‘Chemist Warehouse is more media empire than chemist’


Source: ABC. Panellists (L-R): Todd Sampson, Lauren Fried, host Wil Anderson, Cam O’Keefe and Russel Howcroft.
Source: ABC. Panellists (L-R): Todd Sampson, Lauren Fried, host Wil Anderson, Cam O’Keefe and Russel Howcroft.

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.”

Wil Anderson described CWH as "the retail love child of JB Hi-Fi and EB Games". Source: ABC
Wil Anderson described CWH as “the retail love child of JB Hi-Fi and EB Games”. Source: ABC

‘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.

Priceline's marketing strategy received praise.
Priceline’s marketing strategy received praise.

“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.”

Marketing suggestions

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

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9 Comments

  1. PharmOwner
    18/05/2018

    Just goes to show where CWH priorities lie. $100 mil per year on advertising while paying their pharmacists peanuts. If I was an employee of CWH, I’d be putting my hand up for a raise.

  2. William
    18/05/2018

    Pretty typical program for the leftist “Their ABC”, knock anything that is free enterprise.
    Maybe “Their ABC” could employ some of CWH marketing team after ABC and SBS are sold and become subscription channels.

    • Sheshtyn Paola
      18/05/2018

      Hi William,
      ABC weren’t knocking it at all. Wil Anderson as host was making jokes, but the panel was almost in awe at the marketing strategies of CWH.
      Cheers, Sheshtyn (Journalist, AJP)

    • Paul Sapardanis
      18/05/2018

      Did you actually watch the program?

  3. Peter Crothers
    30/05/2018

    The program should be a wake-up call to the Guild and PSA. The Community Pharmacy model that most of us espouse is simply not holding up, mainly because we do not support it with the practice standards, training, staff resources, career structures and remuneration that it deserves. No-one is happy about it – least of all the pharmacists working for CWH. There is a lot that we could do AS A PROFESSION to change how pharmacy is practised and change the perception of value. It is a question of leadership. .

    • Jarrod McMaugh
      30/05/2018

      The funny thing is, when PSA announced that they are now the preferred training provider for CWH, so many people criticisesdit.

      Damned if you do….. Etc

      • Peter Crothers
        02/06/2018

        I was disappointed in PSA’s decision to support CWH Jarrod. I think the decision has – predictably – been interpreted by many as tacitly endorsing the CWH corporate/’retail shopping destination’ model in which pharmacy is a minor aspect of the business and which – indirectly at least – drives an erosion of professional standards and relevance. It looks like taking ‘dirty money’ and is bad politics, especially with the majority of members. My comment above was more directed at PSA and the Guild for not doing more to resource and support the owner-operated ‘community’ model of pharmacy practice. What I had in mind was our abject failure to create clinical-skills-based career-structures and remuneration in Community Pharmacy and restructure PBS remuneration so that it actually incentivises good practice rather than actively rewarding the corporate discounter model. I was also thinking about how, as a profession, we have utterly failed to address workforce imbalances, and have been slow to embrace Integrated/Collaborative Primary Health Care (and, especially, support the profession’s largest branch into collaborative care) and various other examples of strategic shortsightedness. So I think general criticism is fair enough. I hope I am a constructive critic.

        • Jarrod McMaugh
          08/06/2018

          Here’s the problem – PSA is damned if they do, damned if they don’t.

          Engaging with CWH in an attempt to provide their staff with a training platform that can deliver the standards and ethics that we all expect of the profession is the only way to address the perceived issues with this group and it’s pharmacists – even if the actual issues that everyone thinks of don’t actually apply to the majority of their pharmacists.

          On the other hand, sitting back and doing nothing still generates all the criticism in the world.

          Everyone wants to blame PSA or Guild (or both) for the existence of this situation (despite there being no legal method to alter it or to have prevented it); yet any attempt to influence the situation in any way is seen as selling out or taking dirty money.

          I agree with you that there are a lot of things that still need addressing – one of those things is remuneration, which it is hard to address while people will take the award rate as their wage. It’s hard to argue against this being an inappropriate rate when so many people accept it!

          The problem is, everyone seems to think that those people/groups “in authority” have a magic wand to change these things – it takes a lot of effort, hard word, and continual advocacy to make things happen…. and then when they do, those who are putting in a lot of their personal time (as volunteers) get roundly criticised for it.

    • Paul Sapardanis
      30/05/2018

      Agree 100% Peter. It comes down to 2 major problems as I see it 1. Low wages and 2. High workloads. Even now as we enter an era of professional services how many do we actually make some real money on? When we as owners do not or cannot realize that my 2 points above give CWH such an advantage over traditional pharmacies we are completely stupid.

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