EDITORIAL for Monday, 17 August, 2015

Welcome to this weeks’ edition of i2P (Information to Pharmacists) E-Magazine dated August 17, 2015.
This week we report that our global reach is slowly expanding and that the list below represents our Top 5 readership locations for last week.
The US tops the list after Australia and we are seeking more subscribers in the UK and New Zealand to balance out our readership.
We do have smaller percentages for many other countries, but they are not at any significant level as yet. 

  • Australia 80.8%
  • USA 13.3%
  • New Zealand 1.5%
  • Japan 1.2%
  • United Kingdom 1.2%

This week we focus on the global impact of supermarkets – on each other and how they affect pharmacy.

Love them or hate them, supermarkets have had a disruptive effect on pharmacies wherever they have established themselves across the world.
Disruptive because they controlled food retailing in range and price, initially forcing out most corner grocery outlets, and being disruptive to pharmacy because they completely altered customer traffic flows within a catchment area.
In trying to understand the impacts on pharmacies it was quickly realised that a pharmacy had to locate reasonably close to a supermarket so that customer traffic could be shared, ensuring that future growth of a pharmacy paralleled that of the supermarket nearby.

Achieving some success with that strategy, pharmacists then tried to take the fight up to the supermarkets by trying to beat them at their own game.
However, pharmacists misunderstood their tactical approach having an initial focus on popular branded household goods provided at discount prices for a short period of time (usually one to two weeks).
At the end of that promotional period the featured products were either discontinued from the general inventory, or retained at a higher shelf price.

Supermarket strategists understood their own market activity better than pharmacists, and increasingly countered with “every day low prices”.
All that was achieved with the pharmacy promotion was that when the promotional period ended, customers simply looked for their repeat purchases back at the best supermarkets within their shopping area.
Pharmacy actually generated higher market shares for supermarkets in the promoted products selected, because supermarkets were better able to sustain customer needs in price and range plus they did a better and more consistent job in areas of merchandising, display and advertising without product gaps occurring.

Pharmacists recognised their deficiencies and began to develop franchised market groups to manage buying and promotional activities to a level that individual pharmacies could not reach.
It was cheaper to buy the service than do it all yourself.
But they also perpetuated the “stop-start” household goods promotions which did nothing to stem market share increases by supermarkets for household products.

Pharmacists have generally remained “blind” to the main game for pharmacy, and that gap exists right up to the current date.

While the discount type promotion generated customer traffic the main game should have been to convert all of those “customers” to “patients” – this strategy not being realised by pharmacy leaders.
Confusion in the market place is illustrated by pharmacists calling all consumers “customers” when clearly they were “patients” for some (or all) of their time in the pharmacy
The direction needed was to develop the core business of pharmacy, (represented as dispensing + clinical services), which has never been understood strategically.

As a result, pharmacists attracted unnecessary attention to supermarket operators through their promotional tactics that could never win.
This created more disruption politically as supermarkets sought to own pharmacies in Australia as their counterparts already did in other western economies.

An example of a pharmacy group that did understand their market is Chemist Warehouse, because their strategy is everyday lower prices across the entire inventory range – a strategy that has become so disruptive for other pharmacy operators.
They have positioned themselves as retail pharmacists rather than community pharmacists (for the moment).

And by choosing brands over generics Chemist Warehouse has been able to insinuate itself within major manufacturers’ marketing budgets, thus reducing their own advertising costs and gaining manufacturer support over other outlets (community pharmacies and other supermarkets)

This is what Aldi has done to Woolworths here in Australia, in the grocery market.
And new entrant, Lidl, is set to intensify the Aldi effect because it is a sinilar type of operation and is Aldi’s major competitor in the northern hemisphere.

Both Aldi and Lidl understood that discounting was really developing a model based on low overheads and constant systems review.
This created the extra percentage net profit that Woolworths never had, so Aldi always won out in the price battle in Australia. That will intensify as Lidl gains market share in Australia.
And this is the reason why i2P has always recommended that pharmacies emulate the Aldi business model.

Aldi and Woolworths are best illustrated as a David and Goliath battle.
And Aldi has won the war, with Woolworths limping off without a rudder (no direction).

Supermarket ownership of pharmacies has not always produced the returns that were imagined or expected.
In the UK, Aldi pressure has forced Sainsburys, the supermarket chain with the second largest market share in the UK, to sell all of its pharmacies to the Lloydspharmacy group.
This group has succeeded in building a profitable chain that is respected by government and consumers and its main driver is the generation of clinics and clinical services.
The model proposed is that all pharmacies will remain with Sainsburys who need to protect their core business in groceries.

Woolworths have succeeded in developing a business model in New Zealand called “Countdown” supermarkets, some of which contain separately owned pharmacies.

The majority of the share capital must be owned by an individual pharmacist or pharmacists (51%+).
The pharmacist or pharmacists collectively, must have effective control of the company at all times.
This may be reflected by the classes of shares held (if applicable), the ability to appoint directors to the board and the ability to control the board of directors to the board.

As companies and trusts cannot be defined as a pharmacist (even if they are wholly owned by pharmacists) they are not able to hold the majority of the shares of a company.
Company structures, where a part of the majority pharmacist shareholding is held by a company or trust, are not compliant and are not able to be licenced.

Thus in New Zealand, Woolworths has a pharmacy model in-store that they have significant ownership of.
They have a strong influence without legal control, and it is likely that this model will eventually be presented to the Australian government as one that should be adopted here in Australia.
For this to happen, location rules will need to disappear to accommodate the Woolworths model, also ownership rules.

Australian pharmacy is thus under siege, so to speak, and changes will occur at the end of the current 6CPA agreement.
To what extent will depend on whether the PGA has the leadership skills (or the will) to continue the fight for independence.
Read the suite of articles in this issue related to the above:

Global Supermarkets Will Affect Australian Pharmacies

Pharmacy Paradigm Shift is Occurring – Vision Still Needed

UK Supermarket Reversal – Offloading Pharmacies Instead of Acquiring Them

Pharmacists – Who Works for your Best Interests

Gerald Quigley is back with an article on hormone replacement therapy.
It is not widely published, but this sector provides a significant contribution to Pharma profits.
Read Menopause and “alternative” therapies for an alternative perspective.

Judy Wilyman is also back with a follow-up article on vaccination policy.
This is an area where research and informed consent should feature strongly.
Instead we see coercion – which is simply illegal.
Read:  A question for the Australian Prime Minister, Tony Abbott

Social commentator Harvey Mackay is back with an observation on the impacts of the “Special Olympics” and the insights gained having application for aspects of your own life.
Read: Special Olympics change the world

And we conclude this weeks’ offering with media releases from PSA – PSA Media Releases – PSA15 most successful PSA onshore conference to date and the PGA Forefront Newsletter – We need a national system to tackle Australia’s prescription-drug addiction.

Enjoy your read.

Neil Johnston
17 August 2015

One response to “EDITORIAL for Monday, 17 August, 2015”

  1. Eating the Big Fish (How Challenger Brands can compete against Brand Leaders) is a great text to help understand how we can re-establish ourselves in the primary care role.
    ISNB 978-0-470-23827-1
    It’s a very relevant read in the current environment

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