Chemist Warehouse problem Australians are ignoring

Barely a town or city in Australia is immune from Chemist Warehouse’s distinctive bright yellow shopfronts and now the bargain pharmacy brand is spreading internationally to New Zealand.

The brand’s meteoric rise Down Under is set to be repeated in New Zealand after the pharmacy giant recently spread across the Tasman – with 35 stores opening over the past few years, and independent chemists vanishing as quickly as they did in Australia. It has also opened six stores in Ireland. 

The Pharmacy Guild of NZ said 30 independent chemists went out of business in 2022, replaced by larger chain stores. 

In January this year, Seema Rambisheswar had to shut down her Life Pharmacy store at Glenfield in Auckland’s north after working there for 22 years and owning it for 14. 

A Chemist Warehouse opened in the same mall in 2020, cutting costs for Kiwis by waiving the government’s $5 contribution fee, charged with each prescription, by absorbing it at a loss.

The pharmacy giant has spread across Australia but independent chemists have questioned if they provide the same personal care and service as a community-owned store

‘The impact (of Chemist Warehouse opening) was huge for us, customers began to think the $5 prescription fee went into our pockets,’ Ms Rambisheswar told Radio New Zealand.

‘Those places are just churning prescriptions out. We try to give advice with every prescription, we’ve had people asking us to please not close but it’s too late.’

A survey of chemist owners conducted by BDO in 2017, when the first Chemist Warehouse store opened in NZ, found 90 per cent were concerned about its arrival.

The local pharmacists are worried they will soon go the way of Australia, with big-box chains effectively pushing everyone out of market.

The vast majority of pharmacies in Australia are run by a just a few powerful companies.

There is Terry White Chemart, meanwhile, Sigma Pharmaceuticals owns brands like Amcal, and Wesfarmers owns Priceline.

But the heavyweight is Chemist Warehouse, which dominates the market share of the $25.9billion industry.

The first of its stores opened in Melbourne in 2000 and since then numbers have exploded, with 491 locations across 370 Australian suburbs, towns and cities.

Its growth has been largely due to its very visible ‘lowest price guarantee’ which beats a cheaper price found at a competitor.

Similar to hardware giant Bunnings, doing huge volumes of trade allows the stores to sell products at razor thin margins small business can’t match, yet still rake in profits.

Also similar to Bunnings, the stores employ a basic-looking aesthetic, filled with paper sale-price tags, to create the image of a discount warehouse – the name is very deliberate. 

‘The average pharmacist hates us because we have effected the whole margin structure in pharmacy,’ co-founder Jack Gance recently told the Small Business Big Marketing podcast.

‘If they compete with us 100 per cent, if they match our prices, they’ll go broke… they won’t even cover their rent. 

‘So we’re not really liked in the industry.’

Chemist Warehouse is a privately-owned company co-founded by Jack Gance (left) and Mario Verrocchi (right with his wife Fiona)

Sydney independent pharmacy owner David Vo sold his Rose Bay pharmacy six months before Chemist Warehouse moved in and ‘decimated’ the new owners. 

‘If Chemist Warehouse moves in next door, your goodwill is cut in half overnight,’ he told the Australian Financial Review.

The privately-owned Chemist Warehouse raked in a massive $1billion profit in 2021.

While most business struggled during the Covid pandemic, chemists remained open and particularly those with a large online presence flourished.

Chemist Warehouse sprouted stores in Ireland and China in 2022 in addition to New Zealand.

Gance and co-founder Mario Verrocchi are are both on Australia’s Rich List – at 77 with $1.6billion and 82 with $1.5billion of personal wealth respectively.

Verrocchi sold his 45hectare farm joint-owned with other members of his family in 2021 for $60million, having purchased ‘Morning Star Estate’ in Victoria for $40million months earlier.

Nicknamed the ‘Downton Abbey of Australia’ the property includes a restored 1860s Victorian mansion, English gardens, a 12hectare vineyard and its own helipad.

The family also owns a similar-looking Toorak mansion in Melbourne purchased for $19.25million.

Gance is his neighbour in Toorak, purchasing two of his own mansions in the suburb for at least $30million in 2019.

One of those, built in 1925 and redeveloped, features six bedrooms, a marble foyer, private library, heated swimming pool, tennis court and manicured gardens.

Gance, who became a registered pharmacist in 1967, was already a successful businessperson, having invented the Le Tan brand of sunscreen.

The ‘Downton Abbey of Australia’ in country Victoria was purchased by the Verrocchi family 

The sprawling estate features its own 12hecatre vineyard and English gardens

This immaculate mansion is one of two in Toorak owned by the Gance family

The home features a marble foyer, tennis court, two pools, and a private library

Chemist Warehouse has been rumoured to be looking to float on the ASX or even sell to an overseas conglomerate, but questions about its business practices appear to have thrown a spanner in the works.

Under Australian law there are rules about how many pharmacies one company can own in any state or territory.

The big chains get around this by, among other things, having franchise owners provide a minority stake in a store. Chemist Warehouse does this through an owned company called East Yarra Friendly Society Pty Ltd.

But this could make a wholesale float or sell-off difficult. 

The company’s directors have been talking to state and territory pharmacy regulators and made some changes in 2021 but appears to be in a stalemate with the NSW authority.

‘The Pharmacy Council of NSW (PCNSW) has not approved the changes for that jurisdiction,’ the company’s 2022 financial report notes.

‘A process of engagement with the PCNSW is ongoing and directors expect a successful outcome will be achieved.’

An ASX float could value the company at $5billion, while an overseas sale could see yet another Australian icon owned by a foreign company. 

A Chemist Warehouse spokesperson told Daily Mail Australia a high level of personal service was a focus for the company.

‘Our pharmacists deliver excellent service, advice and value for our customers,’ the spokesperson said.

‘Chemist Warehouse and its pharmacists are particularly proud of the manner in which we deliver professional services which make a significant contribution to public health.

‘Our head office has a professional services team of pharmacists to help the professional staff across our network grow, improve and deliver the best possible services for patients.

‘It is true that we have achieved a large market share, we believe this reflects our commitment to delivering value to consumers. 

‘We work strictly within the regulatory and clinical requirements of the markets where we operate, while also offering the best possible prices – and consumers respond with their support.

‘For example, while it’s still early days for our six stores in Ireland, already we are seeing customer numbers tracking six to eight times more than for a regular pharmacy.’