Shoppers Cuts Hours

April 13th, 2010 by Potato

Shoppers Drug Mart has decided to strike back at the Ontario government’s plan to rejig how pharmacies are paid by cutting hours in many London-area stores. London was probably chosen since Deb Matthews is both a local area MPP and the Ontario Health Minister, rather than because of its long history as a test market. This is a classy move.

Shoppers has been the darling of many a Canadian investor’s eye: they’ve been growing like crazy the last few years, and pay a dividend to boot. However, even before this, I wasn’t too keen on the SDM story. I used to love Shoppers as a consumer. They were open late or 24 hours, they had, like, everything, and it was all reasonably-priced. Then a few years ago they started jacking the prices up; just last week I went in to get some half-priced Easter candy, picked up some OTC drugs too, and came home… I was checking what I bought, and even though I paid the price I usually pay, I found the packages were half the size of what I got from Pharma Plus last time — they’re now charging twice as much as Pharma Plus! Since this wasn’t just candy but expensive medicine, I took it back, and went to Pharma Plus instead. Yes, their Optimum program is one of the better loyalty programs out there, and yes their stores are bigger and better and stocked to the gills with everything and (until now) open later… but I don’t think I’ll be going back unless there’s a blockbuster sale sometime. This is, of course, years after we stopped going to Shoppers for actual prescription drugs because their dispensing fees were ridiculous — again, double what many other drug stores charge (and what my drug plan covers!).

Plus a lot of that juicy growth has been in expanding the square footage of their older, smaller stores. There aren’t many of those left, and with almost half as many SDMs in Canada as there are Tim Horton’s, I can’t see a whole lot of growth left for ex nilhio locations. So that pretty much leaves their high-margin beauty and cosmetics business as the only place left to continue growing. I think that actually will work out fairly well for them, but it’s not the rock-solid recession-proof pharmacy business that investors are being sold on.

I should say that I do have a bid sitting open for SC, but at $35.50 I don’t expect to get filled since the panic over the drug plan rules seems to be fading. At its current price ($38) I think it’s probably a decent enough buy for the low-growth long-term story, but I’m not convinced it’ll shoot the lights out of the broader market index, so I might as well buy that.

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