Pharmacies need to change together with their clients. Interview with Roni Drori, the president of Super-Pharm
Change on the Polish pharma market is inevitable. Clients expect higher standards and appropriate service thus the self-service pharmacies will continue to develop. However, the Polish pharmacy market will not be dominated by drugstores but rather by strong chains owned by wholesalers.
Joanna Rybak, Pharma Poland News: Super-Pharm represents a new type of activity on the Polish pharmacy market, one well-established in Western Europe and North America but not popular in Poland. Why do you think that no one has attempted to run a drugstore in Poland before Super-Pharm?
Roni Drori: There are no really major global multinational drugstore operators playing in this arena.
North American drugstores, both in the US and Canada, have big enough domestic markets to grow and, thus, are not interested in going global.
Boots gave it a try but got burnt. It tried to expand into Canada, but then suspended operations there. It also went into Thailand and Japan, but ended up selling off its business there. Finally it went back to its roots, the UK, and has focused on the UK ever since.
JR: Maybe local vendors would have greater success in drugstore operation in their own countries as they know those markets better?
RD: It’s not so easy.The first major barrier is the unique know-how and experience in running a drugstore, which is neither a typical pharmacy, nor a typical cosmetics shop or a typical perfumery. A lot of know-how is required to manage this type of business, which no retailer in Poland has at the moment.
The second barrier is investment. This is why you don’t see local guys running drugstores. Pharmacy owners are able to build a modern pharmacy but not a drugstore.
JR: Do you think more must be invested in a drugstore than a pharmacy?
RD: Definitely. A pharmacy is a relatively small investment in comparison to a drugstore.
JR: But why if the product range is similar: medicines, dietary supplements, cosmetics, herbals, etc.; similar equipment is needed, and the same legal and safety requirements?
RD: It’s the novel concept, the know-how, which set us apart from traditional pharmacies. A drugstore is a 3-in-1 concept – a combination of a pharmacy along with a big self-service area with cosmetics, beauty products and perfumes. The pharmaceutical part is the core of our drugstores, but it’s only one part. By definition, a drugstore represents a combination of health and beauty together with a pharmacy. Thus, our clients visit us not only when they are sick, but also when they are healthy. They buy medicines, OTCs, vitamins and minerals, as well as cosmetics, baby products – all together. That’s the novel concept which we brought to Poland.
JR: If you were to divide your drugstore business into pharmacy (medicines) and non-pharmacy (cosmetics, dietary supplements, herbal products etc.) operations – to what percentage shares would the two correspond?
RD: Half of our total business is non-pharmacy and half is pharmacy, of which 60% is OTC medicines and 40% Rx drugs. So you see that we sell much more OTC than a typical Polish pharmacy, where proportions are around 30% for OTC and 70% for Rx. The over-the-counter market is where we make some money, not the prescription one – because the margins are lower there.
JR: You have 13 outlets in Poland and plan to increase this number to 50 by 2010 – that’s a very ambitious plan. What makes you think that your expansion in Poland will be so successful?
RD: It’s not all in our hands. It depends mainly on location. We have an exact strategy for 2007 and 2008, as well as a plan for the longer term. On the basis of our plan, I can say that we will have enough sites to secure around 30 new outlets by 2010. Generally, we are quite optimistic about our future in Poland.
JR: How many stores will you open in Poland this and next year?
RD: There will be another four stores this year, so we will close the year with 17, plus/minus one. Next year 7-8 new outlets will be opened. Some locations will move from this year to next, in Poznan for example.
JR: Why is localisation so important to you? Super-Pharm tends to open drugstores in shopping malls – is it part of your strategy?
RD: At the moment, whilst the Super-Pharm brand is still young, we need to go to high traffic locations in order to make money. We need high traffic as pharmacy margins are decreasing. Securing licensing to operate in a shopping mall is quite affordable, and there is no direct competition with local pharmacies, thus, we are first targeting shopping malls.
At present, 10 of our existing 13 outlets in Poland are located in shopping malls.
JR: Will you continue doing this in the future?
RD: Our future strategy, besides the shopping malls, includes expanding into local neigbourhoods and the high street in city centres.
I believe Poland will follow western patterns in the development of retail distribution channels, with the tendency for shopping malls to become bigger in size, with an increasing share in the modern retail distribution channel. Today, less than 20% of trade in Poland takes place through the modern distribution channel, while in the UK it is 67%. So Poland has a long way to go with supermarkets, shopping malls and so on.
JR: Will you focus on large Polish cities or expand also into smaller cities or towns?
RD: Everyone looks at Warsaw now, but the city is already pretty saturated. The capital houses the highest number of our outlets and still offers opportunities for us to expand, e.g. in the new Zlote Tarasy shopping centre and another similar shopping centre coming soon. But there are many other cities in Poland. At the moment, we have three outlets in Warsaw, but only one in Gdansk and one in Krakow – where there is room for at least five more. So we are also seeing opportunities in other cities.
JR: Do your expansion plans include entering Central and Eastern European (CEE) countries other than Poland?
