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Jean Coutu regroups to tackle Canada market

BY Michael Johnsen

LONGUEUIL, Quebec —The Jean Coutu Group last month set its sites on Ontario for future expansion, with plans for developing a new store concept to better compete with the dominant drug store player in that market—Shoppers Drug Mart.

“We have to do this right and find our place in the sun,” noted Jean Coutu president and chief executive officer François Coutu after the chain’s annual meeting for shareholders. Quebec represents the greatest sales-per-store upside and is the “best investment opportunity” now, Coutu said. The day before the chain’s annual meeting, Coutu told analysts that Jean Coutu’s “retail sales per square foot reached C$1,362 [US$1,433] per square foot in the first quarter of 2008, an increase of 4.8 percent over last year. “In fact, this measure is about 40 percent better than our closest Canadian drug store competitor, and we all know who it is,” he said, referencing Shoppers Drug.

According to a report in the Canadian daily, The Globe and Mail, Jean Coutu’s initial intention was to use its U.S. banners, both Eckerd and Brooks, as part of its domestic expansion strategy. But that strategy was nixed following the sale of its U.S. operations to Rite Aid in June. For now, it is uncertain whether the Jean Coutu Group would grow its banner organically or through acquisition, though Coutu favored growth through acquisition in a conference call with analysts.

Going forward, the Jean Coutu Group announced five stratagems that the company would pursue to help grow both its Canadian footprint and drug store marketshare in that country. These include:

Add registered nurses to the pharmacy team:

The Jean Coutu Group last month introduced its I.D.E.A.L. project, a test pilot in which nurses are being hired to assist the chain’s pharmacy teams in an effort to improve pharmaceutical follow up with patients. According to Jean Coutu, the nurses are required to be members of Canada’s professional order of nurses, l’Ordre des Infirmieres et Infirmiers du Quebec.

Currently, I.D.E.A.L. is in the pilot project phase at a dozen PJC Jean Coutu drug stores. As a result, 12 nurses have been hired for the project.

“In the future, nurses will assist PJC pharmacists and customer advisory services,” Coutu said. “This innovative professional collaboration will allow our pharmacists to achieve two objectives—improved customer patient compliance, as well as improved security associated with prescription drug therapies,” he said.

A substantial commitment to capital investment:

The company plans to invest US$110.2 million in the coming year on 11 new outlets, 11 store relocations and 44 store expansions and renovations. Jean Coutu plans to open 50 new stores by 2010. Jean Coutu also plans to open another 20 Boutiques Passion Beaute. In terms of selling square feet, the Jean Coutu Group is looking to grow its overall store base by 6 percent to 2.4 million square feet. More than half of the Jean Coutu Group stores currently have a selling space of more than 8,000 square feet.

Optimize customer offering:

In an effort to grow sales, Jean Coutu Group plans to continue to leverage its Air Miles program, an awards program administered by Alliance Data that reaches almost two-thirds of Canadian households, as the program’s exclusive pharmacy sponsor. Members of the Air Miles program can earn reward miles at more than 100 leading brand-name sponsors and can be redeemed for more than 800 different rewards, such as travel and electronic merchandise.

In addition, Jean Coutu announced it would mine its sales data in an effort to offer more targeted promotions based on customer spending habits.

Expand private-label share:

Jean Coutu Group’s current offering of some 2,300 private-label SKUs accounts for approximately 9 percent of the chain’s front-end sales. The goal is to increase that share to 12 percent by 2010. “Going forward, the Personnelle brand will be used primarily for health and beauty products,” Coutu said.

Emphasize pharmacist consultations:

“We have understood that in order to support our pharmacists in this role, we need to assign technical and other tasks to others,” François said, noting that Jean Coutu Group plans to extend additional training opportunities to its pharmacy technicians, provide them with improved prescription management software and employ more leading-edge automated technology and improved pharmacy department workflow.

