Stores fear dip in traffic

Ontario drugstores can expect a 15% drop in store traffic if the new law barring them from selling tobacco passes unchallenged, says Larry Rosen, co-owner of five Sav-On Drug Marts in Toronto.Not only will the pharmacies lose the revenue the tobacco...

Ontario drugstores can expect a 15% drop in store traffic if the new law barring them from selling tobacco passes unchallenged, says Larry Rosen, co-owner of five Sav-On Drug Marts in Toronto.

Not only will the pharmacies lose the revenue the tobacco traffic would have generated, which represents about 16% of overall sales, they will lose the spinoff sales generated by that traffic.

A study done in January by Coopers & Lybrand for the drugstores shows that every dollar in tobacco sales generates 35 cents in companion sales.

Rosen is launching a legal action against the Ontario government, which recently passed the toughest anti-smoking legislation in North America.

John Torella, a senior consultant with retail consultancy John C. Williams Consultants of Toronto, says the traffic loss will have a significant impact on spinoff sales.

Torella says 66% of buying decisions are made in-store.

What this means for the pharmacies, if their legal action fails, is that they will have to identify other items that are convenience-driven or have a high impulse rate to display near the front of the store.

Torella says there is no substitute for cigarettes, so the shelf space will have to be used for services such as film processing and related products.

Alternatively, the stores may have to be rearranged so the shelf space behind the cash register is accessible for convenience items.

Rosen, backed by pharmacists across the country, is fighting Bill 119, which will become the Tobacco Control Act when proclaimed into law.

Effective Dec. 31, it will be illegal to sell cigarettes to anyone under 19, or to sell them in drugstores or through vending machines.

Rosen stresses he is not fighting the entire bill, just the clause that prohibits pharmacies from selling tobacco.

The pharmacists argue the bill discriminates against one segment of the retail industry and will not curtail tobacco use because the product will remain widely available at about 120,000 other outlets in the province.

Torella says that with pharmacies being eliminated as major competitors, other retailers such as convenience stores, grocery stores and gas bars can expect to enjoy higher volume of cigarette sales, as well as the add-on sales generated by tobacco.

According to Nielsen Marketing Research estimates, drugstores have a 14.2% share of all tobacco sales, grocery stores, 32%, convenience and variety stores, 11.1%, gas bars, 10.7%, general merchandizers, 1.6%, and other, 30.4%.

The latter category includes institutions, restaurants, and cash and carry stores.

Rosen has financial support from other pharmacy chains for the legal challenge, the largest being Shoppers Drug Mart, a subsidiary of Imasco, which also owns Imperial Tobacco, Canada’s largest cigarette maker.

Arthur Konviser, Shoppers public affairs senior vice-president, confirmed his company is kicking in $33,000, based on a formula of $100 per store, developed by the Ontario Chain Drugstore Association (ocda).

Chains from other parts of the country supporting Rosen are Vancouver-based London Drug Stores, $10,000; Jean Coutu of Quebec, $30,000; Lawtons Drug Stores, an Atlantic Canada chain, $10,000, and independents, $20,000.

The Oshawa Group, which owns 135 Pharma Plus Drugmarts in Ontario, says it has been approached by the ocda for financial support for the legal challenge.

At press-time, Pharma Plus was still evaluating its position and had not made a commitment.

Chains outside Ontario fear other jurisdictions will adopt its restriction unless it is successfully challenged.

Chris Pryde, policy analyst for the Non-Smokers’ Rights Association, says the other provincial governments are ‘waiting to see what happens in Ontario [regarding sale of tobacco in drugstores.']

When asked what will happen to the tobacco shelf space if the courts rule against him, Rosen says:

‘Right now, I’m not even considering losing. My energy is being devoted to winning.’

Pressed further, he says, ‘Well, I’ll have to come up with a new category.’

Gerry Baboushkin, Pharma Plus marketing vice-president, refuses to comment on what will happen to the shelf space if Rosen loses.

Bill 119 also prohibits the sale of tobacco products in retail outlets that have in-store pharmacies.

Oshawa Group spokesman Tim Carter says the company is evaluating what to do about its in-store pharmacies in the two stores in its Food City chain that house in-store pharmacies.

Wal-Mart Canada, formerly Woolco Canada, is going to follow the law regarding tobacco sales.

Ed Gould, managing partner of NATIONAL Public Relations (Wal-Mart’s public relations firm), says the regulations, which will be written over the summer, may allow retailers with in-store pharmacies to sell cartons of cigarettes, but not single packs.

Rosen has also approached tobacco companies for additional funding.

Robert Parker, president of the Canadian Tobacco Manufacturers’ Council, says council members will ‘probably’ support Rosen, but adds, ‘the board is still evaluating the situation.’

The lobby group’s members include Imperial Tobacco, Rothmans Benson & Hedges and RJR Macdonald.

While Rosen concedes it will be a hard fight, he says he feels he has a ‘reasonable chance’ of winning.

Rosen was to present his case at the end of last week to obtain a trial date. However, he cannot get a trial date until the bill has been proclaimed into law, which may not happen until the fall.

Health Minister Ruth Grier says her legal advisers feel the bill can withstand a court challenge.

The Health ministry’s goals are to discourage youth from smoking, reduce tobacco consumption and to reduce the harmful effects of second-hand smoke.

The ministry views tobacco sales at pharmacies as inconsistent with their role in the healthcare system.