Winning the "Customers' Shopping Experience" is once again the main strategy in Retailing.

Our non pharmacy competitors are fast developing stores which in every sense of marketing jargon provide (our) customers a much better "shopping experience" than we do in the average pharmacy environment in Australia.

Woolworths (+ Big W) & Wesfarmers (Coles, Target, KMart) have spent an enormous amount of time and money on researching various supermarket models in other countries and consumers' likes and dislikes. The results have been taken into full consideration in redesign and redevelopment projects.

Walk into any newly refurbished Coles or Woolworths, and you can not help but be impressed! Here are some examples why:

1. Fresh food section has been totally overhauled and revamped. Self service fresh healthy foods and salad bars are now on offer (like the David Jones or Myer in the Sydney and Melbourne CBDs respectively)

2. The butcher and seafood sections have been opened up and the "Fish market" style "freshly caught fish on ice buckets" are on display.

3. the width of the isles have been slightly increased for easier maneuvering of trolleys.

4. Ceiling lighting is now brighter and the refrigeration section expanded and lit up to convey freshness

5. Kids shopping trolleys have been introduced in selected outlets. Not only this may increase the time mothers with kids end up spending in the store, but also kids will pick up certain items in their own trolleys which mothers would not have had. Some of these will invariably be purchased as a result.

6. The "self service" checkouts are installed in order to take away the concept of "I don't have time to queue up for what I need so I will go to a pharmacy or other similar store and buy it quickly". Meanwhile we are still trying to educate our staff about the importance of "pleasant and prompt service at cash registers"
7. The process of keeping shelves tidy and full has been given a make over and "messy shelves" are not a major issue at the new Coles and Woolworth's stores.

8. Various online "kids Clubs" & "Mothers Clubs" incentives are being promoted to (every retailer's) primary customers; i.e. mothers

9. Frequent Flier points "Club Cards" have been introduced by Woolworths, and Fly Buys is undergoing a major revamp by Wesfarmers.

10. Needless to say, the range and prices in almost most category directly competing with pharmacy are more attractive than ours.

11. To top it up, Costco, to the 8th biggest retailer in the world has just opened its first store in Melbourne with Sydney to follow. Their target is an eventual 40 stores in Australia (ratio of 1 per 500,000. Whilst Costco and Aldi do not as adversely affect pharmacy, their presence adds more pressure to Woolworths and Westfarmers' (Coles) earning capacity and their desire to invade pharmacy sector.

The strategy does not stop at supermarkets. Woolworths & Wesfarmers are also implementing similar strategies in their variety/discount stores by revamping Big W, Target & Kmart respectively in order to improve the "Shopping Experience" in these stores too.

Getting back to the main point I am trying to make, the overall shopping experience in the eyes and minds of customers has been extensively investigated and considered in redesign & merchandising of the new stores. Meanwhile, the ever escalating shopfitting and rental costs in pharmacy and the rise in market share of warehouse pharmacies have forced many pharmacy operators to downgrade the design and quality of their stores. In many instances the consideration of the "shopping experience" of our customers is taking a backseat in pharmacy to "competing with the discount models" and containing costs.

Woolworths & Wesfarmers have fully realised the imperative differentiating effect of "Shopping Experience" and that is why they are upgrading their stores accordingly. Up to now, due to the absence of differentiation, consumers have been used to choose which supermarket to shop at primarily based on the convenience of location, then price. Aldi, and now Costco have brought back the cost differentiation as their primary weapon.

The crucial factor is that pharmacists must make sure customers do not eliminate "Shopping Experience" as a factor when deciding which pharmacy to visit. The danger is that if consumers end up not enjoying the experience at all due to clutter and/or poor store design and merchandising, they will choose to shop in discount pharmacies purely on the basis of price, or even worse, at supermarkets due to the various points mentioned earlier.

The above point is extremely crucial because most pharmacists tend to confuse customers expectation of "SERVICE" as a differentiation factor by assuming that consumers apply the same uniform set of criteria to all retail channels when defining "service" in their minds. This is clearly evident by the frequent proud announcements of .... "but they do not provide service in Supermarkets or discount chemists the way we do!".

