David Bloom, chairman and chief executive officer of Shoppers Drug Mart Inc., shares some of the details of the past few months–and what lies ahead–with Karen Welds, editor of Pharmacy Post.
Q: On a scale of one to 10, how would you rate the outcome of the sale?
A: I give it a solid nine. The group [of new owners] has an excellent track record. I’m especially pleased with the Ontario Teachers’ Pension Plan Board–it’s an outstanding Canadian organization. And KKR is very impressive. Very entrepreneurial. We couldn’t have asked for a more perfect fit.
Q: So why not give the deal a perfect 10 out of 10?
A: Because we could have been happy with other people as well. It was really win-win, whether it was an LBO [leveraged buyout] specialist or an in-market player. The in-market bidders could have fit, and we would have had a very strong group. So there were other very exciting opportunities, but we are elated at the outcome.
Q: Was Onex one of the LBO bidders?
A: I don’t want to confirm or deny that. I’ll only say that the LBO players were both American and Canadian.
Q: Can you tell us anything else about the bidding process?
A: It was a very rigorous process. Very demanding. We had to do presentations to a short list of bidders. There were seven in total. I can’t give any names or even the breakdown between the in-market and LBO players.
We couldn’t get involved until after the presentations, at which time we could all talk freely. We got to know all of them and, initially, we had no leanings one way or the other.
Q: Is it true you’d already been contacted by LBO firms last summer?
A: Yes, but they hadn’t approached us from the point of view of doing a deal. They just wanted to know if there was an interest … We never approached anyone.
Q: What happened when the KKR team was selected as the winning bidder?
A: KKR approached the senior management of Shoppers Drug Mart to become equity partners. I made a personal commitment to stay on as chairman and chief executive officer for the next five years. The other members of the Board of Management have also agreed to become equity partners. Basically, all of our senior leaders will be reinvesting the money from their Imasco shares, less the tax to be paid, back into Shoppers Drug Mart Inc. This significant equity investment certainly indicates our high level of commitment to the future of Shoppers Drug Mart.
Q: Where do Shoppers Drug Mart associates fit in?
A: A day after the sale was announced, I was accompanied by a group of senior executives from Shoppers Drug Mart on a cross-Canada tour to visit all of our regional offices. We met with both our management and support staff, as well as members of our ‘peers’ groups, which are our associate representatives. We discussed the announcement, talked about the tomorrows and the new structure of our company. We also shared with our associates the exciting opportunity to purchase shares in Shoppers Drug Mart Inc. We believe our associates were very excited by the investment opportunity and we anticipate all of our 650 associates will participate. So far, we haven’t heard a “no.”
Q: Are associates being asked to buy a minimum number of private shares?
A: There’s no minimum, but there are limits since the Shoppers Drug Mart group, including senior management, is restricted to 10% to 15% of the equity of the new company. However, the other very exciting aspect of this arrangement is the possibility that some time in the future, the company could have an initial public offering. This could be an opportunity for everyone in the company, both in the offices and stores, to purchase shares in the company.
Q: At least one retail analyst has said that the deal has created a tremendous debt-load for the company. The pressure is on to boost revenue and/or rationalize the business, perhaps even by closing less-profitable stores. How do you respond to the suggestion that you may have bitten off more than you can chew?
A: Our short- and long-term sales and profit projections demonstrate that we are well financed. We are continually relocating, retrofitting and expanding stores to increase our profit performance. Productivity has always been a key to our enhanced performance and we continually set aggressive productivity goals. There is a substantial opportunity to grow our corporate brand products which are highly recognized by our consumers for savings and quality. We also believe that our associates, with an equity investment in the overall company, will be even more motivated in the future and fully committed to the execution of our mutual plans and programs.
Q: Shoppers Drug Mart is now KKR’s only acquisition in Canada. Why do you think they made the purchase?
A: They know that Shoppers Drug Mart is one of Canada’s leading retailers. We have powerful trademarks and outstanding locations. They praised our unique associate/owner concept. They believe we have an excellent management team and depth in management. They also believe we have substantial potential for growth.
The other thing that we like is that they are patient investors. Their history indicates that they invest for a minimum of five to seven years.
Q: How will Shoppers Drug Mart grow?
A: The new ownership is committed to 200 new or acquired stores over the next five years.
Q: What’s on the immediate agenda?
A: At the outset, it’s “business as usual.” We’re implementing our new store concept strategy with its more upscale cosmetics presentation and, of course, the rollout of our HealthWatch 2000 pharmacies. There will be 24 stores as part of this new store concept pilot by April 2000. Also, our three pilots for our Shoppers Optimum loyalty card continue to be very well received by our consumers.
The full benefits are now flowing out of Vision ’97. This was a project to centralize distribution, purchasing and accounting; leaving our associates, pharmacists and frontstore staff to focus on value-added services, especially in the pharmacy and cosmetics.
Q: Your new slogan these days is, “The best is yet to come.” Why?
A: This is an internal slogan directed towards members of our Shoppers Drug Mart family. It was intended to indicate to all of our employees and to our associates that Shoppers Drug Mart and Pharmaprix are very well positioned for the tomorrows. We have a tremendous legacy of success to build on. We believe we have the plans and programs to enable our company to continue to grow and prosper.
This investment by our new partners is based on growth. We believe that we will grow through new stores and by the acquisition of independents who want to join our family. KKR and Shoppers Drug Mart share a pride in ownership and a spirit of independence. Our corporate cultures are well matched.