Drug chain builds on banners

The company that owns PharmaPlus and Rexall drug stores is counting on emulating the success of Loblaw Cos. Ltd. by marketing itself under a variety of different banners to cater to distinct customers.

The Globe and Mail
November 16, 2001

Drug chain builds on banners
Marina Strauss

The company that owns PharmaPlus and Rexall drug stores is counting on emulating the success of Loblaw Cos. Ltd. by marketing itself under a variety of different banners to cater to distinct customers.

Katz Group Inc. of Edmonton, which operates more than 600 pharmacies under various names including PharmaPlus, is set to acquire Drug Trading Co. Ltd. of Markham, Ont., whose 750 pharmacies are mostly under the IDA and Guardian banners.

The new chain, with about $5-billion in annual sales, will bring to the drug store industry what Loblaw brings to the grocery sector: a combination of different types and sizes of stores under many different guises, appealing to distinct customer demands.

"I relate what we're doing in pharmacy to what Loblaws does in the food business," says Daryl Katz, chairman of Katz Group and the driving force behind the new drug store empire.

"We have many formats and we can use these formats in a variety of markets."

By the end of this month, when the $26-million deal to buy Drug Trading is set to close, Katz Group will be armed with even more banners to help take on the titan in the sector, Shoppers Drug Mart Corp., which generally has a single format.

Toronto-based Shoppers is not the only force Katz must battle. Supermarkets such as Loblaw and discounters including Wal-Mart have been squeezing drug-store chains by adding more pharmacies and offering longer hours, lower prices and often the convenience of one-stop shopping.

Mr. Katz is preparing for the challenge, partly by trying to cash in on the various drug store formats to draw different customers.

Medicine Shoppe, his original banner, caters to shoppers who are looking only for health care assistance, without the clutter of other merchandise; PharmaPlus, on the other hand, chases customers who like to pick up some make-up and pantyhose along with their prescriptions. In that respect, it's similar to a Shoppers.

Katz Group also runs big-box discount outlets called Herbies/Payless, for the thrift-minded consumer.

Many of the Katz Group stores are in bigger cities, while Drug Trading's Guardians and IDAs tend to be in rural locations and often carry similar merchandise.

Loblaw, too, operates under a host of formats such as the big-box Real Canadian Wholesale Club in Western Canada, mid-sized Fortinos in Ontario and discounter No Frills, each with different banners and offerings for its target customer.

It's a formula that has worked well for the country's largest grocer.

How it will work for the Katz Group in the drug store sector is another question. Certainly, consumers are already familiar with their nearby Medicine Shoppe or IDA, but the newly merged company will have to find some common threads with which to pitch the myriad of banners.

"Operating with multiple banners is very difficult to do in the best of times," says retail consultant Len Kubas. "It's going to be much more difficult to get a significant awareness when you have five or six banners to juggle."

Larry Latowsky, president of Drug Trading, says consumers already are loyal to the company's banners because of their personal contact with the pharmacists.

But it will take more than that personal touch to draw more customers. To help build awareness, the Katz Group will tap into its private label programs — just as Loblaw attracts shoppers with its exclusive President's Choice and No Name products.

Katz Group has its well recognized Rexall private label, while Drug Trading carries goods under the Certified brand. The merged company plans to keep both labels but drop the weaker categories within each line, Mr. Latowsky says.

In addition, the expanded company will consider extending the IDA and Guardian PharmAssist program to the Katz Group banners to raise the company's profile, he says. The program is similar to Shoppers'
HealthWatch, keeping records of customers' prescriptions in a bid to gain loyalty.

Ultimately, advertising will be critical to help link the brands and programs to the stores, he adds.

And no one is underestimating the significance of Shoppers. With 800-plus stores and more than $4.5-billion in annual sales, it has significant marketing and merchandising clout and a well established HealthWatch system and Life private label.

By next week, Shoppers is expected to go public, looking for even more expansion opportunities as it shaves costs.

Katz Group has its own expansion plans too.

Beyond the latest takeover, the company wants to add 250 independent drug stores in Canada over the next two years, Mr. Latowsky says. But U.S. acquisitions will be the key engine for future growth, Mr. Katz adds.

Already, 350 of the merged company's combined 1,350 stores are in the United States under the Snyders and Drug Emporium names. Snyders' independent outlets are gradually being bought up by the Katz Group and being converted to corporate stores, helping to give them a more uniform marketing direction.

It's a path that Mr. Katz will follow in Canada in the battle for a burgeoning prescription business.

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