In Australia, consumers are getting used to larger "Drug Store" style pharmacies & are demanding bigger range & convenience!

As some of you know, I recently travelled to Madrid for the Champions League final in May. Whilst spending time in this beautiful city, I noticed most pharmacies (see above photo) are still heavily regulated.

Like most metropolitan pharmacies in Australia till the mid 90s, they were mostly small, dark & drab & only ranged medicinal items.

This observation brought back sentimental memories to me as I remembered my days at school & as a young pharmacist when most pharmacies were smal. But as a pharmacist in Sydney, I also realised how much our shopping preferances as consumers in Australia have changed in the past 15 or so years.

As a pharmacist, I found the pharmacies in Spain a rather depressing environment to work at! On the other hand, as a consumer I saw the range offered in the pharmacies very limited & "boring" (consumer hat remember?), the variety non existent, self selection range very small & the size of most stores simply clausophobic!

Then I realised that the various larger chain store pharmacy brands in Australia from Priceline to terry White to various discount models do provide an exciting "shopping experience" for many consumers in Australia! Of course, we have mostly changed tour business practices to these models as a direct result of fierce competition from food & discount retailers, as have pharmacies in e.g. Canada, USA & parts of UK.

But it is important to acknowledge that we have also done so as a result of trying to meet our customers needs & wants. our customers enjoy shopping at e.g. Priceline Pharmacies due to the good range, competative prices & great shopping experience, as well as availability of advice & medicines.

In Spain, pharmacies may provide advice & medicinal needs, but nothing else. Therefore, none of the 10 or so pharmacies I visited had more than one customer in them.

Dark shadows over the future viability of Community Pharmacy in Australia

The floodgates opened a few years ago with the introduction of the manditory 12.5% price reductions & the subsequent PBS reforms implemented by the somewhat attention deficit suffering (and as it's turned out very ambitious) Health Minister in the Howard Government.

Then the industry suffered from the discounting of fast moving PBS safety net items initiated by major discount pharmacy chains & its subsequent follow up by others (including chains my stores belong to), then the recent announcement of the 2 year indexation freezing of dispensing fees & elimination of the PBS on line incentive in the 5th agreement....and now the deletion of larger pack sizes of codeine combination analgesics!......next it will be the reconsideration of the absurd proposal to make all sinus/nasal/cough products for under 6 year olds Rx only & for 6-12 year olds Pharmacist Only. (May I dare to suggest the fools around the world who are suggesting this must have be a bunch of nerdy scientists who have had minimal contact with sick small children & their sleep deprived parents?

Regrettably, for most pharmacies, all of the above are/were items or factors that make/made a significant contribution to both gross sales & more importantly gross margins. Whilst gross margins in pharmacy in recent years have steadily declined, income sources such as the ones mentioned above have kept GPs at a manageable level. This has in turn allowed business owners to survive all other challenges, and continue to provide the variety of "free of charge" community, clinical & counselling advice pharmacies provide.

The future looks even far less certain when the usual rental pressures, banks' charging of up to 2% above mortgage rates to provide finance to small business and the substantial increase in wage costs once the new Fair Works Legislation is fully implemented are added to the above considerations.

Sadly, we have reached a point that there are so many internal & industry related threats to our businesses that we don't even have time to worry about our major supermarket rivals & their adverse effect on our businesses.

Woolworths & Wesfarmers are aware of the tough market condition pharmacy is finding itself in, and would be more than happy to stay out of the industry & see what shapes up by 2015.

Even the most creative & smart business operators in Pharmacy are beginning to find it increasingly difficult to generate a substantial increase in turnover unless it is accompanied by a major sacrifice in GP.

Where do all of the above leave Pharmacy? In a very uncomfortable and uncertain space.

Shopping Centres' New Year's Day Trading in NSW: Are Shopping Centre owners being pressured by anchor tenants?

Almost all major regional & CBD Shopping Centres in the Sydney metropolitan area have by now announced they will be open on New Year's Day from 10am to 4pm.

the Centre Managers have written to their tennants reminding them that whilst up to now New Year's day has always been a Public Holiday, it is now part of the core trading hours & as such all retailers must be open for trade on New Year's day!

on the surface, this sounds like another typical push by ruthless shopping centre owners in dealing with their tennants.

