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My
thinking is that we should be bucking the trend, so I had a look
around to see if any other successful retailers were following
this line of thinking. My primary choice was Aldi, and my second
choice was Priceline.
Both are gaining ground in a difficult retailing climate, and
neither are too worried about their competition.
It is heads down and follow tried and tested formulas-and keep
refining the end product.
They are fresh in their outlook and concentrate on disciplined
management to achieve their objectives.
Consumer
needs are slowly changing.
There is now less available time for shopping and most are buying
"on the run".
What they are looking for is a "one stop shop" with
plenty of choice.
Discounting in the traditional sense ("specials") is
becoming less of a motivation in the choice of a shopping outlet.
While most consumers will still look at shopping centres and shopping
strips for their major shopping needs, this will slowly change
to a situation where more computer literate people will begin
to embrace e-commerce and Internet shopping as a larger component
of each week's shopping.
Schools are stimulating future e-commerce potential customers,
as they increase computer studies within their curriculum.
Government, banks and major utilities are driving e-commerce processes.
Major
supermarkets are concerned that over the next 10 years, up to
80 percent of their shopping baskets will pass through the checkout
for less than $30. One competitor (Franklins) has already "bit
the dust".
This will result from the level of increased competition, with
global entrants such as Aldi, slowly chipping away at the majors
with their unique marketing strategy.
E-Retailers also tend to have an average shop almost double the
value of their "bricks and mortar" shop, after a reasonable
establishment period.
Independent supermarkets have also begun to organise better, after
a long process of attrition inflicted by the majors. They are
now leaner, meaner and quicker on their feet, and starting to
beat the majors in those niches that work best for them.
It is some time since I looked at Aldi, when they first set up
in NSW a little over two years ago.
At that stage, Aldi was looking to control 10 percent of the Australian
retail market with an initial target of 100 stores. They emphasised
a large range of quality house brand products and a strong bias
towards manager and staff training, with wages well above award
levels.
Pundits at the time were skeptical that Aldi would gain little
more than 1 percent of the market with the strategy that they
were implementing.
Aldi currently holds 3.2 percent of the grocery market, with a
shopping basket value of $50, which has risen $9 since the beginning
of the year.
Aldi has 33 stores in NSW and is set to open in Victoria late
in 2002 or early 2003.
It
is easy to see that Aldi is right on target,
Thirty
three stores control 3.2 percent of the market. Multiplied by
a factor of 3, this would make it 99 stores controlling 9.6 percent
of the market, in a timeframe of little more than six years, still
leaving room for improvement.
The much promoted EDLP strategy, which I have been writing about
in earlier articles on Woolworths, was basically invented by Aldi.
They go to extraordinary levels of economy on basic expenses,
and turn as much of the savings into lower retail price.
They are still more productive than Coles or Woolworths, because
they focus on simplicity.
Aldi margins range from 10 to 12 percent, while the major chain
stores average 22 to 26 percent.
The Aldi supply chain is now believed to be completely automated
from its own central warehouse (no supplier direct deliveries)
and their wage to sales ratio is around 2 percent.
In many ways they are going against the strategies embraced by
the majority of retailers, yet their sales are increasing, and
their average cash sale is $50 (compared to Coles $28 and Woolworths
$31).
The majors are utilising supplier direct deliveries, but Aldi
are refining their central warehouse strategy.
As well, Aldi now claim to have 75 percent of their stock in quality
house brand products, with the emphasis on quality.
Aldi do not discount in the traditional sense, even though they
have just published for the first time, a list of products under
the banner of "Our Prices Just got Lower".
What it really means is that a group of products now have enough
dollar support, to lower the retail price on a permanent basis.
Aldi
have overcome the perceived consumer need of "one stop shopping"
by setting up in a shopping precinct, surrounded by small specialty
retailers, including pharmacies.
Because they generally control their own sites, overheads are
cheaper and the sites are generally free from congestion (unlike
major shopping centres). Parking is a lot easier.
