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Drugs Online
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DOCMORRIS RATTLES GERMAN PHARMACIES WITH CHEAP DRUGS
Source: Bloomberg
Date: 15-Apr-2007
Author: Angela Cullen and Sabrina Bauer
Ralf Daeinghaus, a 39-year-old entrepreneur, is building Germany's first pharmacy chain by offering discounts in a country where people aren't used to comparing drug prices.
DocMorris, Daeinghaus's company, opened its 15th franchise outlet last week and aims to have another 500 within five years as independent pharmacists agree to pay to adopt the brand and lure customers with low-cost prescriptions.
In Germany, drugs aren't discounted and people need a registered pharmacist to buy over-the-counter medicines such as aspirin. Daeinghaus has drawn the wrath of the pharmacy lobby, which says his strategy may push people to use more drugs. Germany is Europe's biggest pharmacy market with 35 billion euros ($46 billion) of sales each year.
"Of course there's a lot of resistance," Daeinghaus, a former software engineer, said in an interview. "Those who have built up a monopoly system over many years don't give it up without a fight."
Daeinghaus is using his Heerlen, Netherlands location and a system of franchises to circumvent a German law that bans pharmacy chains. His first store was briefly shut down by local authorities and Germany is asking Europe's top court to rule on the case.
Daeinghaus says Germany is a monopoly because the government sets the profit margin that drugmakers, wholesalers and pharmacists are allowed to make, meaning that medicines cost about the same at all traditional outlets, even though most of the country's 21,500 pharmacies are run independently.
'Turtles Will Lose'
By contrast, DocMorris discounts over-the-counter medicines, which it buys in bulk, and reduces the price of prescription ones by shouldering half the cost patients have to pay when they get a prescription filled.
Daeinghaus is winning support in the courts and on the street, where customers resist some of Europe's highest drug prices and more pharmacists are joining his network.
Axel Schroeder says sales grew by more than a third after he hung a green DocMorris sign over his shop in the coastal town of Flensburg, near the Danish border, and started buying through the company, which charges as much as 30 percent less for over- the-counter medicines.
"The days of the lone fighter are gone," Schroeder says. "The turtles who pull their heads in and ignore this will lose." Schroeder has hired four new staff to help with the influx of patients visiting his store.
His customers pay 8.50 euros for a box of 50 aspirins that costs almost 10 euros at a traditional pharmacy in downtown Frankfurt. To join the franchise, Schroeder and others pay DocMorris 5,000 euros up front and another 1,500 euros monthly.
Not Sweets
Daeinghaus set up DocMorris as a mail-order pharmacy in the Netherlands in 2000. Now that he's building a network on the ground, he has persuaded some pharmacists to join, though most still oppose his approach.
"In other countries, the concept is that people are free to decide," says Ursula Sellerberg, a spokeswoman for the Federal Association of German Pharmacy Organizations in Berlin. "In Germany we have a different tradition, in which the state protects its citizens. Medicines are not sweets. They are special goods that must be treated with care."
German law allows pharmacists to operate a maximum of four outlets, all of which must be in close proximity. Only individual pharmacists can own the stores. And it's illegal to shoulder part of the prescription drug cost, as DocMorris does.
The rules are designed to shield medical decisions from price competitions, marketing pressures and consumer fads.
The Devil
DocMorris says it isn't breaking any laws with the franchise system and European Union rules allow pharmacists to help patients pay part of the cost of having prescriptions filled, even though German laws don't.
DocMorris had 178 million euros in sales last year, 17 percent more than in 2005. The closely held company doesn't disclose earnings, though Daeinghaus says it has been profitable since 2003. Daeinghaus estimates DocMorris's share of the German pharmacy market can rise to about 4 percent, or almost 1.5 billion euros.
Rivals are taking an interest. Celesio AG, which operates Lloyds pharmacies in the U.K., says it and other wholesalers may also start chains if Daeinghaus succeeds in opening the market.
"We're watching very closely," Chief Executive Officer Fritz Oesterle said in an interview last month. "We're surprised to see pharmacists flock to them. DocMorris has, in the past, been a synonym for the devil."
Celesio, based in Stuttgart, Germany, has 2,100 pharmacies in Europe, but none in its home market. While Wal-Mart Stores Inc.'s Asda chain has pharmacies in the U.K., the retailer left Germany last July.
Customer Service
Daeinghaus won an injunction to reopen his first outlet in the town of Saarbruecken near the French border last year. At the same time, he is gaining support from patients, who see DocMorris as a way to stem the rising cost of health care.
Barbara Bruhn, a pensioner who has ordered medicines from DocMorris since the company was created, says she saves about 100 euros a year and price doesn't come at the expense of quality. The company used its database to inform the 65-year-old that an eye treatment she had been prescribed wasn't compatible with the hypertension and thyroid drugs she takes, she says.
"No other pharmacy does that," Bruhn said. "DocMorris is a light in the shadows."
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