The fact is that customers' definition of "SERVICE" in a Supermarket is markedly different with their definition of "SERVICE" in a Pharmacy, as it is also different in case of discount pharmacies.
In a Supermarket, convenient location and ease of parking, extensive range, "perceived" cheapest prices, clean, wide and easy to navigate aisles with clearly priced and easy to find products and large number of check outs form the basis of definition of good customer service in most customers' minds.The new "shopping Experience" strategy will lift supermarkets' service to the "superior" level based on consumers' definition.

In an average pharmacy, customers definition of service is mainly based on personal interaction with friendly staff and advice. However, compliant core ranging & merchandising, competitive OTC and more recently Rx pricing, bigger range, prompt service at cash registers, competence of staff's advice and easy to navigate aisles are also becoming important factors in forming the basis of service. These factors can and should form the new criteria of "Shopping Experience" in the pharmacy channel in the eyes of our customers. At the moment, their absence is one of the reasons so many commentators rate pharmacy so low in their appraisals.

Similarly, customers expectations of "SERVICE" in deep discounter pharmacies is purely based on cheapest prices around and nothing else. The tidiness of store, friendliness of staff or advice of the pharmacist do not form the basis of the definition of "service" in customers entering such stores.
The majority of pharmacies in Australia do not directly discount as deep as the main discount pharmacy chain does. Therefore the criteria of good service in our customers' minds is much more extensive. As I mentioned earlier, shrinking margins are pushing retail pharmacies towards cheaper shopfits with customers' wants and needs taking a back seat to containing costs. Meanwhile, our major supermarket competitors seem to be much more aware of the customers' definition of "service" than we are! Their research must have shown them that customers enjoy brightly lit wide isles, good range, competitive prices and fast check out service. They have invested heavily in the former, introduced fresh food concepts as part of their overall strategy and self service check outs for faster transaction time, in order to meet all customers' expectations of "SERVICE". All Supermarkets need now is deregulation of scheduled medicines and they will be miles ahead of us in terms of most of the customers' criteria of great service.

And that is the problem that the Guild will not be able to help any of us with, even if it manages to keep the regulated environment till 2015.

Graham Samuel & ACCC: A toothless and friendly watchdog!

My previous post on Woolworths acquisition of Macro stores and their conversion to "Thomas Dux" has attracted an excellent response amongst readers interested in retailing issues. Voting on the Web Poll is open until October 31st.

I would like to present this post as a sumpplement to the Thomas Dux, and quot from a AFR article titled: (Sat 24th Oct 2009, page 13)

"Can Woolworths become too big for AAA?"

Based on the figures quoted in the article, the clear answer is A big "No!"

The Chairman of ACCC, Graham Samuel's persistent dismissal of lessening of competition and misuse of market power by the two retailing giants in Australia (Woolworths & Wesfarmers) is no longer surprising anyone familiar with his track record at ACCC.

In the past three years, ACCC has scrutinised 40 acquisitions by Woolworths & has given the go ahead in 38 out of the 40 acquisitions! These included Supermarkets, Liquor Stores, Discount Stores & Organic Food Stores (see my previous post).

Of course, ACCC grants an approval once it determines there will be no lessening of competition as a result of an acquisition. For example, ACCC is of the opinion that Woolworths will increase competition by entering the big box hardware market to directly compete with Bunnings (Wesfarmers owns Coles & Bunnings) because Bunnings currently controls aaround 50% of the hardware Retail Sales in Australia & has no direct big box competitor. At the same time, ACCC is investigating the proposed $88m acquisition of hardware Wholesaler Danks by Woolworths. Danks supplies to 1500 independently owned hardware stores in Australia.

However, most small business observers almost take it for granted that whilst Graham Samuel is at the helm of ACCC most such acquisitions will be approved. Samuel & ACCC claim the perception is due to the fact that most armchair critics (such as myself) do not understand the scope of various sections of the Trade Practices Act. Whilst this is undoubtedly true, it does seem that ACCC puts more emphasise on protecting competition than worrying about misuse of market power of major players in the future or the potential lessening of competition & price rises as a result of formation of virtual duopolies in most markets in Australia.

