CWH highlights ‘hefty margin’ charged by other pharmacies

Australians would shop in additional Chemist Warehouses “with glee” if the ownership rules were loosened, a News Corp article claims

Writing in News Corp media, economist Jason Murphy has turned the spotlight on the discount giant, analysing the reasons for its success – and accusing other pharmacies of “charging a hefty margin”.

Mr Murphy compares Chemist Warehouse to Bunnings, writing that the hardware chain’s business model “taps into the deepest emotional parts of our hearts — the ones that activate when we get a bargain”.

“Chemist Warehouse knows how to make those same juices flow. Its biggest trick is a simple one — being big makes it cheaper than its rivals. Both Bunnings and Chemist Warehouse do huge volumes of trade, which lets them sell stuff at prices their rivals often can’t match.”

And making Chemist Warehouse’s stores and signage look nicer would “ruin everything,” he writes.

“Almost everything Chemist Warehouse does is about looking inexpensive. For example, the name Warehouse is a deliberate choice. It implies you, the savvy customer, are cleverly choosing to shop at a wholesaler.

“The Chemist Warehouse logo — with the font that looks like a stencil — contributes to a cheap vibe. Then there are the exteriors of violent yellow and the interiors with their towering shelves and forest of price tags.”

There’s also the way the chain’s claims are phrased – “Is this? Australia’s Cheapest Chemist” – and the price-matching policy.

Mr Murphy also takes a look at the banner’s origins and its ownership structure – and the fact that its owners are on record repeatedly calling for relaxation of the ownership rules.

Chemist Warehouse had “manoeuvred around” the ownership rules, he writes, “including by registering their business as a ‘friendly society’— a kind of old-fashioned business entity that was permitted to own multiple pharmacies”.

“After that loophole was shut down the (sic) began running as a franchise.”

The ownership rules are “very convenient for the many very wealthy owners of local pharmacies,” he writes.

“The rules about limiting pharmacy competition are very convenient for the many very wealthy owners of local pharmacies.

“And if Chemist Warehouse has shown us anything it’s that local places are charging a hefty margin.

“I expect that if the rules were loosened, far more Chemist Warehouses would spring up and we would go shop in them with glee.”

But Mr Murphy also writes that he hopes low prices will not squeeze out good pharmacy care, and that some patients “really need a pharmacist who knows them well”.

A number of recent articles have taken a look at Chemist Warehouse and the way it operates, including the ABC’s Gruen, which also scrutinised its “cheap” branding and said it was more of a media empire than a chemist.

The banner’s co-founder, Damien Gance, last month told a Queensland inquiry into the pharmacy sector that Australians do not care who owns their pharmacies, and called for relaxation of the ownership rules.

“The Australian public forge a bond of trust, and one of respect, with the chemist who assists them with their pharmaceutical needs. And in many, if not most, this is not the store proprietor,” he said at the time.

Read Jason Murphy’s analysis of Chemist Warehouse here.

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  1. Jarrod McMaugh

    One inconsistency in the NewsCORP article worth pointing out….

    This article states that CWH has lower prices due to it’s scale.

    It also states that independent pharmacies are making huge margins on medications.

    It’s also worth pointing out that most pharmacies sell their products for very similar prices to discounters…. it’s only the appearance of cheapness (which this article highlights) that separates.

    • Gavin Mingay

      There is also the problem that CW is able to source products much cheaper than normal pharmacies are able to get them. In a lot of cases, independent pharmacies buy product from CW as their sale price is cheaper than the wholesale price.

  2. Tamer Ahmed

    So here we go again with another round of brainwashing and spinning facts by the Chemist warehouse team and those who uphold their ideology.

    The economist in the article makes the same mistake that every business focused analyst does which is looking at the profession from the perspective of retail.

    So we get the Bunnings comparisons and the bargain analogies, the big can discount while the small can’t.

    I don’t blame the economist as he has spent all of his life looking at balance sheets, business plans, competitor activity reports

    But has ever read a coroner’s report of a death due to a medication-related issue?

    There are truckloads of these coroner reports, and they appear on the AJP website all the time.

    I am sure that if that economist spends some time reading these reports he will understand that he is approaching this industry from the totally wrong angle.

    He will find that if the pharmacist would have been in more favorable working condition he may have been able to pickup that issue that caused somebody to lose his life prematurely.

    And maybe he could also reflect that in certain industries what people want doesn’t make it right or we would have had heart surgeries done in garages as its cheaper and more convenient for somebody.

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