Are you looking for a stock?
Try one of these
Consolidation is back on the table in the pharmacy sector. McKesson Corporation is buying Rexall from Katz Group of Edmonton for $3 billion.
The deal comes 2.5 years after Loblaw's (L.TO) blockbuster takeover of Shoppers Drug Mart and brings a new look to the country's retail landscape.
“The acquisition of Rexall Health supports McKesson’s commitment to drive value in the industry by improving healthcare solutions delivered in the pharmacy,” said John Hammergren, chairman and chief executive officer of McKesson said in a statement on Wednesday.
And when Rexall hired Jurgen Schreiber, a former CEO of Shoppers, last summer, it was a signal to many industry observers that he may have had a mandate to look for a suitor for Rexall.
Rexall is just one piece of a vast business empire assembled by Daryl Katz. Through a sports and entertainment division that includes the NHL’s Edmonton Oilers and a real estate business that’s in the midst of major development projects in downtown Edmonton, Katz has generated a fortune that puts him among the biggest names in business. Forbes pegged his wealth at US$3.3 billion in a list of global billionaires released this week, ranking him as the 12th richest Canadian.
Katz built his pharmacy fortune by buying the Canadian rights to U.S. franchise Medicine Shoppe in 1991. Then he acquired Canada’s Rexall, which was struggling at the time, and eventually made a foray in the U.S. market by snapping up Snyders Drug Store and Drug Emporium.
Over the past few years and under two leaders, Rexall has been working at transforming itself into a more distinct and stronger chain as it fought off the Loblaw-owned Shoppers as well as new provincial generic prescription rules that results in pharmacies losing billions of dollars of government funding.
Rexall’s transformation entailed 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 way it tried to lure consumers was with offering flu shots and health consultations.
And while not all its 460 stores have been remodelled, the extent of the changes underscores the dramatic change sweeping through the entire industry and the urgency for its players to rethink their business model.
But industry observers felt Rexall needed to team up with another player to bolster its position.
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.
The company 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.
It borrowed from the playbook of Loblaw, Shoppers, Sobeys and others, which it looked to for “excellent ideas that we copy shamelessly,” its former CEO Frank Scorpiniti said in 2014.
And he’s used Rexall’s 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 were 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.
Stores that got the remodelling enjoyed a 7 per cent lift in sales at outlets open a year or more, Joe Jackman, a former consultant to Rexall, said last year.