For example, does ACCC worry about the medium to long term lessening of competition when many smaller hardware stores go out of business as a result of direct competition with two big box operators?

A brief look at the following details demonstrates why Graham Samuel & ACCCC have such difficulty convincing Small Business of their effectiveness:

• Woolworths intends to open 150 large box hardware stores to compete with Bunnings. At the same time, it also intends to control wholesale supply to 1500 small independent hardware stores.


• Last fiscal year Woolworths opened 25 new Supermarkets, 77 Liquor Stores, 51 Consumer Electronic Stores (Dick Smith)


• 138 Stores were refurbished (refer to my blog post on Consumer Shopping Experience)


• The new Qantas affiliated Customer Loyalty Program is estimated to raise sales by 1% or approximately $370m in teh first year.


• Amongst many brands Woolworths owns: Woolworths & Safeway Supermarkets, Pay4Less Supermarkets, Big W, Woolworths Liquor, Dan Murphy's, BWS Liquor, Dick Smith & Tandy Electronics (being converted to Dick Smith), Thomas Dux Grocer, Woolworths Petrol Stations & their Retail shops,
• It will be interesting to see what the medium to long term effect of Woolworths foray into the big box hardware market will be and whether it results in lower prices and/or increased competition, or the usual duopoly and subsequent increase in prices as observed previously in case of Supermarkets, Discount Variety Stores, Petrol &; Liquor.
  

Regardless of the outcome one thing is almost certain: If Graham Samuel is still around by then, he will find a way of justifying his toothless and friendly dealings with the big players!

"Shopping Experience" is the new differentiation weapon for our supermarket competitors. Pharmacy must not ignore this crucial strategy.

As a pharmacy owner, you are forgiven if you wake up in a sweet in the middle of the night to the realisation that the nightmare of of lower margins and stifling price cutting by your various competitors is in fact the daily reality of your business life!

This rather sad reality, which is affecting almost all of us in business, in combination with the shock absorbent and cushioning protection of the various Guild Government agreements have made many pharmacy owners confused, frustrated and even bitter and cynical towards Governments (past and present) and the Guild's pragmatic approach to negotiations.

Let's start the blog by stating why Pharmacy owners rightly have plenty to be anxious about at the moment:

- The next Guild Government negotiations are about to commence and the PR mischief by certain interested groups has already started. Sections of media and their biggest advertising clients with a "burning desire" to capture the Pharmacy market will be out there to create bad publicity for Pharmacists. Smear campaign on Pharmacists' high standing in the community will as usual be the primary strategy.

- The Government will have to claw back money it spent on direct cash stimulus by cutting expenditure whichever way it can, and the PBS being one of the "usual suspects" is readily at hand due to the commencement of the negotiations.

- The Federal Government's Industrial harmonisation Legislation threatens to blow wage costs so disproportionally that many pharmacies will have to either sack staff, or severely curtail their services and hours of operation.

- Discount pharmacies are dragging margins lower by the week and month, and prescription price wars between discounters and major chains is starting to hurt everyone like an internal cancer.

- Landlords, especially in big shopping centres are conveniently keeping their heads in the sand and ignoring the pressure on their retail tenants including the "cash cow" pharmacies.

- And to make things even more confusing, (although this last one is so much to the left field that it should make you burst into a laughing fit), Choice and APESMA claim they should be involved at the next Guild Government negotiations! (this is the equivalent of Mining Unions and household electricity users demanding to take part in coal price negotiations between BHP and the Chinese Government in order to determine prices charged by electricity providers!!)

