban, regional mall, and its so-called “superstore.” The chain was still going strong, with plans for more than 20 new stores that year, and renovations and revampings for many older stores. But that year its parent, Imasco, announced that the drugstore chain was for sale. Imasco had been 40 percent owned by BAT, and BAT wanted to buy up the rest of the company, provided it shed its nontobacco businesses. Shoppers received many offers, but finally sold for $1.74 billion to a group of Shoppers managers and outside investors led by the U.S. leveraged buyout firm Kohlberg Kravis Roberts & Co. (KKR). KKR had recently bought out other retail firms, including the grocery chain Safeway, Stop & Shop Companies, and Randall’s Food Markets.

David Bloom stayed on as CEO for one year after the buyout, while the chain continued to roll out new stores in new formats. He retired in 2001 and was replaced by Glenn Murphy. Murphy took the company public, hoping to raise money to pay down the company’s debt and finance a redoubled expansion effort. The company began selling stock again in November 2001. Shoppers Drug Mart planned to open as many as 30 to 40 stores a year, noting that as the country aged, there was growing demand for drugstores. The number of prescriptions written in Canada was rising, as was the average price of a prescription. About half of Shoppers’ sales came from prescription drug sales. The company also seemed well insulated from the business cycles that shook other parts of the economy. One analyst quoted in Canadian Business (November 26, 2001) noted, “Regardless of what the economy is like, people are going to continue to get sick and need toilet paper.” The chain remained committed to growth, believing that there were still opportunities to consolidate the Canadian pharmacy business.

Key Dates

1921:: Leon Koffler graduates from pharmacy school.
1930:: Koffler opens a second Toronto drugstore.
1941:: Koffler dies; 17-year-old son Murray takes over the family business.
1953:: Koffler opens Canada’s first self-serve drugstore.
1962:: First Shoppers Drug Mart opens; the rest of the chain changes its name.
1968:: The company goes public as Koffler Stores Limited.
1978:: Koffler Stores becomes a subsidiary of Imasco Limited.
1999:: Imasco spins off Shoppers Drug Mart to an investment group.
2001:: Shoppers Drug Mart becomes a public company.