TORONTO — The Canadian pharmacy community was caught off-guard by the resignation of Shoppers Drug Mart Corp. president and chief executive officer Jürgen Schreiber.
Industry observers credit Schreiber with helping boost Shoppers Drug Mart’s market share, through such efforts as an expanded offering of convenience food, the Murale luxury beauty store concept, a robust private-label program (including generic drugs) and a strong customer loyalty program. However, they say recently enacted provincial health care reform in Canada — which drastically cut reimbursements to pharmacies and pharmacist fees — may have taken its toll.
Although analysts maintain a positive view of the growth prospects for Shoppers Drug Mart (SDM), the stock market’s immediate reaction to Schreiber’s planned departure was negative. The company’s shares closed Wednesday at $39.18 on the Toronto Exchange before the announcement, which was made after trading hours. By noon the next day, the stock had lost more than 5% of its value, trading at around $37.
Plans call for Schreiber, CEO since March 2007, to leave SDM on Feb. 15, after which he will pursue pursue a private equity opportunity outside North America, the Canadian drug store chain said. The retailer’s board has started a global search for a new CEO and has set up an interim succession plan in which chairman David Williams will serve as president and CEO until a replacement is named.
Schreiber’s departure follows what had been a turbulent year for SDM, and for the Canadian retail pharmacy sector, as governments moved to slash drug costs.
In reporting fiscal 2010 third-quarter results in November, SDM posted its first quarterly year-over-year profit decline since it went public in 2001. Revenue for the third quarter rose 2.6% to nearly $3.1 billion (Canadian), with the company saying it experienced sales growth in all regions, while same-store sales edged up 1.2%. Net earnings, meanwhile, came in at $159.3 million, or 73 cents per diluted share, down from $170.9 million, or 79 cents per diluted share, in the prior-year period.
"Our results for the third quarter met our expectations as we confront the new pricing and reimbursement pressures facing all of us that are invested and engaged in the practice of community pharmacy," Schreiber stated when SDM announced third-quarter results.
Observers within and outside the industry suggest the confrontational stance that Schreiber adopted toward the Ontario government and the reforms to community pharmacy remuneration it proposed last spring might not have been the best way to handle a critical negotiation. In the event, Ontario imposed — almost intact — the scheme it had initially outlined. Other provinces are following somewhat similar plans, and the effects are showing up in the results of public companies affected.
Schreiber, a graduate of Mannheim University, Germany, has had exceptionally wide international management experience. Before joining SDM, he served for five years as CEO, Health and Beauty Europe, at A.S.Watson, a subsidiary of Hong Kong-based Hutchison Whampoa Ltd., owner of the world’s largest network of health and beauty stores. Prior to that, he held senior management positions in the United Kingdom, Germany, Spain, Netherlands, China and Singapore with Reckitt Benekiser.
At SDM, Schreiber accelerated the pace of expansion that had been set by his predecessor, Glenn Murphy. Before the reduction of pharmacy fees last year, the chain had been increasing retail square footage by percentages in the high single digits. That rate of growth was trimmed for the current year and future years, with a new emphasis being placed on renovating and expanding smaller stores.
Overall, SDM has more than 1,180 drug stores under the Shoppers Drug Mart and Pharmaprix banners, as well as 58 Shoppers Simply Pharmacy (Pharmaprix Simplement Santé in Quebec) medical clinic pharmacies, eight Murale luxury beauty shops and 63 Shoppers Home Health Care stores.
In recent comments to the financial community, Schreiber said he expected the company to record continued growth in sales and profits, even if somewhat reduced from prior projections. He pinned his expectations on four areas of response to the new conditions: efficiency gains, increased market share, innovation and a number of "transformational" projects, for which he didn’t provide details.
With his cosmetics background, Schreiber invigorated the SDM’s already successful push into prestige cosmetics, both through its conventional drug stores and the novel Murale beauty boutiques.
During Schreiber’s tenure, emphasis was also placed on expanding the range and quality of its corporate brands, substantially expanding the array of convenience foods, introducing corporate-brand generics and beginning a project to export these drugs, and strengthening the Optimum loyalty card program. SDM also recently announced its entry into a financial services program.
Financial analysts have been quite sanguine about SDM’s future in the wake of the announcement of Schreiber’s exit. They note that the company is still being guided by seasoned management and has outstanding locations, strong brands, a modern logistics system and a powerful customer relations and marketing tool in Optimum, as well as solid, customer-focused local management as a result of its associate concept.
"While much hard work remains, I am confident in the capabilities of our people and believe that as a market leader, we remain well-positioned to execute on our strategic priorities and initiatives and capitalize on the business opportunities that lie ahead," Schreiber commented during SDM’s third-quarter report.
The company is slated to announce its fourth-quarter financial results on Feb. 10.
*Editor’s Note: Russell Redman also contributed to this story.
