The timeline for Woolworths ambition to own pharmacies initially began in the late 1960's, just after Pharmacy lost its case for protectionism under the newly created Trade Practices Act.
I was, in fact, the first pharmacist targeted by Woolworths in their aspiration to become a chain pharmacy operation.
How did this come about?

A recent article by John Bronger, president of the Pharmacy Guild of Australia (PGA) noted that Woolworths first started their moves on pharmacy in 1998. If this is the extent of Guild information on Woolworths pharmacy ambitions, then it is easy to see why the PGA have not been able to understand and counter the persistent encroachment on the pharmacy market.

So what are the strategic options of Woolworths?

Well, to check the lessons of history, the Woolworths of 1969 first attempt failed, because I was able to mobilise the regional groupings of doctors and pharmacists, to boycott the products of manufacturers engaged with discount sales in Woolworths.
This would probably be illegal now under the Trade Practice's Act.
And because pharmacy controlled major market shares, the manufacturers dropped support for Woolworths after four to six months from startup.
What did Woolworths do next?
Well, they began a long and deliberate strategic process of building market share with health and medicinal products, simply incorporating these products in a relatively low key fashion, into their existing departments.
Next they began a campaign to break up the very strong "chemist only" policies that existed, by testing them under the Trade Practices Act. This forced a lot of "friendly" (to pharmacy) manufacturers to review their trading policies, and that allowed Woolworths access to a wide range of strong selling products traditionally found in pharmacies only.
By orchestrating retail price structure, a major market share drifted into Woolworths, with the subsequent erosion of strength in the pharmacy sector. Woolworths had scored a windfall.
Pharmacy passively complained, but never aggressively competed to halt the transfer of business.

Because of the success of this strategy, Woolworths looked to see how else it could speed up the transfer of markets through new inventory additions. Here, they were primarily up against the various state Poison's Acts.
Answer?

Assist manufacturers to de-schedule as many products as possible and lobby to down-schedule as many other restricted products as possible, so that they may eventually become de-scheduled.
This also has proven a successful strategy, albeit one that is embraced individually by the pharmaceutical manufacturers themselves.
As a pharmacist I can also see dangers in this process, particularly as there is now talk of drugs like ibuprofen being de-scheduled.
I do not believe Woolworths attitude has changed over the years.
When I first pointed out to my father that his policy of promoting medications, particularly those causing kidney damage, was morally wrong, he said, "A packet of cheese or headache powders. We will sell anything if it makes a profit. It's the return to shareholders we worry most about."
I have not seen anything that would change this viewpoint. Woolworths have simply gained more expertise in "spin doctoring" to enable them to handle major issues, by generating news stories through media contacts, that involve alleged faulty service, dearer prices, or even malpractice by pharmacists.

So we now arrive at the "hard core" elements of the pharmacy market, where the products involved are not likely to be available for open sale, and will need the services of a pharmacist to complete a prescription sale.

How to capture this market segment?

Answer.

Own your own pharmacy!

The first stage in this process has been to identify supermarkets suitable for establishing a pharmacy-like structure. Two stores in NSW were tested as pilots (North Ryde and Kellyville) and Woolworths plans to structure approximately 100 more stores over the coming 12 months in the same fashion.
Parallel to this operation will be the establishment of a single pharmacy within a Woolworths store that will have its own entrance and be able to be closed off from the main trading area of the store.
Under current laws, the pharmacy will be owned by an independent pharmacist, and will not generally be controversial.
What is controversial is that the pharmacist fronting as owner will be expected to share information and results, so that Woolworths could adapt, improve and multiply the concept.
The end results would be used to confirm that Woolworths is capable of running a best practice pharmacy, fully accepted by the general public. This information would be packaged into an intense lobbying effort, with the ultimate result being that governments would be persuaded to relax ownership and location restrictions on pharmacies.

But it will not stop there.

Woolworths have been engaged in supply chain reforms that are now the envy of all their competitors.
Known as Project Refresh, these reforms and the systems developed, have delivered cost savings of 2.4 percent of sales ($1.7 billion) over a four year period.
Why would they not turn their attention to the wholesale end of pharmacy?
They would face the prospect of buying out an existing wholesaler or starting their own from scratch and incorporating it into their existing supply chain.

My bet is that they would start their own because pharmacy wholesalers in Australia have been dragging their feet in terms of matching supply chain reforms with Woolworths, particularly in the use of universal product codes. The message is therefore, if any pharmacy wholesaler wants to make themselves attractive and become the subject of a Woolworths takeover, they had better align their systems now, otherwise they will not be of interest.
Should Woolworths become interested in a pharmacy wholesaler, which one would be the most likely target?
Don't think that there have not been sporadic or ongoing discussions between Woolworths and the wholesalers. It dates right back to the days of Soul Pattinson in their original ownership format and continues up to the present moment. Remember, these are all corporate structures that understand and generally feel comfortable with each other.
My guess is that Mayne must become an eventual target.
Why?
Well because it is an integrated health company involved in wholesaling, franchised retailing, medical centres, hospitals, nursing homes and generic product manufacturing!
What a great challenge that would represent to Woolworths, and it would be one that governments would respond to with alacrity, because of the sheer market power involved.
So the future terms agreed upon between a Woolworths medical complex and the Health Insurance Commission would be totally different to that as we know it now, or what the PGA might argue.
In this process, pharmacists will become politically marginalised, and aspirations of developing cognitive and other professional services will evolve with difficulty.
It is structural ownership which creates real political power.

