Pilla steps into Shoppers during turbulent time

WHAT IT MEANS AND WHY IT'S IMPORTANT — The news that Shoppers Drug Mart has appointed former McKesson Canada executive Domenic Pilla as its new president and CEO not only is significant news in its own right, but also is important as Pilla will inherit a chain that is wrestling with the impact of drug reforms in several provinces and faces its share of competitive challenges.

(THE NEWS: Shoppers Drug Mart appoints Domenic Pilla as president, CEO. For the full story, click here)

Pilla will join Shoppers Drug Mart, effective Nov. 1. He succeeds Jurgen Schreiber, who abruptly stepped down as president and CEO on Feb. 15. Schreiber left Shoppers to pursue a private equity opportunity outside of North America.

Schreiber's departure had rattled some investors as they bought into Shoppers on the faith that retail maven Schreiber would return the Canadian retailer to consistent quarter-over-quarter growth. Furthermore, Schreiber had resigned while the company's three-year strategic plan, which promised to result in earnings growth, was still in its fledging stage. Shoppers immediately began a global search for a new CEO and appointed chairman David Williams to serve as president and CEO on an interim basis. With Pilla now set to take the helm at Shoppers, which operates more than 1,190 Shoppers Drug Mart and Pharmaprix stores in each province and two territories, one can be certain that investors will be keeping a close watch.

Responding to the news of Pilla's appointment, one industry observer posted a comment on DrugStoreNews.com that read: "Domenic Pilla has the strength and range of leadership, the collaborative ability, combined with a deep passion and caring for the pharmaceutical care industry in Canada. Whether it is their associate group, their governance group or their investor relations, I believe he can effectively and sensitively engage all levels of interest in a comprehensible dialogue, which creates happier WIN-WIN outcomes for all levels of the organization."

On July 21, Shoppers reported a boost in second-quarter sales and earnings. Second quarter sales rose 1.4% to C$2.39 billion, driven by sales growth in the front of the store in all regions of the country. On a same-store basis, sales rose 0.8% during the quarter. Same-store prescription sales decreased 0.8% during the quarter, as same-store front-end sales rose 2.4%. Second-quarter net earnings were C$148 million, or 68 Canadian cents per diluted share, compared with C$146 million, or 67 Canadian cents per diluted share, in the year-ago period.

In announcing second-quarter results, Williams stated, "As we continue to work through a difficult year of transition in response to government reform initiatives and the resultant funding and reimbursement pressures this has placed on our pharmacy business, we are encouraged by our performance in the second quarter and our results thus far in fiscal 2011. We continue to make the necessary adjustments to our business model without compromising on our commitment to deliver the best in patient care and customer service. Our ability to deliver growth in the context of this environment speaks to the dedication and commitment of our associate-owners and their teams at store level whose efforts, along with those of our central and regional office employees, have us well-positioned entering the second half of the year."

According to local reports, generic drug reform in Ontario, British Columbia, Alberta and Quebec is hampering prescription revenues and pressuring the bottom line at Shoppers, along with other Canadian pharmacies, both large and small. Ontario and other provinces have outlawed professional allowances that generic drug companies paid to pharmacies in exchange for stocking their products, which pharmacies have indicated costs them hundreds of millions of dollars a year.

Furthermore, Shoppers is involved in a legal battle with the Ontario government over the province's regulations last year that prevented pharmacies from selling their own lower-priced versions in place of name-brand drugs, according to reports. Meanwhile, many Canadian retail chains have been facing increased competition from U.S. retailers. For example, Target is looking to open its first Canadian stores in 2013, and Walmart already operates more than 300 Canadian stores.