What the Loblaw/Shoppers Drug Mart tie-up will mean for its loyalty programs, and for consumers

When Loblaw Companies Ltd. announced a $12.4-billion deal to acquire Shoppers Drug Mart on Monday, grocery executives lauded the pharmacy chain’s Shoppers Optimum program.

[np_storybar title=”Loblaw’s blockbuster $12.4-billion Shoppers deal shows grocers are hungry for pharmacy firms” link=”http://business.financialpost.com/2013/07/15/loblaws-shoppers-grocery-pharmacy/”%5DThe deal is the culmination of a lot of jostling by grocers to expand into pharmacies, which are appealing because they reliably bring back the same customers. Find out more

Others also see the intriguing possibilities of using the top in-store loyalty program in the country, with its 10 million members, to both bolster Loblaw’s attractiveness to consumers and expand the grocers bank, PC Financial Services.

“They definitely talked about revenue synergies,” Bobby Hagedorn, an equity analyst at Edward Jones, said. “What I would imagine you’d see is some sort of PC Financial presence at Shoppers going forward…It will be interesting to see how they mold that into the Shoppers brand and into the Optimum card.”

The deal is the culmination of a lot of jostling by grocers to expand into pharmacies, which are appealing because they reliably bring back the same customers.

“Here, it’s almost like you’ve got the start of a new coalition program,” Neil Linsdell, a consumer products analyst at Industrial Alliance Securities Inc., said.

“Typically in a coalition program, you want to start off with a financial partner, you want to get a grocery store, a pharmacy, a gas station — you want to get a partner from every key type of retail channel…This allows you to reinforce the buying behaviour or the customers between the two.”

Other banking institutions have partnered with loyalty programs to entice customers.


“You open up an account with CIBC and you start getting Aeroplan points … Airmiles is partnered with BMO for its credit card,” Mr. Linsdell said. “It’s not a bad strategy at all to leverage up that member base and the commitment to the Optimum program to try to channel that brand loyalty to build up the PC Financial.”

Shoppers Drug Mart offers customers an RBC Shoppers Optimum Mastercard, which earns Shoppers Optimum points at any store. Meanwhile, PC Financial’s Mastercard allows users to earn PC points on every purchase and redeem the points for free food. But there is room for partnerships, said Mr. Linsdell. “Look at Aeroplan — they have Amex and CIBC for now. You may have different financial partners that come from different angles.”

Under the terms of the pending deal, Shoppers will keep its brand name and operate as a separate division of Loblaw. The two companies said they plan to promote each company’s products and services such as their loyalty points programs.



At a press conference, Domenic Pilla, president and CEO of Shoppers Drug Mart, did not go into detail about how the Optimum program would combine with Loblaw’s PC Financial services; but he said it was “good for both companies.”

“The link between loyalty and financial services platforms is a growth platform that will give us additional customer insights and additional scale,” he said.

Of a list of top loyalty programs in Canada, Shoppers Optimum came second behind Air Miles, according to a recent survey by Environics Research Group for LoyaltyOne; Loblaw’s PC Points ranked seventh.

Shoppers Optimum and PC Plus could combine their member databases and more effectively cater to customer needs and habits, Ken Wong, a marketing professor at Queen’s School of Business, said. “The analytics are the real power here.”

Loblaw recently debuted its new PC Plus loyalty card, which will vary its offers based on consumer behaviour. Those who buy certain items all the time, for example, will get a reward for buying the same; but they will get more rewards if they buy outside their shopping comfort zones.

Shoppers enhanced its Optimum program earlier this year; it sends weekly emails to members with individualized deals and coupons based on their purchase histories. Two million people are receiving tailored email offers.

“If [a customer’s] been shopping at Shoppers but she goes to Metro instead of Loblaws and if she sees that she can start earning Optimum points if she shops at Loblaws, do you think maybe she’ll start shopping at Loblaws?” Mr. Linsdell said. “Then she’ll start seeing these coupons for Loblaws that she didn’t see.

“You’re dragging that brand recognition and brand loyalty over to another retailer.”

The deal also means that you could start to see Life brand products in Loblaw’s stores and President’s Choice products in Shoppers Drug Mart locations, Prof. Wong said.

“You’ll be able to accumulate points in more places for a wider variety of goods and you’ll be able to redeem them for a wider variety of goods,” he added.

Shoppers Drug Mart assured customers via Facebook Monday that the merger would not affect its Optimum program.

Loyalty programs are becoming more sophisticated as competition rises in retail with the arrival of Target and the expansion of Walmart.

According to the 2013 COLLOQUY Loyalty Census, the average Canadian household is involved in an average of 8.2 loyalty programs, down from 8.9 programs in 2010. Jeff Berry, research director at COLLOQUY, a division of LoyaltyOne, suggested that the decrease might indicate a consumer weariness for loyalty programs.

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