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The fairly low key announcement of a Priceline Pharmacy opening in Packenham, Victoria, does not seem to have attracted much in the way of pharmacy media attention.
I suggest that all readers of this e-magazine place Priceline on their "watch" list, for it appears that they have a global strategy, and Australia will be the fulcrum for its planned expansion.
Who is Priceline?

Priceline is a proprietary limited company which is totally owned by a South African parent company called New Clicks Holdings Ltd, which also owns (in South Africa) a complementary string of retail outlets (Discom 209 outlets, Priceline 117 stores, Clicks 240 stores, Musica and Compact Disc Warehouse a total of 134 stores, and House franchised homeware which operates from two company owned stores and 68 franchised stores).
In 2001, the reported split of sales between the entities was Clicks 53 percent, Priceline 24 percent, Discom 15 percent and Musica 8 percent.
The head office is in Capetown and the officers are David M. Nurek (Non Executive Chairman), Peter Swartz (Non Executive Deputy Chairman), Peter Green (Executive Director Finance), and A.A Scott (Secretary). The CEO is Trevor Honeysett.
In July 2002, New Clicks Holdings Ltd acquired United Pharmaceutical Distributors (a drug wholesaler) for 281 million Rand (AUD$49 million), demonstrating its commitment to establishing pharmacies in South Africa.
This follows a move by South African food retailers Pick 'n Pay, who have established a successful pharmacy franchise model after a pilot project.
You can spot the similarity here with the Australian Priceline pharmacy venture.
The company is reported as stating that it wishes to own pharmacies outright in South Africa, and is hoping that the laws in that country will be changed to accommodate them. No doubt it is hoping for the same outcome in Australia.
In South Africa there are approximately 2500 pharmacies currently, which is about half the Australian number.

In Australia, New Clicks Holdings operates through three major brands--House (homewares), Priceline and the recently acquired Price Attack. The Australian company has 130 company owned outlets and 184 franchised outlets.
A recent announcement has signalled that pharmacy franchises are being offered through Priceline to reinforce the group's strategy of becoming a major international player in the healthcare field.
The established support services structure will be adapted to service its Australian franchised pharmacy development.
Priceline (Australia) is ranked 763 out of the top 2000 companies in Australia.
For the 12 months to August 2000, the company generated sales of $249,170,000.
The Managing Director is Mr Jeff Sher, and the Chairman is Trevor Honeysett.
The head office is located in Knoxfield, Victoria, and their support and distribution centres are also based in Melbourne. The retail outlets are grouped into four operational regions:

* Queensland and Northern Territory
* New South Wales and Australian Capital Territory
* Victoria and Tasmania
* Western Australia and South Australia

The Priceline mission statement reads:
"To build Priceline into a respected household name, providing exciting and exceptional service."

If you visit the Priceline website (http://www.s-central.com.au/priceline) and follow the link to "About Priceline", you will find clear statements as to their future vision, and the strategies to achieve that vision through organisational development, store growth, information technology, supply chain management and core business improvements.
Their website is attractive and well designed, fully e-commerce enabled, and displays some similarity with the Woolworths website in layout.
Their supply chain management is seen as the primary tool for growth, and they focus on increased stock turns, improved margins, operational efficiencies and cost controls. This focus is in line with other major retailers in Australia, and this magazine has often highlighted how the process is used to influence retail price strategies (see article on EDLP). This area is not a pharmacy strong point, and lags at least a decade behind major retailers. Priceline franchisees are liable to get a quick "leg up" in this department and they will have to match their rapid progress with good management skills.
In the marketing area, Priceline will be concentrating on customer loyalty programs, exclusive brand development and the use of technology for ranging and improved store formats.

The purchase of the 94 store franchise chain Price Attack in July 2002, was seen as a good acquisition in line with core business. The purchase price was around $16 million AUD. Price Attack has been established for around 13 years as a specialty haircare and cosmetics retailer, with a hair salon in each outlet.
The outlets were all located in major shopping centres throughout Australia.
One can quickly envision the synergies available if a large pharmacy were to present with a combined Price Attack/Priceline offering (or a new hybrid), because these markets are so pharmacy compatible.

Sales growth of Priceline over the last five years is reported at being seven to eight percent, with an indication of good continuing growth. Management believes that it can grow to 200 Priceline stores nationally, and believes that changes to various Pharmacy Acts within Australia will allow them to have in-store pharmacies. This is a slightly different angle to the concept of a full franchise, as this model will see pharmacists leasing space in a Priceline store and being limited to the sale of scheduled drugs and clinical services. This could also create leverage for the New Clicks group to ramp up franchise fees (or face an imminent competitor plus loss of the Priceline market offering).
Their stated aim is to be in a dominant position in southern Africa, Australasia and the Pacific rim in the drugstore business. To achieve this, they will have to be quite ruthless in their approach, and this change of culture will not sit easily with the current community pharmacy approach.
Immediate plans are to recruit 20 to 30 new pharmacists over the next 12 months to follow on from their Packenham pilot. The plan is for aggressive expansion, which is likely to lead to a major new acquisition.
One could speculate that this may involve a takeover offer for API or Sigma perhaps?

The pilot store is being used to "bed down" systems in terms of technology, category management and marketing, to back a Priceline banner group that would be additional to the current 130 Priceline owned stores. The company plans to establish a "compliant franchise model" which would lock pharmacists into set category plans in sales of health, general retail and beauty products.
Conformity is being sold as creating extra sales and to enable pharmacists to spend more time providing professional advice and services to patients.
The decisions on product mix and where they are to be located in store is totally a Priceline decision.

