Red Sheds face challenge with in-store pharmacies venture

As The Warehouse prepares to enter the drug market within days, rivals say an acute shortage of pharmacists and tight profit margins could cramp its expansion ambitions.

The discount retailer is due to open a pharmacy inside its experimental Te Rapa store by early next week.

Aucklanders will also be able to buy prescription medicines at the Red Sheds when the 12,500 sq m "Warehouse Extra" opens at Sylvia Park, Mt Wellington, next month.

With a full grocery, liquor, bakery, pharmacy and general merchandise offering under the one roof, the hypermarket is expected to attract convenience shoppers.

Extended operating hours would be another drawcard, as the pharmacy will be open Warehouse hours - until 8pm seven days a week.

But traditional pharmacy operators are playing down potential threats to their business should The Warehouse develop pharmacies throughout its 85-strong chain.

Chief executive of NZX-listed Life Pharmacy Tim Roper says finding pharmacists will be the biggest challenge The Warehouse will face.

"There's a significant shortage of pharmacists at the moment, primarily because of the agreement with the UK on reciprocity," he said.

This requires New Zealand pharmacists wanting their qualifications recognised in Britain to work there for at least one month before July.

After July, they will have to do at least a year of extra training for the same recognition.

"So you can imagine every pharmacist who wants to do their OE has taken a plane to the UK," said Roper.

Last year, 108 pharmacy students graduated from Otago and 90 per cent of those were now working overseas.

The Warehouse says it does not expect difficulty finding and attracting pharmacists.

"The advantage to them [in working at The Warehouse] is they can just concentrate on providing healthcare advice. They don't have to worry about attracting foot traffic," said Warehouse spokeswoman Cynthia Church.

The success of the venture was also questioned by the Pharmacy Guild, representing 85 per cent of the country's community pharmacies. It said The Warehouse was not the "normal" place to get health advice.

"The Warehouse argues you go there for a bargain. For expert health advice, you go to a pharmacy. There is a difference," said guild chief executive Murray Burns.

Pharmacy was a people-oriented business and the special relationship people had with their community pharmacy would ensure pharmacies could stand against big retailers.

Church said the Warehouse pharmacy would offer a full range of prescription medicines, private advice rooms and its pharmacists would be "just as professional as anybody else's".

Alan Wham, chief executive of the country's largest pharmacy operator, Pharmacybrands, expects it will be some time before The Warehouse can emulate the success department stores have enjoyed with in-store pharmacies overseas because the margins here are much tighter.

"Clearly, we've been losing market share on health and beauty ranges as supermarkets have increased their offering, but I believe it will take some time to lose that share in the prescription market, which is much harder to get at."

The Warehouse has partnered with independent pharmacist Kerry Linkhorn for its Te Rapa store.

It is not the first time The Warehouse has experimented with selling prescription drugs. It pursued a joint venture with Care Chemist between 1998 and 2001.

The failed venture was blamed on a "bricks-and-mortar" clause in legislation that required pharmacies to be stand-alone stores.

But industry deregulation in 2004 allowed store-within-a-store pharmacies and changed ownership rules.

Today, pharmacists must control 51 per cent of a store, compared with 75 per cent before deregulation.

Foodtown has been trialling an in-store pharmacy at its Auckland City supermarket since 2004.

"Your Pharmacy" had been a positive experiment and "developments in that area will be pursued", said the company's general manager of marketing, Richard Manaton.

Wham said competition from supermarkets and department stores was part of the reason Pharmacybrands launched the Smart Pharmacy chain this year. The company is looking at opening up to 100 Smart Pharmacies nationally.

Life Pharmacy was differentiating itself at the other end of the market as an innovative health and beauty retailer.

But the company sees opportunities in other formats. "The Life model is not going to be the only thing we offer," said Roper.

Meanwhile, online medicine retailer Pharmacydirect has enjoyed strong sales growth this year, buoyed by the spread of broadband.

It expected unbundling would see its e-business go through the roof and easily overshoot sales forecasts of $5 million for the year to March.

Shares in The Warehouse closed steady yesterday at $3.61. Life Pharmacy shares were also steady at 71c.

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* New Zealand has 882 pharmacies.

* Pharmacybrands owns more than 200 pharmacies under the Unichem, Amcal and Dispensary First brands.

* Life Pharmacy owns the brand for the 20 Life Pharmacy stores.

* The Warehouse will open its first pharmacy by early next week.