Now let's have a look at the reasons why a cynical attitude is only going to blind us to many other micro and macro issues threatening our businesses as retailers:

Pharmacy Owners in Australia, Big and Small, are fortunate to have the Guild as their business representative organisation in the complex world of Canberra politics and the media following it. The Guild's pragmatic approach of "partnering governments in achieving optimal health related outcomes" and "offering implementation solutions to health related policies" in most commercial and political negotiations has served and protected the industry very well and should do so in the future. Kos Sclavos, the National President of the Pharmacy Guild, in his recent presentation at the Press Club in Canberra openly discussed this strategy and predicted a win, win, win, win scenario for taxpayers, patients, Government and pharmacists as a result of it.

This pragmatic approach has however been so successful that in fact certain mischievous cynics in the media have suggested the Guild's approach has in fact protected pharmacy owners to the point of stifling competition. This suggestion is of course at best an ill informed statement and at worst a sensationalist PR propaganda. In real terms, the introduction of deep discounting and compliant franchising models in retail pharmacy in the past few years have resulted in much lower margins and huge savings to the consumers in almost all traditional pharmacy categories including prescriptions. On top of this competition with other channels in the general merchandise categories has also made pharmacy a lot more price competitive in the eyes of the consumers.

The Pharmacy Guild is doing a superb job of trying to expand the future role of pharmacists as the most accessible health professionals, and is fighting tooth and nail in the process to preserve the viability of community pharmacy in the process. Meanwhile, the average pharmacist whilst performing the role the Guild is portraying reasonably well, is generally unappreciative of the Guild's efforts. At the same time we tend to blame the Guild, The Government, supermarkets, discount chemists etc etc for losing out to our pharmacy and non pharmacy competitors!

But do we ever look around and try to see why? I am writing this blog to remind my colleagues about one of the reasons why we continue to be squeezed out. The particular issue I am about to raise has been around for the past ten years but is gathering momentum at a rapid pace under our noses, and most of us are missing or at best ignoring it, because we are either ignorant about our profession's future, or too worried about the issues listed earlier to notice it. This rather impressive but quiet and insidious threat that is by now on our door steps and almost too hard to neutralise for most pharmacies! This is a competitive issue that even the Guild can not help save us from!

Curious? You would most probably have noticed what I am about to discuss, and some of you have probably had similar thoughts to mine. All I will be saying in the next few short paragraphs is some facts about the magnitude of this threat.

To put it simply the threat is this: Our Supermarket competitors are fast developing stores which in every sense of marketing jargon provide (our) customers a much better "shopping experience" than we do in the average pharmacy environment in Australia.

The major supermarket chains have spent an enormous amount of time and money on researching supermarket models in other countries and consumers' likes and dislikes. The results have been taken into full consideration in redesign and redevelopment projects.

Walk into any newly refurbished Coles or Woolworths, and you can not help but be impressed! Here are some examples why:

1. Fresh food section has been totally overhauled and revamped. Self service fresh healthy foods and salad bars are now on offer (like the David Jones or Myer in the Sydney and Melbourne CBDs respectively)

2. The butcher and seafood sections have been opened up and the "Fish market" style "freshly caught fish on ice buckets" are on display.

3. the width of the isles have been slightly increased for easier maneuvering of trolleys.

4. Ceiling lighting is now brighter and the refrigeration section expanded and lit up to convey freshness

5. Kids shopping trolleys have been introduced in selected outlets. Not only this may increase the time mothers with kids end up spending in the store, but also kids will pick up certain items in their own trolleys which mothers would not have had. Some of these will invariably be purchased as a result.

6. The "self service" checkouts are installed in order to take away the concept of "I don't have time to queue up for what I need so I will go to a pharmacy or other similar store and buy it quickly". Meanwhile we are still trying to educate our staff about the importance of "pleasant and prompt service at cash registers"

7. The process of keeping shelves tidy and full has been given a make over and "messy shelves" are not a major issue at the new Coles and Woolworth's stores.

8. Various online "kids Clubs" & "Mothers Clubs" incentives are being promoted to (every retailer's) primary customers; i.e. mothers

9. Frequent Flier points "Club Cards" have been introduced by Woolworths, and Fly Buys is undergoing a major revamp by Coles.

10. Needless to say, the range and prices in almost most category directly competing with pharmacy are more attractive than ours.

