Rexall pharmacy chain put up for sale as American owner rethinks Canadian footprint, sources say

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Rexall’s American owner is shopping the pharmacy chain to prospective buyers, according to sources, as McKesson Corp. reconsiders its Canadian footprint after a 15-year expansion.

Texas-based McKesson Corp. is a distribution giant for the pharmaceutical industry, and the company took a particular interest in Canada starting around 2008. Initially, McKesson Corp. expanded by acquiring independently owned pharmacies, but it made a major splash in 2016 with the acquisition of Rexall from the Katz Group Canada Ltd. for $2.9-billion.

Eight years and a pandemic later, McKesson Corp. is looking to unload Rexall and has been in contact with prospective buyers, according to two sources familiar with the sale process. Rexall operates roughly 400 pharmacies and employs around 8,000 people. In an email to The Globe, McKesson said it does not comment on rumours or speculation.

The Globe and Mail is not identifying the sources because they are not authorized to speak publicly about the matter.

Although McKesson Corp. is exploring a sale, there is no guarantee a deal will be completed. The pool of potential buyers includes rival chains who want to expand their footprints as well as private equity firms, many of whom are flush with cash. If a sale is completed, McKesson Corp. could remain a Rexall partner by supplying the chain through its pharmaceutical distribution arm.

The pharmacy business is a challenging one in Canada because governments regulate drug prices, particularly generic versions of medicines that have lost their patents. Operational costs have also jumped because of inflation, and a pharmacist shortage in some parts of the country has created logistical challenges.

McKesson Corp. struggled with Rexall’s profit margins early in its ownership. Shortly after the acquisition closed, Canada implemented new rules that slashed prices on generic drugs, and provinces such as Ontario and Alberta hiked their minimum wages.

In response, Rexall shut nearly 10 per cent of its 450 pharmacies in 2018. The same year, McKesson Corp. warned investors it would take an after-tax asset-impairment charge of between US$600-million and US$1.98-billion, tied partly to the Rexall business.

Because profit margins in the pharmacy business can be so slim, one of Rexall’s best opportunities for growth is in retail. The chain sells everything from cleaning products to cold and pain medications to baby products, and some rivals have found ways to make their retail divisions quite profitable. Chains such as Shoppers Drug Mart Corp., which is owned by Loblaw Cos. Ltd., and Metro Inc.’s Jean Coutu Group (PJC) Inc. have reported strong margins on “front-of store” items such as cosmetics.

McKesson Corp. has tried to retool and beef up Rexall’s retail division over the past few years. In 2019, Rexall partnered with frozen-fare specialist M&M Food Market to put M&M products into freezers. At the time, pharmacy retailers were keen on adding more food offerings in a bid to attract customers who purchase food more than other products, particularly younger demographics. Shoppers, for instance, also added more Loblaw Cos. Ltd. and No Frills products to its shelves.

A year later, in 2020, Rexall launched its own loyalty program, known as Be Well. Until that point, the retailer had partnered with the Air Miles loyalty program, but retailers of all stripes have been launching their own in-house programs, such as Optimum at Loblaw and Triangle at Canadian Tire Corp. Ltd., to get more data on their shoppers and to develop more personalized marketing offers.

Because so many retailers were launching their own programs, Air Miles became a less desirable loyalty program over time, and in 2023 its parent company filed for creditor protection. Bank of Montreal, a long-time credit card partner for Air Miles, now owns the company.

Rexall also tried to retool by emphasizing health products, something it paired with McKesson’s purchase of the Well.ca online drugstore in 2017. Rexall tried to integrate the site, which is popular with women, with its bricks-and-mortar stores, cross-stocking their merchandise and allowing customers to pick up their online orders at Rexall locations. The retailer also dropped its historic Pharma Plus in-house brand, to create a consistent look across the chain.

As McKesson Corp. retooled Rexall, its Canadian leadership faced multiple rounds of upheaval. Domenic Pilla, the former head of Shoppers Drug Mart, was hired to run McKesson Corp. Canada in 2017, but he retired in 2020. The company named Rebecca McKillican, who was previously president of Well.ca, as his successor, but she was replaced last year by Joan Eliasek, who previously held other executive roles within the company.

McKesson Corp. has reconfigured its global footprint in recent years. In 2021, the company sold its European businesses in France, Italy, Ireland, Portugal, Belgium and Slovenia, and also sold its British business, which included LloydsPharmacy.