Pharmacy chain expansion

Mt Pleasant-based pharmacy chain, Pharmacy Alliance, is making headway with its plans to expand the business in Australia and overseas, having taken preliminary steps towards attracting new investment.

The group, which has a $5 million turnover based on membership fees, recently engaged an advisory firm to package the business, in preparation for a potential IPO or trade sale.

Founded four years ago by management consultant, Tom Love, and pharmacist Simon Reynolds, Pharmacy Alliance has grown from 24 to 113 stores since 2004, with much of its growth occurring within the last six months.

The group’s profitability is based on the premise that its product purchasing structure is cheaper than that of larger pharmacies, allowing cost savings to be passed on to individual operators, and ultimately to consumers.

Members pay a $6,000 joining fee and $1,000 per calendar month in membership fees, with additional services – including bookkeeping and marketing – available at further cost.

The structure allows pharmacists to outsource the entire back-end of their business to Pharmacy Alliance – a service that has been taken up by about 80 per cent of the group’s clients.

Mr Love said the company aimed to make community pharmacists competitive with grocery chains and larger pharmaceutical groups.

“The purpose was to help independent pharmacies in WA, at the time, then Australia, to improve the supply chain through bulk buying and compete with larger pharmacies,” he said.

Mr Love said the company’s key function was to negotiate cheaper prices with manufacturers, providing a return on investment for its members.

“We improved the costs for the top 40 manufacturers of products into the stores, allowing us to compete on price within the market,” he said.

Mr Love and Mr Reynolds have an 85 per cent shareholding in Pharmacy Alliance, in addition to a 20 per cent shareholding in consumer-based electronic marketing portal MyOnlinePharmacy.com.au, which is in the early stages of development.

The latter is a joint venture with Osborne Park-based online medical service, Virtualmedicalcentre.com, which completed a capital raising of $2.1 million earlier this month.

“We’re using our intellectual property for the development of the supply chain, and their IP for the website,” Mr Love said.

Mr Love also has a major shareholding in IT company intelPOS, which services Pharmacy Alliance members and other clients in the industry.

According to Mr Love, Pharmacy Alliance is ranked in the top three or four independent pharmacy groups in Australia, by store number.

Of the group’s 113 stores, 40 are in WA, with the remainder in the eastern states and a number in country areas.

“We hit critical mass at about 80 to 100 stores, so our fixed overheads became [comparatively] less and we became more profitable. Above that is where the real growth will be,” he said.

The company aims to reach its target of 500 stores by 2010, which Mr Love said was achievable based on current growth.

Its business plan also includes expanding into other regulated pharmaceutical markets, including Canada and France.

Mr Love said the group would begin investigating its options at the end of the year, with New Zealand likely to be its first target.