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TORONTO — The announcement, made late last month, that Jürgen Schreiber was resigning from his position as president and chief executive officer of Shoppers Drug Mart (SDM) caught his colleagues, the pharmacy sector and the financial community by surprise.
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Jürgen Schreiber |
Though SDM had just recorded its first decline in quarterly earnings since the company went public in 2001, that result was anticipated. SDM, like every other Canadian drug store company, saw income from its pharmacy department sharply affected by government cuts in pharmacy remuneration.
Schreiber’s resignation is due to go into effect February 15. He is leaving, as the company’s news release described it, “to pursue a private equity position outside North America.”
SDM’s current nonexecutive chairman, David Williams, is slated to assume the chief executive role on a temporary basis while the board conducts an international search for a new chief.
Williams has been a member of SDM’s board since 2003, so he is fully familiar with the company’s operations, its senior management, and the strategic and other issues with which management is grappling. He has deep retail experience, having spent 22 years in senior management positions with George Weston Ltd. and Loblaw Cos.
After his retirement from Loblaws, Williams accepted an invitation from the Ontario government to take on the chief executive role at the Ontario Workplace Safety and Insurance Board, responsible for the compensation and rehabilitation of employees injured on the job. The board had been suffering from organizational and image problems. Williams performed well in restoring public confidence in the organization.
Although his tour of duty as Shoppers Drug Mart chief executive officer will likely be quite short, his experience with public service will stand him in good stead at a time when the fortunes of retail pharmacy are still heavily dependent on government decisions.
Under the interim management structure that Williams announced, three members of the senior management team will report directly to him: Brad Lukow, executive vice president and chief financial officer; Mike Motz, executive vice president of operations; and Mary-Alice Vuicic, chief administrative officer and executive vice president of human resources.
Commenting on the arrangement, Williams said: “We have the utmost confidence in the leadership structure that we have established on an interim basis and know that this team, with the support of the company’s executive committee, senior management, employees and associate-owners and their teams at store level, will continue to execute on our well-defined strategic priorities and initiatives.”
Schreiber had a bruising year in 2010. For more than 18 months the Ontario government had been working on plans to restructure the way community pharmacy is compensated for its dispensing function for both public and private payers. When its detailed plans were made public last spring Schreiber and SDM played a leading role in the sector’s strident opposition to the plans.
Claiming that the reduced income would oblige pharmacies to reduce service levels to the public, the sector conducted a high-volume communication program that attempted to enlist customer support for its views. It was hoped customers, who were also voters, would persuade the government to change its plans.
During the campaign SDM pointedly reduced the hours of its stores in the electoral district of the Minister of Health, who was responsible for shepherding the proposed new regulations through the cabinet process.
The public, seeing savings, both personally and to the public treasury, was not persuaded. Insurers and unions also supported the government position. Schreiber may have felt that his credibility in future dealings with Ontario and other provincial governments had been impaired.
Schreiber, a graduate of Mannheim University in Germany, has had exceptionally wide international experience. Prior to joining SDM he served for five years as chief executive officer, health and beauty Europe, for A.S. Watson, a subsidiary of Hong Kong-based Hutchison Wampoa Ltd., owner of a worldwide network of health and beauty stores. Prior to that he had progressed through senior management positions in the United Kingdom, Germany, Spain, the Netherlands, China and Singapore with Reckitt Benekiser. With this background it is not surprising that Schreiber’s next assignment should be somewhere outside North America.
Schreiber joined SDM as president and chief operating officer in 2006 with the understanding that he would move up to the chief executive position when he was acclimatized to the corporate culture. That promotion took place in March 2007.
During Schreiber’s almost four years in the senior position much was accomplished. The company was already in a rapid expansion mode when he arrived. He accelerated that pace. New retail footage was added at a rate in the high single-digit percentages, even through the early part of the recession. That rate of growth was trimmed for the latter part of 2010 and the current year as a result of the reduction in pharmacy income. Schreiber placed new emphasis on renovating and, where possible, expanding smaller stores.
With his deep cosmetics background, Schreiber invigorated the company’s already very successful push into prestige cosmetics, both through the conventional stores and by starting up a new chain of dedicated beauty stores, Murale.
Schreiber also placed emphasis on expanding the range and quality of SDM’s corporate brands, which now account for 19% of front-store volume. Last year the company extended its corporate label to generics for the first time and began plans for their export.
A major expansion of the convenience food offering won favor from customers and had a positive effect on store traffic. In the last few years the company has also been reaping the benefits of its powerful Optimum loyalty program.
Even before the pharmacy remuneration cuts that hit the company last year it had been embarked on vigorous cost-cutting and efficiency programs. Schreiber saw the already realized, and anticipated, results of these programs go some distance in compensating for the expected revenue reductions.
The company had also embarked on a strategic plan, designed to extend over three years, that Schreiber expected would bring SDM back to its former levels of earnings growth. The strategy included new front-of-store merchandise categories and services, among them the offering of a financial services package.
It remains to be seen whether any of these plans will be affected by Schreiber’s departure, and at the moment financial analysts were looking for Williams to address these issues in SDM’s fourth quarter 2010 report.
Although financial analysts appeared not to be unduly perturbed by Schreiber’s abrupt exit, SDM stock lost 5.9% in the two days that followed the announcement.
SDM will continue to be operating in an intensely competitive environment. Independent pharmacies will be particularly affected by the pressures on dispensing income. That may provide opportunities for well-financed organizations like SDM to buy patient files and consolidate operations. There will, however, be other contenders for such opportunities, while supermarkets, mass merchants and club stores all have demonstrated their enthusiasm for expanding their pharmacy departments.
