Canadian Retailer - Holiday 2013 - 18

2014 RETAIL ECONOMIC OUTLOOK

MORE CHALLENGES AHEAD FOR PHARMACY SECTOR
Like other pockets of retail, the pharmacy sector saw declining
sales in 2013. London Drugs senior vice-president and chief operating officer Clint Mahlman shares some of the challenges facing the
sector in the coming year.
"The number of prescriptions dispensed will continue to grow
and the demand for healthcare needs will continue to increase for
2014," he says. "However, for the past several years, Government-
public drug plans-have continued to reduce generic drug prices
through a reduction in the reimbursement price, legislation, and
through changes in health law regulations. While the cost savings
have been welcomed by government and private drug plans, pharmacies take the brunt of these savings, resulting in decreased sales.
"With potential generic drug price reductions scheduled for
2014-both provincially and federally-pharmacies are projected to
experience another challenging year, especially when it comes to
prescription sales," he adds.

careful about differentiating by means of deep
discount prices.
"There is a lot of potential for what I call margin massacre," he explains. "You can push a ton
of product out the door by sales and specials to
get rid of excess inventory and your customers
respond, but you don't make any money.
"Even if you can't raise prices much because
of increased competition and decreased consumer disposable income, you can still grow
your margins by operating more efficiently,"
Strapagiel adds. "Retailers will be operating
faster, smarter, better, and cheaper. These days
it's very difficult to influence consumers otherwise. They have a lot of choices and are very
wary. Sales and specials only go so far. You
need to put the most focus on running your retail operation as efficiently as possible."
Adaptation is key

Some retailers are adapting to this new
norm-and preparing for an ever-competitive
marketplace-via consolidation. As this issue of
Canadian Retailer went into production, Sobeys
was finalizing its purchase of Safeway Canada;
Loblaw was in the midst of acquiring Shoppers
Competition in prescription drug business rises
Drug Mart; and Amazon Canada announced
According to Mahlman, competition in retail pharmacy continues
an expansion of its product offerings to include
to grow in different formats. The result is different competitive presmore than 15,000 packaged grocery products
sures for the prescription drug business. Examples include: Express
and 200,000 automotive items.
Scripts Inc., a drug plan insurance adjudicator, who has expanded
its mail order prescription services for chronic (long-term) medicaAcross all sectors, retailers will likely remain
tion at lower cost to additional provinces; Towers Watson, a New
cautious in their short- and long-term sales
York based health aggregator, who is establishing a limited U.S.
forecasts. As the retail landscape becomes
style Preferred Provider Organization model in Canada; and Pharmacy Compass, a new website introduced by an insurance adjudimore crowded, it signals a time to return to the
cator, is posting prescription drug comparison pricing by pharmacy
basics: ensuring that the right products are in
to encourage patients to search and "shop" for their prescription at
the right place at the right time.
the lowest available price.
What final advice does Askew offer retailers
"While competition is good to ensure pharmacies deliver the
best possible care to the patient at the most cost-effective price,
to flourish in this new economy?
there is a danger to restricting the patient to a limited and/or a
"Retailers will want to continue to put their
select pharmacist," Mahlman concludes. "The patient/pharmacist
emphasis on lower prices, which can't come
relationship is a personal one developed over time to manage the
patient's needs. Health care discussions and care plans cannot be
without some significant cost cutting in the
developed according to the lowest price of the day."
middle to make sure they are able to get the
margins they need to remain viable," he says.
Quebec will remain around three per cent, and "For the luxury market, it's a game of service. Who can offer
retail sales in the Maritimes will continue to that complete experience to the luxury shopper to make them
lag behind the rest of the country. However, keep coming back?
Burleton predicts that the growth gap between
"It will be an interesting year of competition, especially in the
east and west will narrow.
luxury market as new entrants try to capture these customers,"
Faced with this economic environment, what he adds. "For core retailers, my advice is to focus on getting the
can retailers do? Be nimble and innovative is best prices to consumers. Those who get the right prices in the
the answer offered by most. By adjusting prod- discount segment are those who are going to win."
uct and pricing strategies to meet consumers
Strapagiel's final thoughts: "If I'm a retailer, I'm looking a lot
shifting demands, retailers have an opportun- at my internal costs because I can't influence the market. The
ity to differentiate themselves like never be- only thing growing in the marketplace at the moment is the
fore. Strapagiel warns retailers, however, to be number of competitors."

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Canadian Retailer - Holiday 2013

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