Ontario's drug reforms have set the stage for a fight over market share between traditional drug stores and other retailers.
Loblaw Cos. Ltd. is already planning a greater push with its in-store pharmacies as drug store chains pull back, and analysts say other general retailers could follow suit. And once into the pharmacies, shoppers could then be enticed to buy other products, particularly higher margin health and beauty items.
Loblaw said Tuesday that it is working on an aggressive expansion of its pharmacy business even though Ontario's proposed reforms, which will slash prices of generic drugs, will be a "substantial" hit to its drug store bottom line. The changes are expected to be adopted eventually by other provinces as they look to reduce their generic drug costs.
"We see it as a big opportunity now for us to drive our drugstore business," Allan Leighton, president of Loblaw, told a conference call. "There's a huge amount of consumers out there who are going to be looking for improving service, and that's what we intend to do."
He said that the impact of the generic drug reforms would be immaterial to Loblaw as a whole but "substantial" to its drug store business.
Ontario's generic rules, which are expected to be enacted in mid-May, would slice generic drug prices by half and phase in a ban of "professional allowances." Worth about $815-million a year, they are rebates that pharmacies count on from generic drug makers in exchange for shelf space.
To offset the anticipated financial pain, Shoppers has already started chopping opening hours at its stores in London, Ont., where the provincial health minister's riding is located. It's planning staff and service cuts at its stores in Ontario.
"If you're Loblaw or Costco, this is kind of a golden opportunity to perhaps grab market share that doesn't come around very often," said Ed Strapagiel, executive vice-president at Kubas Consultants. "It's relatively difficult to move prescription drug customers from one store to another ... People who buy prescription drugs don't tend to shop around."
Mr. Strapagiel said that Shoppers may have to reconsider its plans in light of the intentions of Loblaw and others.
Shoppers would not comment. Neither would officials of Costco and Zellers, both retailers with in-store pharmacies, while a spokeswoman for Wal-Mart Canada Corp. said it plans no changes at this point, though "we are following this issue in Ontario closely."
Loblaw, for its part, plans to extend its hours and services at most of its 500 pharmacies, while testing a small-pharmacy format for other supermarkets that don't already have a counter. It intends to more than double - to 200-plus from 84 - the number of medical clinics at its stores over the next few years in a bid to lure their patients to its pharmacies and further into its stores. And the country's largest grocer is investing in high-tech pill-counters and other devices for more than half its pharmacies by year's end to lower costs.
To bolster its customer count, it's on the lookout to snap up prescription lists of smaller pharmacies that may be crushed by the new regulations.
Deb Matthews, Ontario's Minister of Health, said she's pleased with Loblaw's plan to extend pharmacy hours and services if it ensures better access. "It tells me that there's a good future for people in pharmacy."
To offset the impact of the generic proposals, drugstores also are looking at increasing their dispensing fees, which are close to $12 at Shoppers under private plans and, in contrast, $4.11 at Costco.
Mr. Leighton said that Loblaw has been preparing for a new pharmacy regulatory landscape for the past four to five months - even before any changes have been enacted.
"Clearly we have a pretty big drugstore business and these regulations do have an impact on that," he said.