11. To top it up, Costco, to the 8th biggest retailer in the world has just opened its first store in Melbourne with Sydney to follow. Their target is an eventual 40 stores in Australia (ratio of 1 per 500,000. Whilst Costco and Aldi do not as adversely affect pharmacy, their presence adds more pressure to Woolworths and Westfarmers' (Coles) earning capacity and their desire to invade pharmacy sector.

Getting back to the main point I am trying to make, the overall shopping experience in the eyes and minds of customers has been extensively investigated and considered in redesign & merchandising of the new stores. Meanwhile, the ever escalating shopfitting and rental costs in pharmacy and the rise in market share of warehouse pharmacies have forced many pharmacy operators to downgrade the design and quality of their stores. In many instances the consideration of the "shopping experience" of our customers is taking a backseat in pharmacy to "competing with the discount models" and containing costs.

The major Supermarkets have fully realised the imperative differentiating effect of "Shopping Experience" and that is why they are upgrading their stores accordingly. Up to now, due to the absence of differentiation, consumers have been used to choose which supermarket to shop at primarily based on the convenience of location, then price. Aldi, and now Costco have brought back the cost differentiation as their primary weapon.

The crucial factor is that pharmacists must make sure customers do not eliminate "Shopping Experience" as a factor when deciding which pharmacy to visit. The danger is that if consumers end up not enjoying the experience at all due to clutter and/or poor store design and merchandising, they will choose to shop in discount pharmacies purely on the basis of price, or even worse, at supermarkets due to the various points mentioned earlier.

The above point is extremely crucial because most pharmacists tend to confuse customers expectation of "SERVICE" as a differentiation factor by assuming that consumers apply the same uniform set of criteria to all retail channels when defining "service" in their minds. This is clearly evident by the frequent proud announcements of .... "but they do not provide service in Supermarkets or discount chemists the way we do!".

The fact is that customers' definition of "SERVICE" in a Supermarket is markedly different with their definition of "SERVICE" in a Pharmacy, as it is also different in case of discount pharmacies.

In a Supermarket, convenient location and ease of parking, extensive range, "perceived" cheapest prices, clean, wide and easy to navigate aisles with clearly priced and easy to find products and large number of check outs form the basis of definition of good customer service in most customers' minds.The new "shopping Experience" strategy will lift supermarkets' service to the "superior" level based on consumers' definition.

In an average pharmacy, customers definition of service is mainly based on personal interaction with friendly staff and advice. However, compliant core ranging & merchandising, competitive OTC and more recently Rx pricing, bigger range, prompt service at cash registers, competence of staff's advice and easy to navigate aisles are also becoming important factors in forming the basis of service. These factors can and should form the new criteria of "Shopping Experience" in the pharmacy channel in the eyes of our customers. At the moment, their absence is one of the reasons so many commentators rate pharmacy so low in their appraisals.

Similarly, customers expectations of "SERVICE" in deep discounter pharmacies is purely based on cheapest prices around and nothing else. The tidiness of store, friendliness of staff or advice of the pharmacist do not form the basis of the definition of "service" in customers entering such stores.

The majority of pharmacies in Australia do not directly discount as deep as the main discount pharmacy chain does. Therefore the criteria of good service in our customers' minds is much more extensive. As I mentioned earlier, shrinking margins are pushing retail pharmacies towards cheaper shopfits with customers' wants and needs taking a back seat to containing costs. Meanwhile, our major supermarket competitors seem to be much more aware of the customers' definition of "service" than we are! Their research must have shown them that customers enjoy brightly lit wide isles, good range, competitive prices and fast check out service. They have invested heavily in the former, introduced fresh food concepts as part of their overall strategy and self service check outs for faster transaction time, in order to meet all customers' expectations of "SERVICE". All Supermarkets need now is deregulation of scheduled medicines and they will be miles ahead of us in terms of most of the customers' criteria of great service.

And that is the problem that the Guild will not be able to help any of us with, even if it manages to keep the regulated environment till 2015.