The pharmacy group is a marketing juggernaut that spends $100 million to look cheap and is “nailing it”, according to experts from the ABC show Gruen
Marketing and business experts have picked apart the practices of Chemist Warehouse and other pharmacy brands in the latest episode of Gruen (formerly known as The Gruen Transfer), which aired on Wednesday night.
While the panellists poked fun at some aspects of the pharmacy giant – for example, its focus on “churning out” celebrity fragrances and its “terrible” ads – they conceded that Chemist Warehouse is owning the pharmacy space at the moment, with potentially dire consequences for competitors.
‘Content is king’
“You might think supermarkets are everywhere, but there are more than twice as many chemists in Australia as Coles and Woolies combined. The $16 billion pharmacy industry is dominated by four major brands: TerryWhite Chemmart, Chemist Warehouse, Amcal, and Priceline,” said host Wil Anderson.
“In the past 10 years, Chemist Warehouse has emerged as a major player, having doubled in size and upped its annual marketing budget from $5 million to $100 million.
“Chemist Warehouse is more media empire than chemist. There’s a Chemist Warehouse radio station as well as a Chemist Warehouse magazine. And not just content with product placement on other TV shows, Chemist Warehouse funds an entire TV show of its own, airing Sunday mornings on Channel Seven.”
Mr Anderson pointed out that Chemist Warehouse has several “ads that don’t look like ads”, including ‘Healthy Break’, ‘Beauty Break’, and ‘What’s on in the Warehouse’.
There was general agreement that this was a smart business decision.
“What they’re doing is creating media assets,” Russel Howcroft from PwC pointed out.
“That show is a media asset that they can then sell to suppliers. They create a whole lot of different assets so when they’re talking to people that they are buying supplies off, they can say, “would you like to be involved in ‘What’s on in the Warehouse?’”
Lauren Fried from marketing agency Pulse Collective said Chemist Warehouse was honing in on its “wellness” offering.
“Content is king, so they are trying to be the 360 of wellness,” said Ms Fried.
“The thing with Chemist Warehouse is they are a marketing machine. They spend $100 million to look cheap.
“Their catalogue is actually their primary media. They distribute millions of those every few weeks, they’ve got 40 pages with 1200 brands paying to be in this catalogue.
“Before they’ve even sold anything off the shelves, they’ve made millions and millions and millions of dollars. They are a marketing juggernaut and they’re nailing it on every angle.”
Mr Anderson described them as the retail love child of JB Hi-Fi and EB Games.
“It’s JB Hi-Fi in pharmacy,” said Mr Howcroft.
“They’ve just said: ‘You know what? This thing works brilliantly.’
“And the tradition of course, is the pharmacist, and it was high margin, and it was a nice and friendly place, and they’ve just said, ‘We’re going to copy that thing and we’re going to make it feel like you’re going to get an awesome deal.’ So this mass media machine that they’ve created, in the end is for the consumer’s benefit.”
‘The Bunnings of pharmacy’
On the topic of price, Ms Fried said part of Chemist Warehouse’s core thinking is around low price.
“They’re not even trying to denote anything else other than low price as the core of what they do.”
Cam O’Keefe from GTB added: “They’ve been very deliberate with their pricing strategy. They’ve become the Bunnings of the pharmacy landscape. When they founded, they went in with the intention to disrupt that category. Where the margin was about 35% in a local pharmacy, they’ve gone and said, ‘We’re happy to take 10%’.
“That’s a huge drop and the customer does get the benefit of that change, but they then have had to structure their business in a way that supports that – so, through getting co-op advertising or finding other ways to generate revenue, because you can’t just fund a business off that 10% margin.”
Can other pharmacies compete?
Amcal and Terry White are fighting back by positioning themselves as “experts”, said Mr Anderson.
Ms Fried suggested “legacy brands” like Terry White and Amcal should leverage what they have.
“Pharmacists are very trusted already, so dressing a pharmacist up as an expert is actually downgrading what they are. They’re the second most trusted profession in Australia.
“They’re not ‘experts’, they’re pharmacists. I don’t want an ‘expert’ flying the plane, I want a pilot flying the plane.
“Terry White and Amcal should leverage what they have, they are legacy brands that have very passionate and loyal followers, and I think they need to stick true to that knitting.”
Mr Anderson asked: Is expertise enough to beat Australia’s cheapest chemist?
“No, we are the ‘down down’ capital of the world,” said businessman and TV personality Todd Sampson.
“The only thing that beats lowest price here is ‘free’, and that’s not going to happen.
“I do think there’s a potential slightly more niche strategy which is older people, that are going to require more prescriptions,” suggested Mr Sampson.
“I think there is … a growing market in Australia, an ageing population, that are going to need and want more drugs, and that will require better expertise, so maybe they’re attracting that market.
“But nothing beats lowest price.”
Ms O’Keefe said the challenge in a commodity category like pharmacy is that there’s no status attached to health-related products and services.
“How do you charge the price premium for that expertise?
“It kind of breaks my heart but it does feel slightly like the death of the local pharmacy.”
Mr Sampson added that the centre of the pharmacy industry has now shifted.
“The centre used to be the high margin you make on prescriptions, which is attached to a pharmacist, who is an expert.
“I think the centre of the business has now moved on to the other things that exist in a pharmacy, of which you do not need a pharmacist.”
Meanwhile Priceline received praise from Ms O’Keefe on their marketing strategy.
“Priceline have built their business around serving the health and wellbeing needs of women, and they’ve actually marketed or made ads that deliver to that strategy,” she said.
“And it’s really refreshing for me to see this because it’s a debate you have with clients a lot. The default position is to appeal to everyone … but the truth of it is there’s power in appealing to your core audience.”
Mr Howcroft suggested that pharmacies competing with Chemist Warehouse:
- change their floor plan
- change their adjacency
- make sure they’ve got a doctor next door to the pharmacy
- turn their pharmacy into more of a value-add experience
- industrialise marketing to get the footfall
“It’s not just about having higher-value-looking advertising and thinking that’s going to get you the margin. You’ve still got to repeat, repeat, repeat in order to get the sale,” he said.
Watch the full episode here