Published by Computachem Services

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NSW Australia

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I guess it had to eventually happen.
The checkout "chics" are about to disappear.
And what could possibly take their place?
Well, National Cash Register (NCR) has just announced its "checkout solution" in the form of FastLane.
This is a sophisticated piece of equipment which allows customers to unload, scan, bag and purchase their products.
It provides quite an interesting self-checkout arrangement that can support any size order, from one item to a full shopping cart.

It is already used widely in the US and Europe. Kmart in America are already using 1300 FastLane installations.
Retailing traditionally provides a large number of jobs, but it seems that job losses will begin to accelerate should this type of equipment prove successful in the Australian environment.
It also has the ability to form part of a wider scheme, utilising EAN bar-codes and having links back into supplier systems, creating the ability to provide automated inventory management and a paperless system of invoicing.
The system is due for release in Australia in August and delivers another body blow to the competitive retailing ability of small business, including pharmacy.
Salaries and wages represent one of the larger overheads in any business, and FastLane will slash this cost.
Because of the price tag on this type of equipment, it will be some years before it becomes cheap enough for the average small business budget.

FastLane also forms part of the EDLP strategy adopted by most large retailers (see article last month) and a percentage of the savings generated by this system will find its way back into product pricing, creating the lever to snatch yet another chunk of market share away from small business.

Now this strategy is intimately tied in with the big business push to pressure the Reserve Bank into introducing credit card reforms. Basically, the four-party credit card system is to be opened up and exposed to a wider range of competition, ostensibly to make credit cards cheaper.
The primary target is the Interchange Fee that banks charge each other to service credit card customers.
It is feared that the reality will be that small business will not be able to offer a cost efficient credit card system, placing them at a severe disadvantage compared to big business.

The Reserve Bank wants to reduce interchange fees to make the cardholder pay more for the service and eliminate cross-subsidisation by way of higher retail prices by non-credit card users.
It is here that big business has an advantage.
The more expensive four party bank credit cards will drive customers to the alternative three party systems of American Express, Diner's Club, and most significantly, store branded cards which larger retailers already offer.
The end result is that if a small business tries to compete by absorbing the customer charge, overheads rise and a percentage will eventually find its way back into retail price, making that business non-competitive.

Now here is an opportunity for retail pharmacy.
Given the financial infrastructure the Pharmacy Guild of Australia has developed through its own finance wing and association with the Bendigo Bank, it would certainly be in a position to launch an expanded credit card system for community pharmacy, that would be competitive.
It might even provide an income for the Guild significant enough to subsidise ever increasing membership fees. With cash fast disappearing from our commerce system, it would be foolish not to look at developing an "in-house" system to remain competitive with the "big end of town".

The other scenario is that higher cost credit cards may initially force people to use cash.
This would have an indirect effect on overheads as cash handling, insurance and security costs rise with the total volume of cash. For retailers using a Fastlane type system, cash handling costs would only represent a minimal increase.

If the Reserve Bank reforms increase small retailer's costs, they would not be able to surcharge credit card customers to recover costs (as proposed by the Reserve Bank) if they wished to remain competitive.
Most small retailers regard this strategy by the Reserve Bank as unrealistic.
Major retailers have the scale of economy to negotiate the lowest possible merchant fees.

Deposit taking institutions that are non-bank in structure will be allowed to be licenced for servicing of credit cards.
The Reserve Bank is counting on this factor to keep rates and charges competitive, and is also hoping to persuade customers to use debit cards.
Meanwhile, big business is exerting pressure to have the reforms introduced rapidly, bowling over small business in the process.
It is hoped that any introduction is "slow but sure" to avoid the consequences outlined.

In the background to the above, big business has taken on Professor Allan Fels of the ACCC, who is really the last and only bastion defending small business in any capacity.
Professor Fels is seeking to introduce reforms to the Trade Practices Act to limit cartel behaviour, by introducing criminal sanctions for executives of large companies active in this type of behaviour.
Companies capable of cartel behaviour are those with a gross revenue in excess of $100 million, or a gross asset value of $30 million or where employees number 1000 or more.
Cartel behaviour is defined as a large company colluding with a competitor to fix prices, rig bids, limit output or share markets.

A review has been set up under the chairmanship of Sir Daryl Dawson, a former Chief Justice of the High Court of Australia.
In an effort to influence the review, big business has conducted a relentless media blitz to portray Allan Fels in a negative light.
Concern has been expressed in the manner the ACCC has used advertising and publicity as a mechanism to highlight infringements.
The federal treasurer, Peter Costello, a strong supporter of the ACCC, has recently suggested that the use of publicity by the ACCC has been excessive.
This is a significant shift by the government.
It also reflects the strength of the political lobby of big business.

The ACCC has also asked that the test that determines whether or not, a corporation has abused its market power be strengthened.
They are seeking an "effects" test so that they make take quicker action.
This is required to limit damage inflicted on small business and consumers.
For example, Woolworths and Coles between them control 80 percent of the grocery market (which contains a significant proportion of traditional pharmacy markets).
As the Trade Practices Act currently stands, these two companies can attack the remaining 20 percent of smaller grocers, buying them up store by store, with the ultimate goal of controlling the market 100 percent.
Each company is adding retail space at the rate of 50,000 square metres per year, so unless the ACCC is given extra powers, the pressure will eventually swamp all small retail businesses, including pharmacies.
It should not be forgotten that pharmacy is still a target for these companies to own in their own right.
Nor should it be forgotten that a powerful section of state and federal bureaucrats also favour open ownership of pharmacy, and they are sustained by the poweful lobbying influences from big business.

A third recommendation allows for a small business-friendly process allowing authorisation for collective bargaining and the setting of collective prices, to protect the interests of small business.
The National Party have been calling for a parliamentary enquiry into the major supermarket chains, and their relationship with fruit and vegetable growers. Growers cannot collectively bargain with chains such as Woolworths or Coles, because under the current Trade Practices Act, it is deemed anti-competitive.
Yet a firm such as Woolworths, with its market concentration, can target growers one by one, pick them off, and not be deemed anti-competitive.

The big business argument is that there is no case for a change to the effects test and that it is the ACCC itself that needs more checks and balances. As pressure has mounted in the big business campaign, new coalitions of small business have emerged to push the case for small business (they do not appear to include pharmacy representatives).

It is hoped that pharmacy interests are being pursued in the ACCC review process, by the Pharmacy Guild.
Pharmacy submissions have not emerged as yet, and perhaps pharmacists need to ask some obvious questions now, rather than bemoan the fact later.

The important issue is that pharmacists should not concede retail market share, by virtue of not having sufficient management skills to juggle the complete portfolio of products and services they offer.