But on a closer look, shopping centres will not gain any financial benefit from opening on New Year's day! All tennants have to pay their rent on public holidays anyway!

This may very well suggest that shopping centre owners may be in fact pressured by the big anchor tennants to force all smaller retailers to open on New Year's day!

The likes of Woolworths (owners of Big W, Dick Smith, dan Murphy's etc), David Jones, Myer & Wesfarmers (owners of Coles, Kmart & Targeti) always pay a substantially less rent per square metre to shopping centres due to the fact that they attract customers to centres>

But in their greedy & desperate attempt to appease their share holders, increase revenue & hold on to their respective market shares, on this one day of the year, they need other stores to help pull sufficient customer traffic!

When all smaller tenants are open, the vibrancy & ambiance of the shopping centres are present for enough customer traffic to generate volume sales in order for stores to be profitable!

This is because the big retailers know customers do not like going to centres where more than half the stores are closed & as a result parts of the centre look dull & dark!

Therefore by making all smaller retailers open & pay their staff penalty rates just to get the odd sleep deprived & possibly hung over customer walking in) the ever more dominating retail giants will be able to attract enough customers to their respective stores in order to make New Year's day a successful trading day!

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!

Blog Poll: Should Thomas Dux Grocer customers be told that all Thomas Dux stores are fully owned & operated by Woolworths?

Please read this post with your "Consumer Hat" on, and answer the following Blog Poll on the right column afterwards:
 
Should consumers be explicity told that Thomas Dux Stores are fully owned & operated by Woolworths?

If you wish to add your comments please use the comment section at the end of the post.


In May this year, Woolworths bought Macro Wholefoods, an organic food supermarket chain of 9 stores for a repoted $30m from Brett Blundy's Retail Group, which had previously sunk millions of dollars into the stores and was happy to sell its loss making venture to Woolworths (although this was denied by co owner Pierce Cody)


As reported at the time in the financial media, Woolworths were interested in Macro stores for two primary reasons:

1. Macro had more than 100 organic private label products.
2. The acquisition of the 9 Macro stores would fast track Woolworths' entry to the high margin upmarket gourmet food market as the stores would be rebranded under the newly established "Thomas Dux Grocer" division of Woolworths. Thomas Dux was already operating and would have 11 stores in Sydney & Melbourne after the rebranding of the 9 Macro stores.

Macro wholefoods was the first large scale attempt by any food retailer in Australia to duplicate the likes of the impressive"Whole Foods Market" chain in the USA. These business models attempt to sell high quality organic and/or naturally grown fresh & packaged food products at higher margins.

Macro's business model did not manage to achieve the widespread reputation or get close to the high benchmark standrads of the "Whole Foods Market" and as mentioned earlier was rumoured to have always been a loss making venture for the astude Brett Blundy (in partnership with the founder Pierce Cody).

Woolworths have always been wary of the commercial fragility of a purely organic products based food retailing business model in Australia. Generally speaking, there is an immediate & direct negative effect on retail sales of organic food products when there is pressure on discretionary income.

Therefore the "Thomas Dux Grocer" employs a different business strategy altogether. On the official website, thomasdux.com the stores are promoted as being all about rediscovering all that is good & exciting about food, with fresh fruits, vegetables & deli products as well as speciality foods from around the globe.

The Thomas Dux format has the potential to introduce an innovative, exciting & much needed retailing format to the deprived consumers in Australia (compared to the USA), and it will most probably thrive considering that the business model has been designed & implemented by Woolworths, the most capable food retailer in Australia.

Nevertheless, there are certain aspects of the way the brand is being promoted which are rather disturbing.

Thomas Dux Grocer is being promoted to consumers as (quoted from the official website & full page ads in local papers):

"We're the local store: it's the place for people who love good food to shop every day. It's a meeting place that reflects the communities we serve. .....................Thomas Dux is about being 'just around the corner'."

The wording of the description of the business on the website, and design & wording of the advertisement in the local papers the emphasis on the "Local" aspect of the business are cunningly structured to promote the business and give the impression that Thomas Dux Grocer is like a "Small local family owned start up that is now expanding!". Not surprisingly, there is no mention of "Woolworths" in any of the promotions, on the website or (I suspect, although I am yet to inspect the stores closely) at any of the stores.