The model being offered to pharmacists is not unlike the one that Soul Pattinson used to operate.
Soul Pattinson researched markets, suggested layouts, organised shopfits and colour schemes, offered planograms and backed the whole operation with what I used to describe as a "retail orientated warehouse".
The model emerged in the late 1960's and was highly successful for about 25 years. Pat Gallagher, one of the i2P writers, was a young executive in this era, managing the Soul Pattinson warehouse.
Priceline are making the claim that the retail brands attached to Sigma, API and the Mayne Group are mainly about wholesaler needs.
In that aspect they are correct.
A marketing franchise born at the retailing end of the business, works backwards from retailer problems and incorporates benefits that genuinely enhance the bottom line.
The systems developed to achieve this provide a competitive edge that is basically invisible to competitors.
I have been writing for some time about this "edge" and that Woolworths have been developing it over the last decade. Perhaps now, pharmacists may begin to see what I have been talking about when Priceline rolls out its offering into pharmacy.

Make no mistake. In profit terms and survivability, Priceline will offer the best model for the next decade, provided there are no new global entrants around to muscle in.
It would be naive not to imagine that other global entrants are not having a good look at the Australian retail market, and the prime suspects would be global food retailers that already own pharmacies internationally.
The most obvious comment on all the pharmacy franchise models currently available, is that their principals are all positioned to take over ownership of pharmacy, should the laws change.
For this reason I have been continually promoting the concept of having incorporated in the various Pharmacy Acts, the provision for exempt proprietary companies as ownership structures i.e. companies that are not allowed to have public company interest, direct or indirect.
I seem to be alone in promoting this type of provision, so again, I am a majority of one.
Even though the CoAG Final Report acknowledges and reinforces that the ownership of pharmacies should be only in the substantial or complete control of pharmacists, I am deeply suspicious of what lies down the path over the next five years.
What Priceline is offering, Australian pharmacists have been capable of for decades.
It is the archaic laws taking the business of pharmacy into highly restricted zones that have prevented the development of an Australian version of Priceline.
Terry White came along with his version, but he still needed wholesaler backing.
Pharmacy capital is still concentrated at the wholesaler end of the business.
Now the wholesaler owns the Terry White operation, and it is no different to all the other wholesaler "brands".
We are still to see regulators come through with legislation allowing corporate structures with sufficient freedom to compete against the Woolworths, Coles and Priceline competitors. There is a need for strong Australian pharmacies to emerge, strong enough to fend off major competition, plus the ability to go global.
We are seeing the first global entrant in the retail end of pharmacy, and it will not be the last.
This I forecasted over three years ago, and if you search the archives of the earlier newsletter, you will find ample references and warnings regarding global competitors at all levels of the pharmaceutical industry.

Global competition is not a bad thing, provided you are strong enough to defend at least half of your market share.
Australian pharmacy is not organised for global competition, and we are easy pickings!
Australian pharmacists must incorporate, merge or takeover smaller non viable operations.
Markets must be secured and concentrated.
Pharmacist human resources need to be contracted for the long haul and one source for this will be from entities that can be absorbed. Global operators will offer higher wages to attract good pharmacists, and this is another area of competition that will be difficult to organise.

If we do not develop a strong, viable and interesting workplace we deserve to be overwhelmed by global operators.
For the short term, Priceline will be good for those pharmacists who elect to join their banner.
The cultural shock due to a loss of independence (the "compliance" factor referred to) will take some adjustment, but there is a heck of a lot of learning that can be accomplished here and eventually transferred to Australian models.

I sincerely hope that those pharmacists who remain outside of the Priceline banner are galvanised into action to provide a distinctly Australian version through which to compete.
Variants of current models will not work because they are geared towards preserving wholesaler profitability, so that only leaves pharmacists themselves to sort this out.
Wholesaler profitability will come under attack from Priceline in any event, because their recent purchase of a South African pharmacy wholesaler would have only occurred so that they can transplant their operation to Australia.
Further, Pick 'n Pay and certain other South African food retailers have successfully franchised grocery independents in Australia and have turned around their market share. So there is the potential for at least two new pharmacy franchise operators to emerge from these operators, also with the possibility to establish two new pharmacy wholesalers. So the API/Sigma merger may still be on.
Remember that Priceline is a retailer and will continue to run Priceline and Price Attack stores in opposition to any pharmacy model. You may not have a Priceline store next to a Priceline pharmacy, but you could have a Price Attack store in competition.
Australian wholesalers may develop an opportunity to open stores similar to the Priceline/Price Attack offerings, as a means of suppressing competition and preserving market share. Currently, wholesalers only engage in indirect retailing through pharmacists, but they could change their mind as the Priceline pharmacy model shows successful sales and profit growth.
One thing is not in doubt--the pharmacy market within Australia is entering a phase of retail competitve pressure not seen since the emergence of supermarkets in the 1960's.

The Priceline theme offered to pharmacist is: "Look good to your customers. Feel good for the future".
What a great positive theme to embrace, particularly when you consider the negativity that abounds in current pharmacy operations.
Hey, it sounds great and I might get out there and join Priceline myself .
If not, it looks like there are some good consulting opportunities coming up for my particular range of skills.