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You might get a bargain but will discounting work?

Nerine Zoio nzoio@pharmacytoday.co.nzFriday 01 September 2017, 2:34PM
You might get a  bargain but will  discounting work?

When Chemist Warehouse sold $2 million worth of stock online in 13 minutes late last year, it was reported founder Damien Gance barely batted an eyelid. 

Since it launched in Australia in 2000, Chemist Warehouse has become the country's sixth largest retailer. Over 300 stores turn over around A$4 billion of medicines, vitamins and beauty items among other products. This discount model has caused both delight and anger over the Tasman, but it is fair to say Chemist Warehouse is one of Australia's retail success stories of the century. 

Not content with conquering Australia, they are now setting their sights on New Zealand. 

A post on Pharmacy Today's Facebook page in July asking if anyone had more information on the rumours Chemist Warehouse was about to open stores in Auckland attracted the attention of wider media. In Australia, Chemist Warehouse chief operating officer Mario Tascone told pharmacy publicationAJP that setting up in New Zealand was a definite goal. 

"We haven't really got a location, time or date," Mr Tascone says, "but we will go into New Zealand. 

"It is a good market and we want to be there and bring value to it, and we will open up there eventually. 

Last month the chain advertised on TradeMe for pharmacists for an undislcosed Auckland location." 

The prospect of them setting up shop here has got mixed reactions but, even if it does, is New Zealand big enough for a discount store to thrive? 

Grant Bai, chief executive of New Zealand's largest pharmacy group, Green Cross Health, said at the company's recent AGM they are not concerned about Chemist Warehouse coming here. 

"A changing competitor set is the beauty of retail," Mr Bai says. 

He says companies looking to cross the Tasman in either direction will face barriers to entry and he suspects a discount model will be difficult to operate in New Zealand, thanks to logistical challenges and already tight margins. 

"GXH has strategies in place to deal with Chemist Warehouse's discount model, such as an increased focus on getting equity in medical centres to protect its proposition," he says. 

GXH won't change to a discount model to compete. 

"We're not going to get into a race to the bottom price game." 

First Retail Group managing director Chris Wilkinson, is enthusiastic at Chemist Warehouse's prospects for success in New Zealand. 

"I anticipate it will flourish within populous markets, first in Auckland and then Waikato, Bay of Plenty, Wellington and Canterbury." 

Historically, discount retailers have struggled to make inroads into New Zealand for various reasons, including high rentals and a small population, but Mr Wilkinson believes these factors will not impede Chemist Warehouse because "it's comfortable paying for prime locations and can leverage off its hugely popular discount and bulk-buying model and infrastructure in Australia, extensive product categories and strong online ­presence". 

He says the company's deployment last year of its new supply chain model to enable a more efficient process and service levels across its omnichannel pharmacy retail operations in Australia has been advantageous. 

"This matters when you're talking about 600,000 units shipped nationally every day to stores or directly to consumers," he says. 

Mr Wilkinson adds that consumers across all demographics are hungry for differentiation, value and promise, which has helped drive the success of retail entrants in other categories - such as fast fashion. 

He says Chemist Warehouse will be aware of this and "will continue to advertise extensively to build on its already huge consumer awareness to deliver on this consumer requirement". 

"You just have to look at how strong the group is in the health, beauty and wellness sectors. It's inevitable their presence here will create wider consumer awareness and appetite - lifting the whole marketplace," he says. 

"In pharmacy, it will likely play a role of reorienting shoppers back to the sector from health and possibly pure play online retailers, too." 

Mr Wilkinson says this creates opportunity locally and could result in pharmacies realising they need to rethink their modus operandi and work on aspects like range refinement, and depth of connection with customers and their community. 

"This means scrutinising the customer experience - not just in terms of service but also relations with customers and store environments, with the focus on a stronger and more integrated approach." 

Paul Keane, founder of commercial property company RCG, is wary of the venture, pointing out New Zealand's infrastructure is quite different to that of Australia's. 

"Securing the necessary sufficient network throughout the country will be a challenge," Mr Keane says. 

He explains that regardless of whether Chemist Warehouse can secure enough sites, competitive pharmacies have been in position for many years and they will not lie down for a discount competitor. 

"The Warehouse endeavoured to develop pharmacies near its stores and found it very challenging, ultimately closing the stores," he says. 

"Similarly, Kmart have been here for 20-plus years and are only now starting to get some traction against The Warehouse. 

"This demonstrates how difficult the entry level for new retail groups arriving in this country can be. I wouldn't be shaking at the knees just yet at the pending arrival of Chemist Warehouse." NZ

 
 
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