Prescription to online success

Getting prescription medications used to require a trip to the local chemist, but no more. By EMILY ROSS.

By Emily Ross

Having rudimentary computer skills and a low level understanding of the internet did not stop Queenslander Brett Clark from starting an online pharmacy business in June 1999 with fellow pharmacist and University of Queensland mate Jeff Wasley and established Brisbane chemist Gary Nipperess.

Clark and Wasley worked for Nipperess when they were fresh out of university in 1988. Over the next 10 years, the university mates worked long hours and managed to buy their own string of pharmacy businesses. By the time they looked at online opportunities, they owned three chemists with Nipperess involved as an investor and third partner.

The ePharmacy.com.au venture started out when the dot-com boom was at its peak. As a retailer, Clark was interested in developing a viable online retail business, reasoning his retail experience and understanding of customer behaviour would give his venture an advantage over any competitors. Clark was confident that he knew how to make money as a chemist; he just needed to transfer that to an online environment. The plan was to build a stable sales platform and then sell off the business in the short term for a nice return on investment.

The ePharmacy.com.au business plan centred on servicing customers in rural and remote areas who take medication for chronic illnesses such as hypertension, diabetes and arthritis and need drugs on an ongoing, predictable basis. (These chronic medications account for 80% of all prescription sales in Australia.)

The trio also saw a market for clients who wanted discreetly delivered products such as condoms, lubricants, birth control, hair removal creams, pregnancy kits, Viagra and herpes medications. The plan also included selling goods, especially fragrances, at up to 30% off retail pharmacy prices. Clark, Wasley and Nipperess were confident that even by cornering just a tiny percentage of the $10 billion Australian retail pharmaceutical market, they would have a viable business.

The partners bought the domain name ePharmacy.com.au for $20 and Clark started working closely with web developer David Vandenberg, who is now the manager of IT for ePharmacy.com.au. The website was 100% custom-built from scratch.

ePharmacy.com.au launched with 6000 products, most of which were listed by importing the product files from Clark’s main wholesaler. Apart from software development, the major IT investment made in the site was ePharmacy.com.au’s server. It cost a considerable $20,000, however it would operate reliably for the next four years. Vandenberg estimates that it cost between $80,000 and $100,000 to get the site up and running. Clark estimates total startup costs at $150,000.

Clark took control of the internet business, leaving his business partners to concentrate on their other ventures. Wasley worked hard running their existing chemist businesses and keeping the cash flow consistent. Nipperess, by all accounts, was more than an investor in the business, he was a mentor to both Clark and Wasley.

ePharmacy.com.au launched in March 2000 as the technology market was collapsing. Despite developing the company when e-commerce sites were spending millions on their launches, Clark preferred a frugal philosophy. “The cheapest resource you have is your own time and you should utilise that as much as possible,” he says.

ePharmacy.com.au is essentially a discount chemist with real-time customer service. Pharmacists are available via fax, phone, email, post and online seven days a week. Orders are delivered in unmarked parcels via Australia Post in an average of 48 hours. Owning several chemists was a critical advantage as Australian law prohibits web-only pharmacy businesses. Chemist goods can only be sold online by a seller that owns at least one bricks-and-mortar pharmacy business.

The site was run from the back of one of their pharmacies in the Brisbane suburb of Calamvale. A computer was set up near the nappy storage area. One employee, who also worked in the chemist out front, processed orders and Clark or the other chemist on duty handled inquiries.

Like any retail pharmacy in Australia, ePharmacy.com.au has to adhere to the strict controls on the sale of prescription medicines to be eligible to distribute products that are subsidised by the Pharmaceutical Benefits Scheme (PBS). Regular customers would leave prescriptions with ePharmacy and have them repeated when necessary. The savings offered at ePharmacy.com.au were an incentive for consumers to test whether ePharmacy could be trusted with their precious documents. If customers were not prepared to do this, the business would have failed.

ePharmacy was able to develop a highly efficient supply chain, primarily because the supplier of 80% of the goods sold at ePharmacy.com.au was close by its premises and would deliver goods twice a day, six days a week. Other stock ePharmacy was able to source from the Calamvale chemist they ran. A strong relationship with Australia Post (and four pick ups a day) also helped fast-track deliveries.

Clicks and mortar

The business morphed into what is known as a clicks-and-mortar business, a successful mix of online and traditional storefront business. Throughout this expansion, Vandenberg kept upgrading the site, in particular working on the back end of the website, allowing ePharmacy to increase its lead in the online market.

ePharmacy introduced a supplier extranet where suppliers could manage their own product content; a marketing system that allows ePharmacy to merchandise products through banner ads, companion selling and consumer product sampling.

In 2003, Clark, Wasley and Nipperess sold the medical centre pharmacies they owned and invested the money in the growth of ePharmacy.com.au and the warehouse store format. This was the beginning of major expansion plans. Clark contacted the Verrocci and Gance families who built up the largest independent chain of chemists in Australia, the My Chemist, Chemist Warehouse group.

The families met with Clark to discuss a joint venture. Clark found favour with the chemist dynasty, they wanted to be a part of the number-one online pharmacy business in the country (their own site was not thriving). In return for 50% equity in ePharmacy.com.au, Clark, Wasley and Nipperess would gain equity in the My Chemist, Chemist Warehouse group and oversee ePharmacy as well as Chemist Warehouse stores in Queensland and New South Wales chemists. The Verrocci and Gance families would operate the rest of the country.

The merged group ePharmacy-Chemist Warehouse Group has total annual revenue of $400 million and 1400 staff, its size making it harder for new competitors to take over the space. The ePharmacy stake has annual turnover of $100 million from online as well as 15 stores in Queensland and eight in New South Wales.

A deal was finalised in May 2005. The new merged mail-order and online business of ePharmacy, My Chemist and Chemist Warehouse Group would become known as ePharmacy, with mail-order and online sales forecast to be $8 million a year.

ePharmacy.com.au will be featured in “50 Great E-Businesses and the Minds Behind Them” by Emily Ross and Angus Holland, (Random House, September 2007).