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Katz writing new prescription for success

Drug-store retailer Katz Group Canada Ltd. is fixing for a fight with industry top dog Shoppers Drug Mart Corp. by borrowing a page from the Shoppers book on merchandising.

Katz is trying to simplify its grab bag of chains, which operate under Pharma Plus, Rexall and other banners, and wants to make the Rexall brand the unifying force for its network of about 1,900 pharmacies.

And it wants to bolster its private label -- the once prominent Rexall brand -- along with pharmacy services and the convenience of being able to pick up other staples.

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"There isn't any reason why there isn't room for two major drug store chains in English Canada," Andy Giancamilli, Katz's chief executive officer, says in the company's new flagship Rexall Pharma Plus store in Toronto, a model coming to the other corporately owned outlets.

Katz is operating in a burgeoning sector that is being transformed as a wide range of retailers, from Wal-Mart Stores Inc. to Loblaw Cos. Ltd., target rising demand for health products from an aging population.

But Katz faces big players with big money. David Campbell, a managing director at Mercer Management Consulting, says Katz may have to find more ways to differentiate itself from Shoppers. "With the multiple banners [at Katz]and much lower awareness of Rexall, those are big hills to climb."

Mr. Giancamilli has strapped on his boots. He is lowering prices -- partly with more Rexall private labels -- and trying to make the shopping experience more appealing. He's even added public washrooms to the new stores and introduced pharmacist home visits as a standard feature for customers.

Edmonton-based parent Katz Group Inc. is privately owned and doesn't disclose details about its financial situation beyond its overall network sales of about $6.5-billion.

It has 355 corporately owned Pharma Plus and Rexall stores, which ring in about 70 per cent of the business. Along with that are 1,500 independently held IDA and Guardian pharmacies, which purchase goods from Katz, as well as 100 small franchised Medicine Shoppes.

Toronto-based Shoppers, for its part, has about the same amount of system-wide sales in almost 1,000 outlets, but is a hefty presence under its single name across English Canada (Pharmaprix in Quebec.) To help ensure that Katz is competitive, Mr. Giancamilli says the retailer's prices have dropped over the past year, often by as much as 10 per cent.

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And selling private labels does its part to keep prices down. They generally cost 30 per cent less than comparable products under familiar global brands because of sharply lower marketing and development costs, he says.

Store brands are important because they generate at least a 30-per-cent profit margin -- twice as much as that of well-known brand names, he says.

He wants to boost the Rexall private-label business so that it represents 25 per cent of overall revenue over the next five to 10 years -- from about 11 per cent today.

Meanwhile, Katz has put a big push on updating Pharma Plus and Rexall so that the stores look and feel . . . well, much like a Shoppers.

The high-margin cosmetics area is right at the entrance, in a bid to entice women (the majority of the customers) to make impulse purchases. The pharmacy counter has been lowered to encourage communication with the pharmacist. Consultation rooms have been added to help customers connect with the pharmacist.

Certainly customers notice the similarities.

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"It does look a lot like Shoppers," says Norma Croxon, 70, who is picking up tissues, aluminum wrap, milk and other staples at the new Rexall Pharma Plus.

She likes the store, and thinks she'll switch to it simply because it is closer to her home. "It's well located. I will use it."

But Diane Cote, 50, an office co-ordinator who works nearby and drops by the store during her lunch break, says she'll still continue to do her grocery shopping at a supermarket even though the new Rexall Pharma Plus has an expanded selection of food. She feels the prices at the grocer are better.

Mr. Giancamilli acknowledges that drugstores have lost some of their non-pharmacy business to bigger competitors. But he insists that the local pharmacy can serve as a "fill-in shop."

The investment needed to sharpen the operations, nevertheless, is considerable. Katz is pouring $24-million a year into refurbishing stores, with a target rate of return of up to 22 per cent, he says.

Mr. Giancamilli knows all about brand building. He was president of U.S.-based Kmart Corp. when it was bolstering the Martha Stewart home decor brand. Before joining Katz, he was a senior executive at Canadian Tire Corp. Ltd., another household name.

A pharmacist by profession and a merchant at heart, Mr. Giancamilli has now returned to his drug store roots.

At Katz, he is set on opening 40 to 60 redesigned Rexall Pharma Plus stores annually over the next five years. Eventually the Pharma Plus name will be dropped.

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