Loblaw opens its first "small-format" pharmacy

TORONTO (Reuters) - Canada's Loblaw Cos L.TO said on Wednesday it opened the first "small-format" pharmacy in one of its supermarkets as part of a push to take market share from Shoppers Drug Mart SC.TO and other drugstore chains.

The country’s No. 1 grocer, which already operates about 500 pharmacies at its bigger stores, launched the new 400-square-foot design at one of its discount No Frills stores in Mississauga, Ontario.

Drugstore sales at Loblaw account for a small percentage of its overall business. But the company aims to lure more traffic into its supermarkets by extending pharmacy hours, cutting prescription fees, rolling out new technology and implementing other processes it says will improve service.

The company operates more than 1,000 stores nationwide under banners like Loblaws, Real Canadian Superstore and No Frills,

The drive comes shortly after the province of Ontario overhauled the way it pays for prescription drugs, a change intended to lower prices for consumers. It launched the new policy this month.

Pharmacy chains have called Ontario’s overhaul punitive, and Shoppers -- which reports quarterly results on Thursday -- has responded by cutting hours and services in some locations.

In addition, Loblaw's pharmacy expansion could help the supermarket operator compete more effectively with discounters like Wal-Mart Stores WMT.N.

“Part of it is pricing. Part of it though is going to be the convenience factor and the fact that you can do your shopping at a No Frills and pick up your prescription rather than having to make a secondary trip,” said analyst Robert Cavallo of Research Capital Corp, who sees only a minimal impact on Shoppers.

As much as Loblaw is making a push into the pharmacy side of the business, there is a push from the likes of Shoppers Drug Mart into certain parts of food business, Cavallo said.

He points out that Canadian consumers can do much of their regular pantry shopping at a drugstore now, buying staples such as milk and dry goods.

“Food is going to be a relatively important part from a traffic-driving perspective going forward. Some of the customers that may be stolen by Loblaw, as an example, could be offset in turn by lost food sales to Shoppers Drug Mart,” he explained.

Loblaw aims to add more mini pharmacies across the country this year under its various grocery banners.

Shares of Loblaw closed up 1.6 percent at C$41.42 on the Toronto Stock Exchange. Shoppers Drug Mart dropped 2 percent to C$35.50.

$1=$1.04 Canadian