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Rexall Drugs location at University Ave. and Queen St. in Toronto, Ontario, Wednesday, Jun 4, 2014.The Globe and Mail

Faced with profit-draining drug reforms and mounting competition, Frank Scorpiniti set out to shake up the iconic Rexall pharmacy retailer.

The chief executive officer's research found Rexall's brand resonated well with consumers but the chain needed a boost. Rivals ranging from industry leader Shoppers Drug Mart Corp. to grocers and discounters were expanding their drugstores and stealing business. This year, supermarket giant Loblaw Cos. Ltd. swallowed Shoppers in a bid to pump up its focus on health-related sales. At the same time, new provincial generic prescription rules resulted in pharmacies losing "multiple billions of dollars" of government funding.

Rexall's transformation entails everything from replacing its deep blue and orange signature colours with "pool-side" aqua to launching new profit-friendly private label lines such as Be Better and adding more food. A key weapon of choice is offering flu shots and health consultations.

"Our journey is really one of reinvention," Mr. Scorpiniti, CEO of privately held parent Katz Group Canada Ltd. of Edmonton, said on Wednesday. "We wanted to make sweeping change, and that sweeping change helps create momentum and speed in the business."

Rexall's journey is still a work in progress, with more than 40 of its 455 stores having got the full redesign. But the extent of the revamping underscores the dramatic change sweeping through the entire industry and the urgency for its players to rethink their business model.

"It takes deep pockets and real commitment," said John Torella, senior partner at retail consultancy J.C. Williams Group. "It's a noble cause to differentiate your offerings. If you're not different, you're a commodity."

Even so, Rexall may need to team up with another player, such as grocer Sobeys or discounter Wal-Mart Canada Corp. or Quebec-based pharmacy specialist Jean Coutu, Mr. Torella suggested. Rexall runs pharmacies in Ontario and Western Canada but none in Quebec nor Eastern Canada, where Sobeys operates drugstores.

In many ways Rexall's strategy mirrors that of Shoppers and Loblaw, which are also focusing more on healthy choices, flu shots and pharmacist consultations, Mr. Torella said. Shoppers has the added advantage of having invested heavily in its beauty boutiques, with lucrative cosmetics and fragrances to lure customers.

Despite the challenges, Rexall's reinvigoration initiative is in seasoned hands. Mr. Scorpiniti was part of the leadership team that helped turn New York's Duane Reade drugstore chain around with the help of veterans of Shoppers and Loblaw, following a strategy that seems remarkably similar to the one that Rexall has adopted.

And Joe Jackman and his Jackman Reinvention Inc. firm, which helped revive Duane Reade and other retailers, is now advising Rexall in its change process. Duane Reade's rejuvenation was so striking it caught the eye of U.S. pharmacy giant Walgreen Co., which acquired it in 2010.

Now Mr. Scorpiniti is taking those lessons to Rexall. It came after a "very dramatic slide in profitability" after provinces dramatically scaled back generic reimbursements. "Many of us in this space have had to find new ways to generate new revenue streams," he told a Retail Council of Canada annual conference. "We have to do so much more with significantly less."

He started the process in 2012 by selling its 1,100 franchised stores (including I.D.A. and Guardian) in a bid to gain more control of the change process at corporately owned outlets. Rexall made other acquisitions, with plans to buy 30 to 40 stores annually.

He borrows from the playbook of Loblaw, Shoppers, Sobeys and others, which he looks to for "excellent ideas that we copy shamelessly."

And he's using his pharmacists as weapons to win customers and help them with health matters. In 2012, just one month after Ontario pharmacists got the green light to administer immunizations, Rexall became the first chain to offer them at all its stores. In the first year, it administered 80 per cent of pharmacies' flu shots with just 8 per cent of the stores – 10 times its market share. Results are exceeding expectations, he said.

Stores are being redesigned to become brighter and airier, with Be Better vitamins that are colour-free and gluten-free. "They're selling fantastically," he said. It added private-label Rose & Robin chocolates and candies, Kit cosmetics, Savvy Home cleaners and homeopathic and naturopathic goods for the 70 per cent of consumers who are looking for alternative ways to heal themselves, he said.

And the work continues. "We are on a continuous reinvention cycle," he said. "I don't know if we're ever done any more."

Follow Marina Strauss on Twitter: @MarinaStraussOpens in a new window

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