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Welcome to the first homepage edition of i2P for 2012.
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Professional healthcare now available in Australian supermarkets

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Neil Retallick articles by this author...

Neil Retallick is a former General Manager, Merchandising, for National Pharmacies, the successful community pharmacy model owned by the Friendly Societies. Neil holds a Graduate Diploma of Marketing from Monash University, is a CPM and a graduate of the AICD.He began his career with Myer Stores Ltd and worked for FMCG companies including TIA (Sheridan) and Pacific Dunlop. Prior to these roles Neil worked for Cadbury Schweppes Drinks Division - Grocery, and Trimex Pty Ltd in Victoria in State management roles. He is currently Chief Executive Officer at the  Combined Dispensaries in Sydney and is a Member of the Advisory Board at Ehrenberg-Bass Institute for Marketing Science

The weekend papers in Melbourne recently included more bad news for community pharmacy.
It is now possible to receive professional healthcare in Australian supermarkets.
It is even possible to have a prescription written.
Well, maybe not today but certainly before the end of August.
And actually, for the moment, there is only one supermarket involved – Costco.

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I’m making the assumption here that the new Costco warehouse retail outlet opening this month in the Docklands, in Melbourne will be defined as a supermarket within the context of the pharmacy location rules. The large, glossy insert in the newspaper offered fresh foods, household products and personal hygiene items – the types of products offered by Coles and Woolworths every week in their stores across the country. The concern for community pharmacists is not these ranges, nor the electronics goods or the jewellery. The concern for community pharmacy is the optical offer.

The Costco warehouse includes an optical store where optometrists conduct eye examinations and prescription spectacles are dispensed in the same way as they are in any Spec Savers store in any suburb of Australia. If necessary, the optometrist is able to write prescriptions for medicines as well in line with current standard practice.

It could be argued that Woolworths has beaten Costco to the punch here. Optical stores have been operating inside Big W stores for the last few years. There must have been a strategic reason why Woolworth’s management decided to locate their optical offer in their variety store format. They could have chosen their supermarkets had they felt that adjacency more likely to encourage sales.

The concern for community pharmacy is that within a few short years Costco will have more stores dispersed along the eastern seaboard. More importantly, Costco will be able to demonstrate to the Federal Government a track record in meeting the healthcare needs of Australians in a professional services arena. They will be able to demonstrate that the optical stores operating within their warehouse environment have been able to meet the eyecare needs of hundreds of thousands of consumers. They will be able to state that the professional health consultations, advice and information they have proffered has been to the benefit of those people. Further, Costco will be able to claim that its professional healthcare offer has been as competent as that provided by independent optometrists. Finally, Costco will be able to point to the fact that they have managed their financial relationship with the Government via Medicare (the billing of eye tests etc) in a competent fashion.

I think it would be a difficult line to run with the Government that an organisation that is able to successfully – from all points of view – operate professional optical healthcare services does not have the capability to offer community pharmacy services.

As negotiations begin between the Pharmacy Guild and the Government for the 5th Community Pharmacy Agreement, the scuttlebutt is that the Government has already pulled out its ‘pharmacies in supermarkets’ card. Today not much has changed since the 4th CPA was negotiated four years ago. Whilst the supermarkets might lay claim to the capability to offer professional healthcare services, they have no track record of existing performance or anything that even resembles it. Five years from now that situation will be significantly changed.

And here are a couple of hard facts that ought to be the cause of concern. The cost of doing business in the average community pharmacy sits at just below 30% of sales. This means the average community pharmacy needs to achieve a gross profit rate of 30% to be sustainable. The cost of doing business at Costco is 12.5% or maybe a little less. Their maximum gross profit rate is 16%. Woolworths was a little under 20% last time I looked.

Perhaps the question regarding deregulation is no longer “if?” but “when?”.

This CPA might well be the last of its kind.

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