Staffing will be a major problem, but Woolworths are not in that much of a hurry.
They will want to build a viable and sustainable process.
And this is not rocket science.
They will set up their own internal training division (just an extension of their existing structure) and they will initially poach well trained and accredited pharmacy assistants from within community pharmacy.
They will do the same for freshly graduated pharmacists.
Remember, these will be pharmacists that will not carry the prejudices or corporate memory of previous generations, and will thus be open to new ideas and opportunities. Even now, Woolworths could recruit say, five to ten freshly-graduated pharmacists and pay for their pre-registration period within the single pharmacy structure they are engaged with.
This could be coupled with an offer to own similar pharmacy structures cloned from their development model, fully financed by Woolworths on up front buy-back terms.
What a great opportunity for new pharmacists who currently find it impossible to consider ownership under the current PGA orchestrated regime.
To enable this process, existing approval numbers would have to be purchased or government will have to relax its location rules and granting of approval numbers. I am sure the Woolworths lobby is already engaged in both processes. While Woolworths have stated they will not directly purchase approval numbers, they will indirectly facilitate the process by funding pharmacists to do so.

Woolworths will not achieve their goals overnight and pharmacy will probably continue to be complacent because of the relatively modest rate of change. Remember, it has taken Woolworths nearly 34 years to develop their first version of pharmacy since Katoomba, but the rate of change will now be accelerated.

Since their original foray in 1969, they have continuously and aggressively wrested markets away from pharmacy because pharmacy has steadfastly refused to genuinely compete.
When Woolworths changed to a supermarket format in the mid 1960's, this was seen as a cost cutting exercise, with the cost savings being credited against retail price. Pharmacists simply saw the supermarket structure as not being a suitable structure for their own pharmacies, yet many have adapted and formed hybrids or variations of the supermarket concept.
Woolworths are repeating the cycle.
Their supply chain reforms have generated enormous cost savings.
These savings have found themselves back into their marketing strategy of Every Day Low Prices (EDLP), that even competitors such as Coles have difficulty in matching.

Coles have made an announcement recently that they will be investing $315 million in IT over five years on supply chain reform. They estinate they will recoup $425 million annually by the end of the five year program. Coles have long been criticised by various analysts for not having competed with Woolworths in this process at an earlier date. It also estimates that it will be spending $604 million on just the actual supply chain changes.

Even with the supply chain processes in place within Woolworths it is still estimated that Australia is about a decade behind the northern hemisphere, putting Australia at a great trading disadvantage.

Pharmacy is not even in the race as yet.

It is interesting to note the PGA behaviour, at the point of introduction of each new pharmacy innovation:

* Attacked the concept of a supermarket, even though consumers avidly supported supermarkets and voted with their feet.
* After hours pharmacy was vigorously opposed by the PGA, with the pharmacists pioneering the concept being mercilessly targeted. This, despite massive consumer support.
* E-pharmacy has also been under attack. The initial pharmacist pioneers still carry the bruises.
This has simply hampered e-initiatives, with the PGA seemingly unable to provide an accepted format to match consumer need.
* Now Woolworths Rx concept is under attack, but in the same way as the introduction of supermarkets i.e. complain to who will listen, legislate and protect.

All of the above has generally been accompanied with a process of vilification against any pharmacist who was seen to drive any of the above initiatives. I hope the first pharmacist in Woolworths has a thick "hide" and appropriate personal survival skills.

This is not the right way to respond!
What is needed is something a little more dynamic-a pharmacist-owned structure large enough to compete in its own right, and one that will finance and nurture the expanding range of cognitive services, as well as retain major retail markets.

Other options are being developed by Woolworths.
Their success in petrol marketing now sees them joining forces with Caltex in a 50/50 joint venture.
Now all Woolworths and Safeways current 290 plus outlets and 120 Caltex service stations will be leased by the joint venture to provide discounted petrol and convenience shopping (C-stores).
It will not take too long for this new joint venture to figure that an after hours pharmacy would provide a synergistic addition.

It is not that long ago that Woolworths took over the Dick Smith electronic stores.
Here is a concept not basically dissimilar to pharmacy.
* It requires specialty knowledge and training.
* It requires a high degree of personal interaction with clients.
* The majority of products are not high volume in the supermarket sense, and requires a different approach at the purchasing and wholesaling levels.
So it is not inconceivable that Woolworths would eventually consider a range of standalone pharmacies based on the Dick Smith principle.
This is not going to occur unless ownership rules are relaxed, or a wholesaler is taken over, with a number of franchised outlets re-badged to Woolworths.

Next article in Woolworths series------>