The Week

Why I’ll still be pushing a cart behind my wife at both Loblaw and Shoppers Drug Mart

The Globe and Mail

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Every Saturday morning, I go to the Loblaw superstore in North Toronto and wheel a cart around behind my wife while she dumps stuff in.

Then, not always but often enough, I go to the Shoppers Drug Mart just down the street from the Loblaw superstore and wheel a cart around behind my wife while she dumps stuff in. (Or, worse, she says we don’t need a cart when really we do.)

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So my big question this week was whether the Loblaw-Shoppers marriage will, at some point, negate the need for one of those trips and allow me to nap instead.

The analysts tell me no.

That’s not the aim of the $12.4-billion takeover of Shoppers Drug Mart Corp. by Loblaw Cos. Ltd. Nor are they likely to cannibalize each other like that.

So Monday’s deal isn’t going to rock my world – I’m just the wheel man, after all – but it is going to rock a retail sector already shaken by consolidation and the power of U.S. chains that have moved north.

As Loblaw executive chairman Galen Weston put it as he unveiled the takeover, “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.”

Analysts agree.

Loblaw gets to bolster its pharmacy operations, and Shoppers its food offering. But analyst point to far wider ramifications in the unique marriage of Canada’s biggest grocer and its largest drugstore chain.

“The real opportunity is to launch hybrid stores – focused on the consumer’s relentless pursuit of the fountain of youth,” said Tony Chapman, chief executive officer of Capital C Partners.

(Wonderful. Another store to go to on a Saturday, though the two companies have announced no such plans yet.)

“Leverage technology to capture key data points on health – blood, sugar levels, calories in and out, nutrition – and then index it against a custom plan involving food, supplements, exercise,” Mr. Chapman said.

“Loblaw becomes an enabler to life, versus a provider of goods and services.

Here’s where I come in. While there may be some cannibalization, it’s not expected to be significant. You can already find pharmacy and grocery offerings at either, which for some may suffice. (Not in my family.)

Loblaw and Shoppers cater to different groups of people, said Michael Jaczko, a partner and portfolio manager (and a pharmacist, by the way) at Toronto’s K.J. Harrison and Partners.

Shoppers is bringing in customers who aren’t necessarily chasing the lowest prices. They like the convenience and what’s on offer.

“I don’t think you’re going to be seeing Loblaw people abandon one to go the other,” Mr. Jaczko said.

There are, of course, questions among stock analysts, who began raising their price targets on Loblaw shares after the deal was announced.

(Shoppers shares surged as the price moved into line with the Loblaw bid price, which suggests I may have been better off buying the stock rather than chasing my wife down the aisle.)

“This transaction, as announced, is in our opinion about Loblaw driving (and thereby leading) a disruptive change in the Canadian grocery and drug retail landscape, and as such Loblaw is playing offence versus defence,” said Kenric Tyghe of Raymond James, who hiked his price target on the grocer’s stock to $54 from $46.

“Shoppers’ proposed acquisition by Loblaw would facilitate Shoppers further levering its private label, convenience food and class-leading loyalty competencies, and Loblaw leading the charge on the grocery format evolution in Canada (in addition to levering its class-leading private label and recently refreshed loyalty offering).”

Analyst Keith Howlett of Desjardins said much remains to be seen, so the jury’s still a bit out.

“While ‘health, wellness and nutrition’ is a theme that aligns well with changing consumer values and demographics, it is not yet clear how the combined entity is going to ‘grow faster together’ and monetize the opportunity,” said Mr. Howlett, who raised his Loblaw price target to $55 from $50.

He raised his target on Shoppers to $64 from $42.

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