Chemist Warehouse problem Australians are ignoring
Hardly a town or city in Australia is immune to Chemist Warehouse’s signature bright yellow storefronts, and now the low-cost pharmacy brand is spreading internationally to New Zealand.
The meteoric rise of the Down Under brand will be repeated in New Zealand after the pharmacy giant recently spread across the Tasman – with 35 stores opening in recent years and independent pharmacies disappearing as quickly as they do in Australia. It has also opened six stores in Ireland.
The Pharmacy Guild of NZ said 30 independent pharmacies would go out of business by 2022 and be replaced by larger retail chains.
In January this year, Seema Rambisheswar was forced to close her Life Pharmacy store in Glenfield in northern Auckland after working there for 22 years and owning it for 14 years.
A pharmacy warehouse opened in the same mall in 2020, reducing the cost of kiwifruit by waiving the $5 government fee charged with each prescription by absorbing it at a loss.
‘Is this? ‘Australia’s Cheapest Pharmacy’: the cleverly worded tagline can be found in many Chemist Warehouse stores
The pharmacy giant has spread across Australia, but independent pharmacies have questioned whether they offer the same personalized care and service as a community store
“The impact (of the opening of the Chemist Warehouse) was huge for us, customers started to think that the $5 prescription fee went into our pockets,” Ms Rambisheswar told Radio New Zealand.
“Those places are just rolling out recipes. We try to give advice with every prescription, we’ve had people ask us to please not close, but it’s too late.’
A survey of drugstore owners conducted by BDO in 2017 when the first Chemist Warehouse store opened in NZ found that 90 per cent were concerned about its arrival.
The local pharmacists fear they will soon go Australia’s way, with big-box chains effectively pushing everyone out of the market.
The vast majority of pharmacies in Australia are run by just a few powerful companies.
There’s Terry White Chemart, meanwhile Sigma Pharmaceuticals owns brands like Amcal and Wesfarmers owns Priceline.
But the heavyweight is Chemist Warehouse, which dominates the $25.9 billion industry market share.
The first of its stores opened in Melbourne in 2000 and numbers have exploded since then, with 491 locations in 370 Australian suburbs and cities.
The growth is largely due to the highly visible ‘lowest price guarantee’ which is better than any cheaper price found at a competitor.
Similar to hardware giant Bunnings, doing massive trading volumes allows the stores to sell products at razor-thin margins that small businesses can’t match, and still make a profit.
Also similar to Bunnings, the stores use a simple-looking aesthetic, filled with paper sale price tags, to create the image of a discount warehouse – the name is very deliberate.
“The average pharmacist hates us because we edited the whole margin structure in pharmacy,” co-founder Jack Gance recently told the Small Business Big Marketing podcast.
“If they compete with us 100 percent, if they match our prices, they will go out of business… they won’t even pay their rent.
“So we’re not really loved in the industry.”
Chemist Warehouse is a private company co-founded by Jack Gance (left) and Mario Verrocchi (right with his wife Fiona)
Sydney independent pharmacy owner David Vo sold his Rose Bay pharmacy six months before Chemist Warehouse moved in and ‘decimated’ the new owners.
“If Chemist Warehouse moves next door, your goodwill will be cut in half overnight,” he told the Australian Financial Review.
The privately owned Chemist Warehouse made a huge profit of $1 billion in 2021.
While most businesses struggled during the Covid pandemic, pharmacies remained open and those with a large online presence thrived in particular.
Chemist Warehouse will sprout stores in Ireland and China in 2022 alongside New Zealand.
Gance and co-founder Mario Verrocchi are both on the Australian Rich List – at 77 with $1.6 billion and 82 with $1.5 billion in personal wealth, respectively.
Verrocchi sold his 100-acre co-owned farm with other members of his family for $60 million in 2021, having bought “Morning Star Estate” in Victoria for $40 million months earlier.
Nicknamed the ‘Downton Abbey of Australia’, the property includes a restored 1860s Victorian mansion, landscaped gardens, a 12-acre vineyard and its own helipad.
The family also owns a similar-looking Toorak mansion in Melbourne, bought for $19.25 million.
Gance is his neighbor in Toorak and in 2019 bought two of his own mansions in the suburb for at least $30 million.
One, built in 1925 and redeveloped, features six bedrooms, a marble foyer, private library, heated swimming pool, tennis court and manicured gardens.
Gance, who became a registered pharmacist in 1967, was already a successful businessman and had invented the Le Tan sunscreen brand.
The ‘Downton Abbey of Australia’ in the country of Victoria was bought by the Verrocchi family
The sprawling estate features its own 30-acre vineyard and landscaped gardens
This immaculate country house is one of two in Toorak owned by the Gance family
The house features a marble foyer, tennis court, two swimming pools and a private library
Rumor has it that Chemist Warehouse wants to float on the ASX or even sell it to an overseas conglomerate, but questions about its business practices seem to throw a spanner in the works.
Under Australian law, there are rules about how many pharmacies a business can own in a state or territory.
The large chains circumvent this by, among other things, allowing franchisees to provide a minority interest in a store. Chemist Warehouse does this through its own company called East Yarra Friendly Society Pty Ltd.
But this can make a wholesale or sale difficult.
The company’s directors have spoken to state and territory pharmacy regulators and made some changes in 2021, but appear to be in a stalemate with the NSW authority.
“The Pharmacy Council of NSW (PCNSW) has not approved the changes for that jurisdiction,” notes the company’s 2022 financial report.
“A process of involvement with the PCNSW is underway and the directors expect a successful outcome to be achieved.”
An ASX float could value the company at $5 billion, while an overseas sale could yield yet another Australian icon owned by a foreign company.
A Chemist Warehouse spokesperson told Daily Mail Australia that a high level of personal service was a focus for the company.
Our pharmacists provide excellent service, advice and value to our customers.
‘Drogist Magazijn and its pharmacists are particularly proud of the way in which we provide professional services that make an important contribution to public health.
‘Our head office has a professional service team of pharmacists to help the professional staff in our network grow, improve and deliver the best possible services for patients.
‘It is true that we have achieved significant market share, we believe this is a reflection of our commitment to delivering value to consumers.
“We operate strictly within the regulatory and clinical requirements of the markets in which we operate, while also offering the best possible prices – and consumers respond with their support.
“For example, although it is still early for our six stores in Ireland, we are already seeing six to eight times more customers than for a regular pharmacy.”