I acknowledge that not promoting or revealing the parent company is not an unusal business practice, is not necessarily a deceptive or misleading practice and in fact occurs in many industries to various degrees.

In case of the Thomas Dux stores, it is the "local, small, family feel" aspect of the promotional strategy that I take exception to.

Whilst I am sure Graham "Woolworths(!) Practices Act" & ACCC would not see any contravention of the relevant sections of the Trade Practices Act with the issue in my point, I am still of the opinion that the public must be informed when a local "Small Business" they shop at and perceive as an independent operator is in fact owned by a giant corporation with a massive market share and influence. I have also made this point about the many bottle shops and pubs that are owned by Woolworths & Coles (Westfarmers) in the past.

But none of the cases have seemed to be as belatently veiled as the Thomas Dux.

In many instances, consumers continue to support small local (& family owned) businesses even though they (at times incorrectly) perceive theses businesses as being more expensive to shop at compared to larger operators.

The Thomas Dux model & image fits both of the above. It looks like a local small business start up that is expanding, and it is more expensive than many other outlets with a similar or competing offer.
The Thomas Dux model & image fits both of the above. It looks like a local small business start up that is expanding, and it is more expensive than many other outlets with a similar or competing offer.

The dilemma is this: When giant retailers open small store formats in high streets in neighbourhoods under the pretence of "Local Store", should their customers be informed of the fact that for e.g. that in case of Thomas Dux Stores in Australia, they are in fact dealing with a major corporation with substantial marketpower as the parent company and the full owner of the business & not a small business operator?

"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.

Do you know a business that "pockets" all revenues as pure profit and has no business expenses?

The article in daily Telegraph on June 11th about pricing of PBS items by pharmacists contains many questionable if not inaccurate points.

One wonders whether this type of one sided representation keeps certain high profile high spending advertising clients of the Newspaper content or is an attempt to twist and confuse the negotiation process between the Pharmacy Guild and the Government in the coming months. However, getting into a verbal war of words about the inaccuracies in the article is futile and I am certain the Pharmacy Guild will correct the factual errors in the article in their response in due time.

Therefore, as a pharmacist I would like to ask the "Special Investigation Team and their Leader" at Daily Telegraph responsible for the article a different and more light hearted kind of question: Do they have to spend a portion of their salaries to pay taxes? Do they need to cover costs of living such as food, petrol, rent/mortgage, clothing, utility bills etc out of their salaries? Or do they "pocket" all their salaries?

Having asked those questions, any fair minded person should take into account the most basic fact in any business: sales revenues are not directly "pocketed" by the owners of the business and are not "profit"! The intentional use of phrases such as "pocket", "profit" and "rort" is at best regrettable and at worst mischievous.

Therefore, the article fails to mention that pharmacists do not in fact "pocket" or "profit" every cent of the prescriptions they dispense. Like any other business, they have to pay suppliers to buy the stock. (Let Daily Telegraph's so called "Investigative Team" decide at what wholesale prices since their investigators seem to have set the wholesale prices arbitrarily anyway!). Then there are staff wages, rent and outgoings, utility bills, advertising costs, various business loan repayments and leasing of fixtures and fittings etc, and last but not least any remaining money has to be taxed for income tax purposes.

So, let's be fair and remember that pharmacists always have and will continue to provide many free services to their customers on a daily basis. The high level of trust they have always enjoyed in the community is due to the accessibility of their professional advice to their customers and patients at no cost to the patients or taxpayers. Like any other business however, they need to have a business strategy to continue to service their customers, provide their free services, cover their business costs and make a living.

Banks and Small Business

The banks enjoy the Federal Government's Guarantee and yet are unwilling to pass the latest official interest rate cut to their customers. The Reserve Bank has reduced the official interest rates by a total of 4.25% in recent times. Most banks have not fully passed these cuts to their business customers. On top of this, they have tightened the financial reporting requirements from most customers as well as lending criteria. The new compliance requirements are a heavy cost burden to small business clients.
as a result, many viable small business clients are suffering from lack of funding. This is inhibiting their potential growth and expansion.
The late Kerry Packer was right on the spot when he was asked (paraphrasing) what good financial management meant! ....(paraphrasing)..: being able to call your bank manager, tell him to get stuffed!, and still have a good relationship with the bank the nest day!".
Regrettably, for most of us that is only a dream!