Loblaws illustrates how every company is becoming a software company

With Loblaw’s purchase of a digital health records company, Galen G. Weston has shown a knack for predicting—and shaping—Canadians’ retail habits

Loblaw executive chairman Galen G. Weston

Loblaw executive chairman Galen G. Weston at the company’s AGM in May 2016. (Fred Thornhill/CP)

This August, Loblaw announced its $170-million purchase of QHR Corp., an electronic medical records rm based in Kelowna, B.C. Judged against the company’s $12-billion acquisition of Shoppers Drug Mart in 2014, this year’s deal seems puny. But set aside the price tag; this purchase marks the path executive chairman and president Galen G. Weston has set for his grocery empire. Over the decade he has led the company, he has maintained a commitment to long-term strategy while capitalizing on technological shifts.

Weston has been clear on his company’s opportunity. When the Shoppers deal was announced, he said “a vision that combined health, wellness and nutrition” was Loblaw’s best option for long-term growth. He contends that the grocery store of the future needs to offer a better life, not just better food. For instance, Loblaws has removed artificial flavours from many store-brand products, reflecting consumer tastes for less-processed foods. Shoppers under 35, in particular, will pay more for such offerings, according to a Nielsen survey.

This broad wellness mandate allows Loblaw to cater to the healthy lifestyles of younger consumers while addressing the health concerns of older ones. As baby boomers age, the demand for prescription drugs will inevitably rise; Shoppers Drug Mart saw a 4% increase in prescriptions dispensed in 2015 alone. Meanwhile, the sale of Loblaw products through the drug chain hiked Shoppers’ non-pharmacy sales by 5% last year. Overall, Loblaw has seen growth in its revenue, profits and share price. Sitting at roughly $45 when the Shoppers deal was announced, the company’s stock is now closer to $70.

It will climb even higher if Loblaw succeeds in changing the job description for your local pharmacist. Weston wants to “improve the Canadian health-care system” by lobbying regulators to allow pharmacists to offer nutritional counselling, to give inoculations and even to write prescriptions. In this context, QHR is more than a new revenue stream: It’s a bet on the future.

Buying QHR demonstrates that Loblaw has grasped a core truth of 21st-century business, which is that every company is a software company now. As Vijay Gurbaxani recently wrote in the Harvard Business Review, software companies are adept at asking questions like, “What barriers do customers face in realizing value from [our] current offerings?” Then they use technology to overcome those obstacles. If medical files scattered among a dozen offices might block a customer from using your new nutritional counselling service, then electronic records are one answer. Loblaw has shown a knack for this approach within its traditional business as well. Its Click and Collect system—which allows customers to order online and then pick up at a store—is now available at more than 60 locations. And its loyalty program app is both complement and competitor to the rash of e-coupon startups. It’s an impressive trick for a century-old firm, but Loblaw has managed to be consistent in its mission and agile in its methods at the same time.