Skip to main content

Shoppers Drug Mart Corp. , reeling from profit-pinching drug reforms, says it has been hit by a $1-billion lawsuit from two of its drugstore owners alleging breach of contract.

The store owners, who operate much like franchisees, are seeking class-action status, claiming that Shoppers collected or kept money or benefits beyond what was permitted by their contracts.

Although Shoppers provided few details, such as identifying the store owners involved, lawyer David Sterns, an expert in class-action franchisee cases, said such disputes often are touched off by a change in a corporate business model.

Story continues below advertisement

"Whenever you have a material change to the business model, it's quite common that people go back and start looking at their agreements and start figuring out where it is they can perhaps try to change things in their favour," he said.

Toronto-based Shoppers moved quickly last summer to overhaul its business strategy after Ontario adopted generic-drug reforms that squeezed pharmacies' bottom lines. The changes banned an estimated $750-million annually in professional allowances that generic drug companies paid to drug stores in exchange for shelf space. Chains such as Shoppers counted on those fees to help bolster their profits.

To offset the financial pain, Shoppers has looked for cost savings at its stores. For example, it has increased the number of hours that the owner-pharmacists must work behind the counter to 32 hours a week from 28 hours, according to an analyst. Shoppers has also shaved capital costs by cutting other labor expenses and scaling back expansion plans.

The need for new initiatives became apparent in Shoppers' third quarter, the first to feel the squeeze of the Ontario drug reforms. Its profit fell 6.7 per cent to $159-million, while sales grew 2.6 per cent to $3.09-billion.

Although courts in the past have been reluctant to sanction class-action cases, recent judgments probably opened the door for franchisees to obtain class-action status, said Mr. Sterns, who is not involved in the Shoppers matter.

Quiznos franchisees, for example, obtained class-action status after the Ontario Court of Appeal ruled last summer that such system-wide franchisee disputes are "exactly the kind of case for a class proceeding." Mr. Sterns represents Quiznos franchisees.

Tim Hortons franchisees, meanwhile, have sued the restaurant giant after it changed its business model several years ago by introducing "flash freezing" of baked goods rather than making them from scratch in the stores.

Story continues below advertisement





Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter
To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies