A Shoppers Drug Mart megastore at the corner of Queen St. West and Beverley St.Fred Lum/The Globe and Mail
Uncertainty abounds at Shoppers Drug Mart Corp. as it searches for a new leader amid financial strains from drug reforms and a battle over shifting to more lucrative private labels at the pharmacy counter.
Shoppers has been without a permanent chief executive officer since February, when Jurgen Schreiber unexpectedly left the helm. Since then, David Williams, former chairman and now acting CEO, has grappled with a growing array of provinces that have adopted profit-limiting generic changes.
On Thursday, Mr. Williams is expected to shed more light on the executive search when Shoppers releases its second-quarter results. He said in April he anticipated a leadership decision this summer.
Other executives at the company are in the dark about whether the decision will be unveiled this week. "As far as I know, you shouldn't expect to see anything out of the ordinary," spokeswoman Lisa Gibson said.
Among potential CEO candidates are Mark Foote, a veteran of Canadian Tire Corp. who currently runs discounter Zellers although most of its store leases are being sold to U.S.-based Target Corp. (which will launch in Canada under its banner by 2013.) Another possible contender is Mike Motz, now executive vice-president of operations, supply chain and logistics, at Shoppers.
Other prospective names: John Lederer, former head of New York drugstore chain Duane Reade and Canadian grocer Loblaw; and Joe Magnacca, an executive at U.S. pharmacy giant Walgreen Co. and formerly at Shoppers and Loblaw.
Industry observers suggest the hunt for a new leader hasn't been as easy as expected because Shoppers is no longer the fast-growing retailer that it once was - largely because of the drug reform pain. Provinces are slashing generic prices to help reduce their spending on public drug schemes. Already the sweeping reforms have hurt the bottom line of Canada's largest drugstore chain since the rules came into force in Ontario a year ago. Analysts estimate that the company's second-quarter profit-per-share won't be much better than a year earlier.
Shoppers is racing to offset the shortfall by cutting costs, scaling back new store openings and focusing more on non-pharmacy sales; last month, for instance, it let go almost 10 of its real estate officials, Ms. Gibson said. But a key initiative remains at the pharmacy counter.
The retailer is rapidly bolstering its profit-enhancing private-label generic drugs. It's fighting a court battle with the Ontario government - along with rival Katz Group Canada Ltd. (which runs Rexall, Pharma Plus and other chains) - to get the green light to sell private-label generic prescription drugs in the province, where it runs the bulk of its business.
Shoppers has rushed to stock its private-label prescription drug line, called Sanis, in its pharmacies. It now carries Sanis in eight provinces, although not in Ontario and Manitoba, Ms. Gibson said. And it plans to develop sales of the line to drug-stores in foreign markets.
Quebec-based Jean Coutu Group Inc., the largest drugstore chain in that province, already has got a boost from generic drug manufacturing. In its first quarter, its Pro Doc generic-drug subsidiary was a key factor in the retailer generating better-than-expected overall profit margins, Keith Howlett, an analyst at Desjardins Capital Markets, said in a report.