The Jean Coutu Group most recently reported an 8.2 percent increase in operating income, which totaled US$55.5 million for the first quarter ended Sept. 1, and includes the company’s share of Rite Aid’s results.

The share of the loss in the Jean Coutu Group’s first quarter 2008 earnings amounted to US$30.3 million.

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Big crowds greet Tesco debut in Los Angeles

BY Doug Desjardins

LOS ANGELES Tesco wanted to make a good impression with its Nov. 8 Fresh & Easy debut in Los Angeles—a city where image is everything—and it did just that with a huge crowd jamming the aisles on opening day. Company officials reported similar turnouts at five other grand openings in Southern California and acknowledged customer response exceeded expectations.

More than one hundred people stood in line waiting to get into the Los Angeles store, with employees letting customers in as others left. And what they saw inside was a Tesco’s new hybrid combining elements of Trader Joe’s, Whole Foods and 7-Eleven with some borrowings from its stores in Europe.

The basic concept of Fresh & Easy is a convenient shopping experience with an emphasis on healthy food and prepared meals from its Fresh & Easy private label. During a brief tour of the crowded store, Uwins explained that 50 percent of its food offerings are from its private label and that everything is created, cooked and packaged at its own state-of-the art “kitchen” in Southern California, including all of its prepared meals.

“We expected pre-prepared meals to be a massive hit here in the U.S.,” said Simon Uwins, Tesco’s chief marketing officer. “And so far, judging from the gaps we see in our refrigerated cases, they’re being cleared out rather fast.”

Several things set Fresh & Easy apart from other grocery retailers like Trader Joe’s and Whole Foods, the two it resembles the most. As Uwins mentioned, its Fresh & Easy private label has a 50 percent penetration rate and is represented in nearly every major food category including produce, meat, prepared meals, juice, coffee and mixed nuts.

And that reliance on private label allows it to offer some very competitive prices. Overall, Tesco says its prices are well below its main rivals at standard supermarkets. “We estimate our prices are about 20 percent lower than most supermarkets in the area,” said Uwins.

Its selection general merchandise, health and beauty and over-the-counter medications is small supermarket standards and runs more along the lines of a convenience store, though with a broader assortment. Basics like paper towels, diapers and pet food are stocked in a single aisle and its HBC and OTC products are located on one long shelf toward the back of the store capped with a section for greeting cards and magazines.

The rather small selection—and the complete lack of private label products—shows Fresh & Easy is primarily about the food, though that could change. “There are no private label products outside of food right now but that’s not to say that won’t change,” said Uwins.

The in-store signage is also unique and stamps Fresh & Easy as an organic and eco-friendly retailer, a good image for Southern California. Nearly every green, cardboard endcap features a message about its products including “all our bagged coffee is certified organic” and “our desserts contain 0 percent trans fats.” LED lighting is also used in the store, something else pointed out in its signs. The store doesn’t sell cigarettes but do carry a large selection of wine along with liquor and beer.

The checkout system is completely automated with 100 percent assisted self-checkout. Five checkout stands are small and designed for 15 items or less and the rest are a bit larger with scanners and self-pay systems (though there were plenty of employees nearby to help out people not familiar with the concept).

As expected, Tesco had some detractors at its grand openings in the form of labor unions and neighborhood groups. The Carpenters Local 1506 picketed in front of the Los Angeles store and handed out fliers claiming that a group hired by Tesco to help build its stores “does not meet area labor standards, including paying for health care and pension for all its employees on all projects.”

Tesco has a second wave of five openings planned for Las Vegas on Nov. 14 and plans to have stores open in the San Diego market in late November and Phoenix in early December. It expects to have 50 stores operating in California, Nevada and Arizona by next February.

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Costco announces October sales figures

BY Doug Desjardins

ISSAQUAH, Wash. Costco reported a big 9 percent jump in same store sales in October.

Leading the way was a 17 percent increase in sales at its international stores with U.S. sales jumping 7 percent. The increase beat the 5.7 percent average predicted by analysts for the month.

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