Calgary Co-op’s pharmacy acquisition shows focus shifting from overcrowded grocery sector: expert

The move perhaps reflects that the grocery sector, with its razor-thin margins, will become increasingly difficult to maintain as a core business for Co-op, said Bob Schulz at the Haskayne School of Business.

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Calgary Co-op’s acquisition of a small Ontario pharmacy company marks a “new strategic direction” for the local cooperative, signalling diminished focus on the grocery side of its business, an expert says.

Co-op announced on Jan. 2 it had acquired a majority stake in Care Pharmacies, a group of independent retail outlets controlled by licensed pharmacists and headquartered in Vaughn, Ont.

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Care Pharmacies is Canada’s largest independent pharmacy, with 56 stores mostly located in Ontario, although it’s dwarfed by the major players, such as Guardian and IDA, Shoppers Drug Mart and Pharmasave.

The move is perhaps recognition from Co-op that the grocery sector, with its razor-thin margins, will become increasingly difficult to maintain as a core business, said Bob Schulz, professor at the University of Calgary’s Haskayne School of Business.

“It’s a much different business from where the company started, but they may recognize that it was going to be hard to grow and compete in the grocery business,” Schulz said. “They’re changing from a very crowded grocery market to a growing market in the pharmacy (sector).”

The financial terms of the Co-op’s acquisition were not disclosed for competitive reasons, and is expected to close during the first quarter of 2024.

In a Jan. 2 interview with Postmedia after the deal was announced, Co-op CEO Ken Keelor said the company’s intent was to de-risk member’s investment in the company, saying investments in health and wellness could replace other revenue lines in coming decades.

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Ken Keelor, Calgary Co-op CEO
Calgary Co-op CEO Ken Keelor said health and wellness could replace other revenue lines in coming decades. Postmedia file photo

Schulz said that’s a fair assessment — but whether Co-op can capitalize on that opportunity isn’t clear-cut.

“They expect the size of the pie to grow for health and wellness, which is true. Whether they can get a profitable share of that business is not always so clear.”

Co-op’s acquisition of Care Pharmacies isn’t its first foray into the health space, having bought Community Natural Foods in 2019. It meanwhile switched food suppliers in 2019 in a tense departure from Federated Co-operatives Limited (FLC), from which is had sourced its food and fuel for more than 50 years.

Expanding telehealth service — health care that can be delivered digitally or over the phone — will likely be a specific target for Care Pharmacies, which predominantly serves small rural communities, Schulz said. (Care Pharmacies’ lone Alberta pharmacy is in Manning, a town of about 1,100 people six hours north of Edmonton.)

Executing expanded Telehealth, Schulz said, would require partnering with a telecom company in rural towns to serve populations that often have poor internet service.

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Keelor said Care Pharmacies’ leadership team will remain intact post-acquisition. Care’s retail outlets are mainly owned by locals from the towns in which they’re located.

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“These folks are across the country in terms of having feet on the ground. A lot of identifying opportunities is going to happen locally, and then a lot of governance in terms of moving forward with those opportunities, I will say, would be primarily owned by Calgary Co-op.”

Schulz said it’s “a bit unusual” to see a Calgary company predominantly in the supermarket business pursue a pharmacy chain, particularly one with such a large geographic footprint.

He speculated that to start, Co-op may help Care Pharmacies transition to a stronger information system that could lower costs. Looking further ahead, it could be a precursor to Co-op and Care Pharmacies becoming major players in rural Alberta’s pharmacy business.

Keelor, meanwhile, said he’s unsure whether Care will expand its presence in Alberta.

“Will they grow in Alberta? I bet they will, but there’s no guarantees. The focus hasn’t been, ‘Let’s take a province and grow in that province.’ It’s been about looking across the country at where the opportunities exist,” he said.

Keelor was unavailable for further comment on Co-op’s acquisition and its long-term plans for the business.

— With files from Ricky Leong

[email protected]
X: @mattscace67

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