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Keeping up with the Waltons

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Loblaw Companies Ltd.announced a friendly deal Monday to take over Shoppers Drug Mart Corp. for $12.4 billion in cash and stock, combining Canada's largest grocery and pharmacy chains.

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Loblaw Companies Ltd.announced a friendly deal Monday to take over Shoppers Drug Mart Corp. for $12.4 billion in cash and stock, combining Canada's largest grocery and pharmacy chains.

The Loblaws grocery empire this week swallowed up the Shoppers Drug Mart empire to form a new Canadian retail giant. The combined company may be large enough to compete with U.S. giants Walmart (started in 1950 by Sam Walton) and Target. Those U.S. chains are currently expanding in Canada. Consumers may or may not enjoy better grocery stores and better drug stores as a result, but the expanded company should be big enough to survive the immediate challenge from U.S. chains.

Loblaws, with sales of $31.6 billion last year and 51.5 million square feet of retail space across the country, has evolved from a grocery chain into a broad-spectrum retailer, offering clothing, automotive supplies and a host of other household products along with the food.

It has not become a leading merchant in any of these fields, but it became the country's top grocer by offering a variety of other goods.

The addition of a drug store chain is perfectly consistent with the company's history of diversification in product offerings.

Shoppers Drug Mart, with 2012 sales of $10.5 billion and 13.2 million square feet of retail space, has long been selling a wide variety of household products. The firm greatly expanded its cosmetic departments in the last few years, with excellent results in its sales volumes.

Even though all provinces imposed severe caps on prices for brand-name prescription drugs last year -- tying them more closely to prices of the competing generic products -- Shoppers achieved increased dollar value of prescription drug sales in the first quarter of this year.

Since both chains attribute their success to a variety of products on the shelves, the combined company could be expected to continue down the same path. Target and Walmart, in the same way, aim to offer shoppers something of everything.

Galen Weston, the majority owner of Loblaws, is defending his share of the Canadian retail turf by imitating Target and Walmart.

This strategy, however, leaves an exposed flank. Eaton's and the Bay in their time tried to be all things to all shoppers. They had a good run for many years, but then specialty retailers proved more adept at selling furniture, appliances, clothing, sporting goods and most other products.

Eaton's was wound up and the Bay has shrunk to a mere shadow of its former self. The risk in offering all things to all shoppers is that a retailer may not be known for anything in particular and may be out-performed in service, in price and in quality of goods by firms that specialize narrowly in one thing and do it extremely well.

Winnipeggers already know both firms well on account of the eight enormous Great Canadian Superstores and the 30 smaller Shoppers Drug Mart stores in the city.

Our Safeways have already been bought by Sobeys. Now our Shoppers Drug Marts have been taken over by Loblaws.

In both cases, the new management aims to keep their newly acquired stores going in the accustomed way under the accustomed name. The main difference for the moment is that they can engage in the kind of financial engineering that will encourage bankers and investors to keep supporting them.

The announcements by Loblaws and Shoppers spoke of new value creation opportunities, contemporary interest in health and nutrition and the imperatives of value and convenience.

But in practice the smaller Shoppers stores cannot offer the acres of multi-product space of a Great Canadian Superstore.

The difference for consumers is likely to be slight. The main difference will be that the new company can offer sophisticated investment instruments on a large enough scale to attract attention in the credit and equity markets. This has little to do with feeding people better or dispensing their drugs more carefully. It has a great deal to do with keeping up with the Waltons.

Editorials are the consensus view of the Winnipeg Free Press’ editorial board, comprising Catherine Mitchell, David O’Brien, Shannon Sampert, and Paul Samyn.

Republished from the Winnipeg Free Press print edition July 17, 2013 A8

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