In the wake of a recent merger between Loblaw Companies and Shoppers Drug Mart, one local pharmacist worries about the effect large conglomerates will have on small pharmacies already strained by government cuts.
Lisa Devos, owner of Salvus Rxellence Professional Dispensary said government cuts to health-care spending may force her to slash services at her clinic.
She also worries that Loblaw-owned pharmacies now have an even greater advantage over smaller pharmacies because of their increased size and product range.
Loblaw, Canada's largest grocer, agreed to buy Shoppers in a $12.4 billion deal earlier this week, acquiring some 1,200 drug stores across the country. Both stores are expected to carry Loblaw's President's Choice and Shoppers' Life brands.
"Obviously those big chains have a whole lot of other products that they can lean on with respect to the government cuts whereas we basically just do prescriptions," Devos said.
On April 1 the province reduced the amount of money it contributes to prescription drugs from 35 to 18 per cent. Devos said those cuts translate into reductions in personal care and customer service.
The local pharmacy offers special compounding and medication management, blister packaging, as well as delivery and clinical services. But Devos said she also knows her patients well – a service she feels isn't provided by many of the chain pharmacies.
"These are things we just do because we have a relationship with our patients. I can't bill for that anywhere. But that's the kind of stuff that we can't continue to do if we don't maintain our profitability," she said.
"If we have to cut staffing for instance there's only so much one person can do. And if our finances go down you have to do more with less."
Thanks to the merger, she said Loblaw (which already owns in-store pharmacies) now has a stronghold on Shoppers Drug Marts but also Shoppers' pharmaceutical manufacturing plant.
That allows the company to cut costs and offer larger volumes at a lower price. It also means that there are fewer big players in the market for the consumer to pick from, she said.
Devos thinks she can hold onto her customer base despite the increased pressure on her business, though she worries about buyouts.
While shoppers will gain access to Loblaw's vast network of food products at Shoppers pharmacies, Loblaw in turn gets access to the Shoppers' customer loyalty program – a service that small pharmacies cannot afford to offer, she said.
She also fears that large chain pharmacies could enter into preferred provider arrangements, a contract between a health-care insurer and a pharmacy who agree to offer services to persons covered under the contract. Such contracts generally require or encourage customers to choose a certain pharmacy, she said.
"And those of course do not focus on where you get the best service, they don't focus on the patient relationship with the pharmacist or other health-care providers," she said. "They are solely based on cost."
Regulatory environment
Kyle Murray, director of the School of Retailing at the Alberta School of Business, said part of the reason Shoppers was available for purchase was because government regulations made it so difficult to make money in the business.
Forty years ago, all pharmacy chains were privately-owned, independent, small businesses, he said. Then government cuts forced many smaller companies out of business while larger corporations survived by joining forces.
Yet he said Shoppers Drug Mart and Loblaw in-store pharmacies aim for different customer segments. Most of the grocery store pharmacies see people that come in to get groceries and also pick up a prescription.
Shoppers Drug Mart, on the other hand, attracts people interested in cosmetics, convenience and possibly higher quality products, he said. That still leaves room in the marketplace for smaller, independent shops like Devos' if they offer better service and a nicer shopping environment, he said.
"There is a segment of consumers that don't like to shop at big chains," Murray said.
"And now that there is an even bigger chain … that will push out that segment of people towards the independent stores."
A good location and a niche market has kept the Grandin Prescription Centre on Anne Street alive for the past 40 years. The small pharmacy first opened in the 1970s and benefits from being right beside Grandin Clinic, said co-owner Glen Muzyka.
He said his shop still provides that small-town feel where customers and pharmacists often know one another on a first-name basis. The pharmacy also works closely with home care services, a market that many larger companies don't enter.
"Our big thing is just providing the service that individuals need and maybe just being willing to do the extra things to keep people in their own homes," he said.
"You kind of have to look at the market around you and what you can provide that some of the bigger stores can't or don't want to get into."
Competitive market
With the merger, Loblaw will be more competitive in the Canadian retail market, which could bring lower prices, said Murray.
The acquisition allows Loblaw to increase its presence into Shoppers' urban stores, many of which were previously not accessible to the company.
In return, Murray said consumers will benefit from gaining access to a wider range of products and may soon be able to use Shoppers Optimum Program with the rest of Loblaw's retailers.
"What we will see, and I think that will be to the benefit of the consumer, is better product selection in the Shoppers stores," he said.
"We will see things like President's Choice products all the way from cookies to credit cards available for shoppers. Whereas previously you could only buy these products in a Loblaw store."
Following the arrival of Walmart, Costco and Target, Murray added that mergers between national companies are necessary to remain competitive in the Canadian market.
The sale of Shoppers Drug Mart follows after grocer Sobeys picked up the Canadian assets of Safeway stores for $5.8 billion last month. The deal included 199 in-store pharmacies.
Growing their size allows Canadian companies to buy products at a lower cost, which in return leads to price reductions in the stores, he said.
"When you think of Sobeys without Safeway or Loblaw without Shoppers, they are not nearly as strong as they are after these mergers," he said.
"The retailers, especially the Canadian retailers like Loblaw and Sobeys, are much stronger now. They are not able to offer lower prices and better service, the things that consumers most want."
St. Albert now has one Real Canadian Superstore (a Loblaw brand) with an in-store pharmacy and three Shoppers Drug Marts. Murray expects that the acquisition of Shoppers will not lead to major job losses or store closures though Loblaw may decide to restructure senior management positions to avoid duplication.
He added that it's unlikely that direct competitors such as Costco or Walmart will seek to buy out other large pharmacy chains as they have their own in-store pharmacy chains.
