AUGUST,Edition # 31, 2001

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Woolworths is regarded as Australia's best managed retailer, with known intent to own pharmacy practices as part of its service offering.
Therefore it is a worthy model to study, and to emulate, where resources permit.
Community pharmacy is in no real position to compete against this Australian icon of retailing, but unless the gap is narrowed, the consequences will be eventually felt...and no prisoners will be taken.
The initiatives outlined below give some insight as to how far down the track Woolworths is in e-commerce. They are known to be following a hybrid of the British Tesco model and the US Wal-Mart model, where currently, the online "basket" of purchases is about four times that of the equivalent "bricks and mortar" shopping basket.
Pharmacy has a few pioneers in the e-commerce world in Australia, but they are literally light years behind in the technology required to carve out a satisfactory market share, in competition with Woolworths.
How will it all play out?
You will not have the ability to influence events unless you are part of the action.
Let us review briefly some of the e-commerce initiatives already covered in previous editions of this newsletter, and bring them up to date.
If you wish to sight some of the previous articles, just key "Woolworths" in the search engine located on the left side of this page, and follow the links that show up.


Greengrocer.Com

In December, 2000 Woolworths formed an alliance with Greengrocer.com after an invitation from their management to take a strategic position in this most successful e-tailer.
Woolworths subsequently took a 26 percent shareholding as a result of an offer to non-executive shareholders.
Recently, the shareholding was increased from 26 percent to 38 percent, which was accompanied by the appointment of Woolworth's non-executive director, Diane Grady, as chairman.
Diane Grady took up the position in March 2001. She also holds directorships in Lend Lease, Wattyl Paints and is a trustee of the Sydney Opera House.
Previously, she was a partner in the consulting firm, McKinsey and Co where she led the Retailing and Consumer Goods practice, in Australia.
The balance of Greengrocer board will be made up by CEO Douglas Carlson, and Executive Director Barry McDonald;independent directors Simon Mordant and Greg Duncan. Other Woolworths executive appointees include Penny Winn (manager for National Ezy Banking) and Bill Wavish (finance director).
This initiative will continue to give Woolworths vital information and know-how in how to market fresh foods and specialty foods online, and how to deliver this merchandise in temperature controlled delivery systems.
The quality of the directors involved in this project gives some insight as to how committed Woolworths are to this particular project.
There is little doubt that this entity will eventually merge with the Homeshop initiative, which is the next story.

Homeshop

This wholly owned subsidiary of Woolworths is the online division selling standard drygoods, toiletries etc.
It has been highly successful in capital city areas and Canberra, and has evolved into a highly efficient online retailer, using the "bricks and mortar" of its physical stores to provide the infrastructure.
Woolworths are well down the road into solving local marketing problems associated with Internet selling, and is now moving into refining one of the critical elements in its offering....the delivery service.
Because online customers do not see staff in their buying process, the human face of the organisation has become the delivery person, who has come to represent the most important link in the chain.
Accordingly, Woolworths delivery staff receive intensive training in customer relations, they are fitted out in distinctive Homeshop uniforms, and the delivery vans are clean, neat and painted with Homeshop brand and colours.
To enhance the effectiveness of the "human face" Woolworths are now sending free product samples with their orders, such as crisps, biscuits, shampoo etc., which are detailed by the delivery people. The number of free samples given away has exceeded 50,000 as of three months ago.
Imagine the goodwill generated by this massive sampling program and the opportunity to generate sales not even within reach of a competing pharmacy.

Homeshop customers in Sydney can now select from a range of 22,000 products online, with a minimum order value of $60 plus a service fee of $12.50.

Love them or hate them, Woolworths are definitely leading the way in e-tailing in Australia, and pharmacy will now have difficulty in catching up, because they have had in excess of a three year lead time to gain local experience.

Cyberlynx

Cyberlynx is a B2B e-procurement group that involves some of Australia's largest companies. They include the Commonwealth Bank, Lion Nathan, EDS Australia, Carter Holt Harvey and Telecom New Zealand.
It was established last year to bring online buyers and sellers of products used in day to day operations.
Woolworths are looking to improve their purchase price for stationery, electricity and computer hardware as initial targets.
Orders are aggregated through Cyberlynx with all other member companies enabling suppliers to offer their very best prices, based on exceptionally large volumes.
The system is designed to eliminate paperwork and reduce administration costs for all participants. Order accuracy is increased, eliminating problems in about 40 percent of orders that have to be reworked, due to quantities, price and description becoming muddled in some way.
Electronic catalogues on the Cyberlynx site assist in the selection of products, and orders can be tracked across a range of desktop computers throughout the entire Woolworths store network.
It is investing in systems such as Cyberlynx that Woolworths sees its ability to reduce and control costs, allowing more of its margin to be passed over to consumers. The process immediately disadvantages non-competitive retailers who are not plugged in to systems like Cyberlynx, and pharmacy must count itself as one such business type at the moment.
These are very real problems generated by the "new economy" for those people who wish to stay in their comfortable "old economy".
But consumers are in charge, and lower prices will win the day.
Looks like Woolworths will gain a few more market share points at pharmacy expense from this point on.
The real future competition will be fought on who can manage with the lowest overheads, generating an additional margin for retail price reduction (which is the secret of the global German Aldi group, recently established in Australia).

Ezy Banking

Ezy Bank is an alliance between the Commonwealth Bank and Woolworths, providing basic banking services through a majority of Woolworths outlets.
This type of banking in close collaboration with a retail operation, provides a synergy that customers like and translate into higher retail sales within each store.
By April 2001, Woolworths had registered 340,000 accounts, which exceeded all forecasts and was reached nine months after the national rollout of the concept.
Ezy Bank has also attracted over $800,000 of promotional rewards, which are heavily subsidised by the Commonwealth Bank.
The system now offers an Ezy Mastercard with the loyalty club rewards flowing through to provide major consumer benefits.
The basic Ezy Action account has no account keeping fees, no minimum monthly balance, offers interest on savings, allows 50 fee-free withdrawals or purchases per month (within Woolworths) and five external transactions.
This initiative in e-commerce alliance is proving exceptionally beneficial to Woolworths, and it is hoped that Guild Bank, a good partnership between the Pharmacy Guild and the Bendigo Bank, is developing a similar and competitive product.
If you are not into retail banking, you are missing a great opportunity, as Woolworths is proving daily.

All the above e-commerce initiatives demonstrate why Woolworths is Australia's leading retailer. Pharmacy has the potential resources to match all of the above, but alliances need to shift up a few gears to reduce the lead-time start that Woolworths have.
The processes appear deceptively simple at the consumer end, but the back office of the retailer has to be totally streamlined to deliver the product efficiently and accurately.
The hearts of consumers have always been won on price and service, and e-commerce seems to be able to satisfy on both counts.
Don't leave your run too late.
Ends

Newsletter Reader's Forum Click on the above link to access the newsletter reader's forum to express your comment or viewpoint for each of the articles presented. The authors value your input so please take the time to register your details and participate in the only free debate on the future of pharmacy. Registration is free and required once only for permanent access.You do not need to register if you only wish to view comments.

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