Retail giant Loblaws officially completed its acquisition of QHR Corp. this month. Through Loblaws’ wholly-owned subsidiary, Shoppers Drug Mart, the company agreed to purchase QHR for $3.10 in cash per share, for a total of $170 million, in August. QHR is expected to operate as a distinct business within the Shoppers Drug Mart division of Loblaws and remain headquartered in Kelowna. This acquisition comes after a record breaking quarter for QHR, who brought in $7.7 million in the last quarter of 2015. Interestingly, the acquisition illustrates how every company is becoming a software company.
Loblaws’ president Galen G. Weston (pictured) has shown a knack for predicting – and shaping – Canadians’ retail habits. Judged against the company’s $12-billion acquisition of Shoppers Drug Mart in 2014, this year’s $170 million QHR deal seems puny. But set aside the price tag; this purchase marks the path executive chairman and president Galen G. Weston has set for his grocery empire. Over the decade that he has led the company, he has maintained a commitment to long-term strategy while capitalizing on technological shifts.
Weston has been clear on his company’s opportunity. When the Shoppers deal was announced, he said “a vision that combined health, wellness and nutrition” was Loblaws’ best option for long-term growth. He contends that the grocery store of the future needs to offer a better life, not just better food. For instance, Loblaws has removed artificial flavours from many store-brand products, reflecting consumer tastes for less-processed foods. Shoppers under 35, in particular, will pay more for such offerings, according to a Nielsen survey.
This broad wellness mandate allows Loblaws to cater to the healthy lifestyles of younger consumers while addressing the health concerns of older ones. As baby boomers age, the demand for prescription drugs will inevitably rise; Shoppers Drug Mart saw a 4% increase in prescriptions dispensed in 2015 alone. Meanwhile, the sale of Loblaws products through the drug chain hiked Shoppers’ non-pharmacy sales by 5% last year. Overall, Loblaws has seen growth in its revenue, profits and share price. Sitting at roughly $45 when the Shoppers deal was announced, the company’s stock is now closer to $70.
It will climb even higher if Loblaws succeeds in changing the job description for your local pharmacist. Weston wants to “improve the Canadian healthcare system” by lobbying regulators to allow pharmacists to offer nutritional counselling, to give inoculations and even to write prescriptions. In this context, QHR is more than a new revenue stream: It’s a bet on the future.
Buying QHR demonstrates that Loblaws has grasped a core truth of 21st-century business, which is that every company is a software company now. As Vijay Gurbaxani recently wrote in the Harvard Business Review, software companies are adept at asking questions like, “What barriers do customers face in realizing value from [our] current offerings?” Then they use technology to overcome those obstacles. If medical files scattered among a dozen offices might block a customer from using your new nutritional counseling service, then electronic records are one answer. Loblaws has shown a knack for this approach within its traditional business as well. Its Click and Collect system – which allows customers to order online and then pick up at a store – is now available at more than 60 locations. And its loyalty program app is both complement and competitor to the rash of e-coupon startups. It’s an impressive trick for a century-old firm, but Loblaws has managed to be consistent in its mission and agile in its methods at the same time.
Source: Canadian Business