The 100-year dream that powers Chemist Warehouse

“Our pharmacy story has another 50 [or] 60 years to run. We have a theory that if you want to be a truly world-class, iconic retail brand, it’ll take 100 years to achieve,” he said, pointing to other global giants in the pharmacy world, including Walgreens, Walmart, CVS and British group Boots.

The latter is particularly close to Verrocchi’s heart. As he started his first pharmacy in partnership with Gance in 1980, it was Boots’ vertically integrated model, straddling manufacturing, distribution, wholesaling and retailing, that he most wanted to emulate.

“I saw Boots and I thought, shit, that’s who I want to be,” Verrocchi tells Chanticleer after his first brush with ASX investors. And merging with Sigma, whose main business is wholesale and distribution of pharmaceuticals, can get him there.

Not afraid of being wrong

“We’re not done. We’re fully committed. We’ve got executive roles, we’ve locked down our shareholdings, so we can only sell a little bit of it in a couple of years’ time. And, to be quite honest, who wants to [sell]? We want to be on this journey. Because this is my dream, of being the new Boots.”

Chemist Warehouse, Verrocchi says, isn’t even at the end of its first phase of growth, and can take its model into Asia and Europe over the next six decades, with the model already proven in New Zealand.

“Our confidence doesn’t come from being right – it comes from not fearing being wrong.”

Australian investors, who typically love the owner/operators of the ASX – think the Stokes family, Solomon Lew, David Dicker, Richard White and the Murdoch family – will eat this stuff up.

For a company and a set of executives who have studiously avoided the spotlight for decades, Verrocchi and Damien Gance, Chemist Warehouse’s chief commercial officer and the first-ever franchisee, certainly came to their first-ever call with ASX investors with a slick sales pitch.

“We have found our way into the Australian psyche,” Gance declared. “We are part of the post-2000 Australian zeitgeist. We have our own Bluey episode. We have our own Bluey episode because visiting a Chemist Warehouse is simply part of what Australian families do.”

A little hyperbole on such a big day is understandable. And it was certainly fascinating to hear Verrocchi and Gance explain the origins of the group – the long march from a single pharmacy, to three, to the decision in 1997 to leave the Amcal chain and strike out on their own under the My Chemist chain before the fateful decision to start the Chemist Warehouse chain in 2000 – and its model.

Much has been made of the model, and particularly the way Chemist Warehouse has been able to skirt the strict competition laws in the pharmacy sector, which have generally made it difficult for one group to control a large number of outlets.

But what Gance emphasised on Monday was simplification.

“Unfortunately, what we do is fairly mundane … We are a franchisor and a wholesaler. We supply the consumer goods you find in the non-dispensary part of the Chemist Warehouse [store]. We provide franchise services to our franchise pharmacies. We give them access to our IP, and we sell them stuff. That’s the grand reveal. That’s what you see as we let you peel back the curtain.”

Three phases of growth

Of course, the numbers say Chemist Warehouse is a hell of a lot better than its rivals. And it was interesting to hear the little differences in the way Verrocchi and Gance tick.

For example, while the supermarket giants have long wished to find a way into the pharmacy business, it was telling that the Chemist Warehouse crew based their model on supermarkets, by emulating their approach to pricing and discounting, separating functions such as warehousing and administrative functions, and investing hundreds of millions of dollars to create the sort of marketing juggernaut that makes you a household name.

The question of how Chemist Warehouse grows from here is fascinating. Verrocchi sees three phases: growing at home over the first 30 years, which is almost done; growing into new markets; and 30 years after that, which the next generation of leadership will need to work out.

While all involved in the deal say there is more growth to be found in Australia, Verrocchi believes Chemist Warehouse’s growth in New Zealand – where the pharmacy sector has been deregulated, allowing as much competition as the market can bear – shows the model can work in similar markets overseas.

Ireland, another deregulated market, could be a way of entering Europe and the UK. Could Chemist Warehouse eventually take on Verrocchi’s great inspiration and compete with Boots?

“Let’s say it’s not a foreign concept,” he says, before Gance emphasises any growth will be slow and measured.

The outlook for growth is probably the biggest question left following Monday’s coming-out party, but it’s not the only one.

Investors will want more on any potential regulatory concerns, particularly from the Australian Competition and Consumer Commission. Despite Verrocchi’s clear belief in the long-term growth prospects of the business, the market will push for more on his and Gance’s ultimate plans to sell down their stakes.

There’s a leadership question to be worked through, too. Sigma chief executive Vikesh Ramsunder will run the combined group, but Verrocchi will remain CEO of the Chemist Warehouse business, which will account for about 90 per cent of Sigma’s value.

Verrocchi says this is recognition that the Chemist Warehouse team can’t do what Ramsunder can do – “We’re the retailers, we’re the hustlers … I think everybody’s got to know their place and stay in their lane” – but it’s an unusual structure, to say the least. This is clearly not a hands-off team.

We’ll learn more in the coming weeks and months as the deal is subjected to regulatory and shareholder approvals. But this is an outstanding business. And, in the words of Bluey, there are plenty more dollar bucks to be made yet.