September 9, 2020, Rexall Store in Toronto.Christopher Katsarov/Globe and Mail
Rexal’s American owners are selling the pharmacy chain to a potential buyer as McKesson reconsiders its Canadian footprint after 15 years of expansion, sources said.
Texas-based McKesson Corporation is a distribution giant in the pharmaceutical industry, and the company has had a particular interest in Canada since about 2008. Initially, McKesson Corporation expanded by acquiring independently owned pharmacies, but it gained significant attention in 2016. He acquired Rexall from Katz Group Canada Ltd. for $2.9 billion.
Eight years and a pandemic later, McKesson is considering selling Rexall and is in contact with potential buyers, according to two sources familiar with the sale process. Rexall operates approximately 400 pharmacies and employs approximately 8,000 employees. McKesson said in an email to the Globe that he does not comment on rumors or speculation.
The Globe and Mail did not identify the sources because they were not authorized to speak publicly on the matter.
McKesson is considering a sale, but there is no guarantee the deal will be completed. Potential buyers include rival chains looking to expand and private equity firms, many of which have deep pockets. If the sale is completed, McKesson could remain a partner with Rexall by supplying the chain through its pharmaceutical distribution arm.
In Canada, the pharmacy business is in a difficult situation because the government regulates drug prices, especially the prices of generic drugs that are no longer on patent. Inflation has soared operating costs, and a shortage of pharmacists in some parts of the country has created logistical challenges.
McKesson struggled with profitability early in its ownership of Rexall. Immediately after the deal was completed, Canada implemented new rules that lowered the price of generic drugs, and provinces such as Ontario and Alberta raised their minimum wages.
In response, Lexal closed nearly 10 percent of its 450 pharmacies in 2018. That same year, McKesson warned investors that it would pay an after-tax asset impairment charge of between $600 million and $1.98 billion, with some matching amounts. To the Lexall business.
One of Rexall’s biggest growth opportunities is in retail, as the profit margins in the pharmacy business are very low. The chain sells everything from cleaning supplies to cold and painkillers to baby products, and some competitors have found ways to turn the retail division into sizable profits. Chains such as Loblaw Corp.’s Shoppers Drug Mart Corp. and Metro Corp.’s Jean Coutu Group Co. (PJC) report high profit margins on “over-the-counter” products such as cosmetics.
McKesson has spent the past few years working to reorganize and strengthen Rexall’s retail division. In 2019, Rexal partnered with frozen food retailer M&M Food Market to put M&M products in the freezer. At the time, pharmacy retailers were keen to add more edible products to attract customers, especially young people, who would buy edibles over other products. For example, shoppers added more products from Loblaw Cos. Ltd. and No Frills to their shelves.
A year later, in 2020, Rexall launched its own loyalty program known as Be Well. Up until that point, the retailer had partnered with the Air Miles loyalty program, but retailers from all walks of life are looking to get more data, including Loblaw’s Optimum and Canadian Tire’s Triangle. We have launched our own in-house programs, such as: To develop more personalized marketing offers with shoppers.
With so many retailers launching their own programs, AirMiles became a less desirable loyalty program over time, and its parent company filed for creditor protection in 2023. AirMiles’ long-time credit card partner, Bank of Montreal, currently owns the company.
Rexal also sought to reposition itself by emphasizing health products, coupled with McKesson’s 2017 acquisition of online drugstore Well.ca. Rexal sought to integrate the site, which is popular with women, with its physical stores. He stocks products and allows customers to order online and pick them up at a Rexall store. The retailer also discontinued its historic private label brand, his Pharma Plus, to create a consistent look across the chain.
As McKesson restructured Rexall, the company’s Canadian management faced several upheavals. Domenic Pira, former president of Shoppers Drug Mart, was hired to manage McKesson Corporation Canada in 2017 but left in 2020. The company named Rebecca McKillican, previously president of Well.ca, to succeed her, but she resigned. Last year, he was replaced by Joan Eliasek, who previously held other executive positions within the company.
McKesson Corp. has restructured its global footprint in recent years. In 2021, the company sold its European operations in France, Italy, Ireland, Portugal, Belgium and Slovenia, as well as its UK operations, including Lloyds Pharmacy.