Medicine just the tonic for Woolworths' growth

Australia’s pharmacists could be excused for feeling a little sick. After spending months petitioning against changes to the Pharmaceutical Benefits Scheme and enduring tough retail conditions, the spectre of supermarket behemoths raiding their patch has raised its head again.

Retailing number one Woolworths has applied anew to register its “Pharmacy-in-Supermarket” trademark, which includes sale of pharmaceutical and medical products provided by pharmacists.

Woolworths will want to be well prepared for any success in lobbying for changes to the fifth Community Pharmacy agreement – the ruling that pharmacies must be owned by pharmacists – when it expires in June 2015. Almost two years might not seem like a pressing deadline but the stakes are high in this $16 billion industry.

“It’s a big opportunity for them. It’s not as big as alcohol but the margins would be pretty healthy,” said one management consultant who has crunched numbers for Woolworths.

That modelling suggested Woolworths could charge 30 per cent less than pharmacies and the savings would be passed on to the consumer.

Coles and Woolworths already have offerings in fuel, liquor, hardware, hotels, clothing and financial services, and more lately health such as optometry. Pharmacy is now the holy grail.

While a Woolworths’ spokeswoman email to Business Spectator offered only that “we have previously stated we have no plans in this area,” supermarkets would clearly chomp at the bit to provide in-store pharmacies following the lead of offshore counterparts in Britain such as Asda, Tesco and Sainsbury’s, France’s Carrefour, and Walmart, Publix and Wegman’s in the United States.

Closer to home, Woolworths Countdown stores in New Zealand already offer in-store  pharmacies which are 51 per cent owned by registered pharmacists.

The Australian government has ruled that consumers are better off without supermarket pharmacies despite a network of over 2,000 stores across Australia,

“Everyone else has had to compete directly with them: butchers, bakers, candlestick makers. Why are pharmacies a protected species?” vented the ex-Woolworths consultant.

“You can’t use an efficient and convenient distributor. You’ve got to go to this expensive, specialist distributor who operates sub-scale. Why is one distribution outlet favoured? Everyone would win except the pharmacists.””

A campaign by Consumers Health Forum of Australia claims our national prescription medicines bill is $1 billion a year more than Britain’s for the same medicines.  A loophole in an agreement on pricing negotiations between pharmacies and the medicine industry has meant pharmacy owners could continue to charge high prices to the Government and consumers despite a fall in the amount they pay to the medicine manufacturer, it says.

“Even if we want to subsidise pharmacy owners to ensure that they remain profitable, it should not be done by over-charging for medicines,” CFH says.

Supermarkets would effectively have in-store pharmacies that still employ qualified pharmacists while leveraging huge supply chains and bulk buying to lower costs. Critics say pharmacists are already little more than “glorified retailers.” There is little compounding of medicine now, most drugs are bought in.

In the UK, supermarkets offer online ordering of prescription and over-the-counter pharmaceuticals and advice on health issues. Asda offers cut-price flu shots while Sainsbury showcases in-store pharmacists trained as healthy-eating advisors who advise on heart health, children's diet and weight management.

“You can talk to our in-store friendly pharmacists if you or your family need any healthcare advice or support. Our pharmacies have extended opening hours and are in most of our large supermarkets,” says Sainsbury’s website.

For its part, the Pharmacy Guild of Australia says recent changes to the PBS will put more than 5,000  jobs at risk, and pharmacy opening hours and services will have to be reduced. Over 400 towns in rural and remote areas have only one pharmacy and closures would be a huge loss to the local community, it argues. It claims to have over a million signatures supporting a petition to stop the changes.

Back when he was Chief Executive at Woolworths, Roger Corbett did not mince words when he bemoaned the existing pharmacy structure as “a massive type of gerrymander of competition.”

The management consultant who’s done the sums agrees;

 “It’s politics. Pubs resisted bottle shops opening and the supermarkets being able to sell alcohol. It’s just the incumbents in the industry clutching at straws to protect their bloated economics.”