RD: Not at the moment. We have limited management resources and, thus, we are not able to attend to all possible countries. Additionally, don’t forget that the pharmaceutical sector is highly regulated so you need to really live in the country in which you’re operating. It’s not just a matter of opening a Rossman store on a corner in Budapest and you are in business. We prefer to focus on the Polish market which is very big, strong and where our sales are going well. We are present in China and Canada, we are the market leader in Israel, so this is enough at the moment.
JR: Why did Super-Pharm choose Poland to expand into instead of another CEE country?
RD: The first reason is the legal environment, which was open and liberal with respect to our pharmacy type when we were entering the Polish market. The second is that it is the strongest economy in the CEE block. Hungary is relatively small, similar in size to Israel, the Czech Republic is even smaller, so there was no big market in that part of Europe for us. We need a big and strong market to pursue our business concept, to achieve a high business turnover. Whilst an average Polish pharmacist needs a turnover of, let’s say, PLN 150,000 to function properly, we need a much higher turnover to run our business.
JR: Do you perceive the legal environment more liberal in Poland than, for example, in Hungary or the Czech Republic?
RD: Yes. The legal framework is very constrained in Hungary and in the Czech Republic. However, today things are different than they were six years ago when we were entering this region, chiefly due to the need to meet EU regulations which are very liberal in order to meet the requirement of an open market throughout the EU.
JR: Was it easy from start? You had the know-how and the capital but did not know the specificity of this market.
RD: Our beginnings in Poland were very hard. We had to face a legal threat because the Polish Pharmacy Chamber attempted to amend the Pharmaceutical Law to block the development of pharmacy chains. So we had to freeze our development in 2001 and 2002, until this situation was clarified. Obviously, if the amendment has been accepted, we would have had to exit Poland. But, luckily for us, it was rejected. We’ve faced this threat thrice in the last 15 years. Finally, in 2003 we actually started our real development.
JR: There is a new challenge ahead of you due to the requirement imposed on every Polish pharmacy to be capable of preparing all medications on premises. Many Polish chemists are unhappy about it – how are you going to cope with it?
RD: We don’t need to do a thing, all our pharmacies are state-of-the art, all equipped with laboratories. All our pharmacies are type-A, according to the Polish classification, so we can prepare customised preparations at all our outlets. This is our standard one which 30% of Polish pharmacies don’t meet.
JR: Traditional Polish pharmacies criticise modern, self-service type pharmacies, saying that these outlets do not provide sufficient advisory to patients, that they are only profit-oriented, etc. Have you faced such criticism?
RD: No, but I understand their point. I think that what they don’t like is not that we sell OTC or vitamins, but that they have to do so as well though they do not want to. They need to talk to their clients, to give advice, to notice that there is a person on the other side. Traditionally, they operated differently – there was a small window at a chemists, you had to hand your prescription and they dispensed the medicine. That’s all. Now, clients expect higher standards and appropriate service.
Conceptually, going to a traditional pharmacy is like a habit. Most people don’t like change, neither do I; but such a change is inevitable. It’s like internet drug trading – the internet is a medium and it will develop, whether you like it or not. So will the self-service area.
JR: Do you think you meet the needs of today’s customer?
RD: Yes, we believe so. We try to give the right information about products, and we are also launching advisory services in self-service areas in Poland, with a trained technician providing professional advice. We already have a beauty advisor dedicated to the pharmacy area, which has proven very successful. And now we doing the same for vitamins, minerals, and equipment: blood pressure monitors, sugar tests, pregnancy tests, things like this. There are lots of products in the self-service area of our drugstores, so customers can easily get confused, especially when they are additionally bombarded with advertising.
We are also going to place signs for different groups of products in our self-service areas: vitamins, food additives, dietary supplements, etc., so clients have some orientation and don’t get lost. But even so, we believe that introducing advisory will give us a commercial advantage as well as much better access to our customers. So you will see green-jacket people wandering around in our stores within a few months.
JR: Various surveys prove that Polish patients are used to buying drugs in traditional pharmacies rather than in retail channels, because they perceive products bought in traditional pharmacies as having higher therapeutic value. Do you agree?
RD: I agree, but this fact doesn’t scare me. We are still a pharmacy-operator. A different type of pharmacy, but it’s not a petrol station or a hypermarket selling vitamins and food additives. Customers’ habits are also changing, they are becoming more modern, it’s just a question of time. The younger generation is a prime example. They are more prone to buying in shopping malls, where opening hours are longer, service is quicker, they find what they need much faster – simply do a one-stop shop.
A good example is that there was not a single self-service pharmacy in Poland six years ago, and now they are emerging everywhere. Many traditional pharmacies are also modernising, e.g. getting rid of the glass counter between the pharmacist and patients.
JR: Do you think the Polish pharmacy market will evolve in the direction of its counterparts in North America or Western Europe?
RD: I don’t see the Polish pharmacy market being dominated by drugstores, such as is the case with North America. It will be dominated by chains, because today the biggest chains in Poland are chains owned by wholesalers, like PGF and Farmacol.
Currently, Roni Drori will be ceding the presidency in Super-Pharm to Steve Goldstein. Mr Drori has served as president of Super-Pharm in Poland since the company’s beginnings on the Polish market in 2001. The new president has announced his intention to continue in the strategy initiated by his predecessor.