The majors, on the other hand, are still trying to stuff everything
under one roof and are buying up independents as fast as they
are able, as a means of extending sales and market share.
Aldi is believed to be experimenting with the idea of a full range
store in a shopping centre as a means of holding down the majors
and beating them at their own game.
It is not seen as a real departure from their main retailing focus,
just a diversion to confound the competition.
So
what can pharmacy learn from this?
Well,
pharmacy is a convenience business, traditionally operating with
a mix of very small operators to medium sized operators.
The retail cycle is swinging back in favour of convenience retailers,
but there
are few pharmacies that could be regarded as large in size, and
therefore position themselves favourably within the cycle.
So there is scope here for improvement.
I have often written about the lack of legislation enabling pharmacists
to incorporate (about 30 years, in fact!).
When this legislation eventually comes, I hope it is not introduced
too late, or in such a fashion that will hold back the much needed
mergers and takeovers that could then occur efficiently between
pharmacies.
Companies also represent a vehicle to enable young pharmacists
to spread their investment in a pharmacy over a long period of
time, and not be left feeling they are shut out, as is the current
feeling.
Pharmacy can improve its physical size through hastening legislation
for incorporation.
Pharmacy
could look at all of its expenses and adopt a miserly attitude
towards them.
How can they be reduced or even eliminated?
How can a pharmacy get down to 2 percent wages to sales ratio,
yet still pay above award wages?
Pharmacy can look at its pricing system and see how it can
create an EDLP system.
Pharmacy
can look at its relationship marketing to see if it can develop
a Priceline equivalent loyalty club system (see
article 1 in this edition).
Pharmacy
can locate in a precinct area (medical centre plus other specialty
retailers).
Specialty precincts have not been developed to any extent because
of the manipulation in approval numbers for PBS dispensing. This
type of location development seems to me to hold more promise
than being located in major shopping centres, with the added stress
of dealing with greedy landlords.
Pharmacy could improve its location.
Pharmacy could look to creating non traditional alliances,
and an Aldi alliance could be a positive move.
Pharmacy
should urgently look at its supply chain system and reform it.
The gateway purchasing system written up in this edition (PurchasePlus)
holds out the promise that this reform may have commenced.
Pharmacy could reduce the costs of purchasing.
Pharmacy
can look at diversifying all of its services, (both professional
and commercial) as a means of driving margins up, and developing
that "uniqueness" which sets pharmacy apart from all
other retail establishments.
Pharmacy
can learn a lot from retailers such as Aldi and Priceline.
They are retailers with a simple focus and a basic marketing strategy
that on the surface is uncomplicated, but requires excellent management
skills to deliver.
They can embrace complexity and deliver simplicity.
Pharmacy needs to take its management training up a few more
"rungs".
On
the industrial front, pharmacist salaries and wages need to reflect
the awards.
The Pharmaceutical Benefits Service (PBS) dispensing fees are
calculated on the award, so it means that when a pharmacy is forced
to pay a "market rate" there is really insufficient
money coming out of the PBS to meet the expense.
Pharmacy needs realistic awards.
The
disparity in awards between hospitals and the community needs
to be addressed.
Hospital awards do not recognise skills acquired in the community,
and pay less than the community "market rate".
Hospital pharmacies should be seen as the training ground for
consultant pharmacists, and pharmacists of either ilk need to
be able to move in and out of both environments with ease.
Pharmacy needs an interactive and flexible work process between
hospital pharmacy and the community pharmacy.
Pharmacy
professional development must really go hand-in-hand with general
retail development, and the best use must be made of all existing
resources (including hospitals).
There are many points of difference that can be exploited by pharmacy
to ensure that it retains a "uniqueness".
Provided it is coupled with management skills and market awareness,
there should never be a need to concede retail market share to
competitors.
With
a little bit of thought, pharmacy can definitely have it all!
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NEIL
JOHNSTON