Introduction
Basic Overview
Shoppers Drug Mart is a Canadian-based provider of pharmacy products and services.
The founder of the company is Murray Koffler, and the president is Mike Motz. The
management structure that comprises SDM's store network are individual "associate-owned
stores" (variable interest entities, or VIEs), with the company as the primary beneficiary.
They are a wholly owned subsidiary of Loblaw Companies Limited. The headquarters is located
at 243 Consumers Road, Toronto, ON, can be easily reached by phone or E-mail. The company
audits with Deloitte LLP, and the latest audit reveal that the company presents fairly, in all
material respects, the financial position in that year, and that everything is in accordance with the
International Financial Reporting Standards.
Accounting Principles
The company has applied IFRS retrospectively from January 3, 2010, for the opening
balance sheet. The first financial statements issued under IFRS were for the year ended
December 31, 2011.
Under IFRS (IFRIC 13), revenues from original sales that give rise to loyalty points (or
other award credits) should be allocated between award credits and other sales components. Fair
value of award credits should be deferred as unearned revenue and recognized when exchanged
for promised rewards. Shoppers Drug Mart had an accounting change under IFRIC13 customer
Loyalty programme (2009 vs. 2012) This is stated in more detail in Appendix 1. Moreover, as
indicated in note 3 of Shoppers’ financial statements, the Company leases most of its store
locations and office space. Leases that transfer substantially all the risks and benefits of
ownership are recorded as financing leases, and are included with property and equipment,
accounts payable and accrued liabilities and other long-term liabilities as applicable. All other
leases are considered operating leases and the related rent is expensed on a straight-line basis
over the term of the lease, any rent-free periods are also amortized on a straight-line basis.
Landlord inducements are also deferred and amortized on a straight-line basis and reduce rent
expense. Furthermore, the Company has sale-leaseback arrangements for some of its stores. The
leases are accounted for as financing or operating based on their nature. Any gains realized on
disposal of sale-leasebacks that are financing in nature, are deferred and amortized on a straightline basis over the shorter of the estimated useful life of the leased asset and the lease term.
Executory costs, such as payments for real estate taxes, maintenance and insurance are expensed
in the period to which they relate.
Company Profile
They carry a wide range of products, and is a well-recognized retailer with many
locations. They carry a variety of private label products, such as Life Brand Quo Etival
Laboratories as well as Balea. By full-service, Shoppers Drug Mart/Pharmaprix stores primarily
sell over-the-counter medications, health and beauty aids, cosmetics and fragrances, seasonal
products and everyday household essentials.
Shopper Drug Mart was founded in 1962 by Toronto pharmacist Murray Koffler, and has grown
to a network of over 1000 stores across Canada. He Company licenses more than 49 medical
clinic pharmacies operating under the name Shoppers Simply Pharmacy and five luxury beauty
destinations operating as Murale.
Shoppers Drug Mart maintains as a leader in its industry, aims to be at the forefront when
it comes to the introduction of new services and the expansion of the scope of practice for
pharmacists. They have a high focus on corporate social responsibility, and have engaged in
many activities and campaigns to help and support the community. A copy of their CSR report
can be found at:
http://cdn.agilitycms.com/shoppers-drug-mart corporate/Socialresponsibility/Loblaw_2015_CSR_E.pdf
President Report
A copy of the President’s note on the financial statement is presented in appendix 2. The
content outlines management’s responsibility for financial statements. The note declares that all
the information presented in the financial statement are fair and in accordance with the law. All
material and relevant facts are disclosed, and due diligence is fulfilled when preparing the
statements. To ensure that management’s responsibilities are fully fulfilled, the president noted
that a system of adequate internal controls are put in place to prevent as well as catch any errors.
Environmental Analysis
To assess some of the intangible factors that can affect the company’s current and/or
future performance there are several analyses that we can conduct. For the purpose of this
report, we will conduct a SWOT analysis as well as a PEST analysis to gain a better
understanding of the position of the company.
SWOT Analysis
Strength





-Canada’s
largest pharmacy chain
-Successful loyalty program
Strong brand recognition with
various locations, making it very
accessible
Presence of private label brands
Wide product portfolio
Opportunity

Room for price reduction
Weakness


SDM products are more expensive
as compared to competitors
No global presence
Threat

Fierce competition from Wal-Mart


Room for international expansion
Can extend product portfolio

and Costco
High investment in R&D division
PESTLE Analysis
Sustained increases in health expenditure, rising disposable income and an aging
population have underpinned growth over the past five years. As one of the retail industry
leader, Shoppers Drug mart continues to withstand the potential negative effects of threats in the
political, economic, sociocultural, technological, ecological and legal aspects of its business. We
will now invest into the details of the first four of these aspects in order to get a clearer picture of
SDM’s position and how they can improve themselves over the next few years.
Political:

High stability of politics (government)

Political support for globalization

Political pressure for higher wages
This means that there is many opportunities for SDM to expand. Though there is high pressure
for wages here in Canada, SDM can choose to expand globally or outsource some of their work.
Economical:

Decrease in unemployment rate

Increase in minimum wage
The decrease in unemployment rate would imply that more people are earning money, therefore
a good sign for the company. The increase in minimum wage can work both ways, as it can be
more layoffs in the company, but also that citizens have more disposable income to spend.
Socio-cultural:

Healthy lifestyle

Cultural diversity
These factors provide SDM with opportunities to grow and differentiate themselves from the rest
of the industry. The company can increase its product variety and conduct more market research
to meet the various cultural preferences.
Technological

Fast paced innovation with technology in the medical field

Increasing business automation

Business analytics/data mining

Increase popularity of mobile applications amongst consumers
SDM can increase its investment in these technology factors to reach out to more
customers. The company should build more online presence, as this seems to be the trend of
today.
Legal

Food safety regulations

Employment regulations

Tax law reform
Tax reform is a potential threat of it leads to higher tax rates. SDM must take food safety
regulations as well as drug safety as an opportunity to improve quality standards.
Financial analysis
After viewing the calculations of ratios as well as from vertical analysis, Shoppers Drug mart is
in great position financially. It incurred significant amount of revenues and operating income
from 2013. Profitability ratios are strong, and healthy liquidity ratios show that the company
does not have a going concern issue. Inventory and asset turnover ratios are also strong,
reflecting the effective management strategies. Furthermore, after conducting a vertical analysis,
we can also see hat the company is very consistent with its numbers, which is a good sign.
Report to Management
I think that Shoppers Drug Mart has a lot of room to grow, therefore a good company to
invest in for the long term. They have proven successful management strategies, and payouts to
investors have never seemed to be a problem. But
Appendix 1 Accounting for loyalty Program
Appendix 2 Stock market graph
Appendix 3 Income Statement
Appendix 4 Balance Sheet
Appendix 5 Ratio Calculations
Appendix 6 Vertical Analysis Results
Bibliography
http://www.wikinvest.com/stock/Shoppers_Drug_Mart_Corp_(TSE:SC)
http://ca.investing.com/equities/shoppers-drug-mart-corp-scoreboard
http://www.ctvnews.ca/business/loblaw-closes-12-4b-deal-for-shoppers-drug-mart-1.1750361
http://www.theglobeandmail.com/globe-investor/shoppers-has-a-revenueproblem/article4319437/
https://www1.shoppersdrugmart.ca/en/optimum-new