Chemist Warehouse Joins Chorus against High Energy Costs

Damien Gance, co-founder and group director of Chemist Warehouse, the nation’s largest pharmacy chain, has joined the chorus of Australian chief executives and corporate leaders testifying to the intensifying pressure on business and consumers of mounting energy bills, with the national retailer working harder than ever to limit the impact on shelf prices.

Mr Gance told The Australian the issue of energy prices had “bubbled its way” through his management ranks and he was aware of the threat it posed to the chain’s competitive offer as consumers became more cautious about discretionary purchases.

“Chemist Warehouse is a business grounded on passing the best prices to consumers so any input price that materially changes affects our capacity to continue to charge competitive pricing as we do,” Mr Gance said.

“We do what we can to offset any electricity price rises. There are numerous things you can do with our own business and we have done that and continue to engage to look at ways we can do that ­better.

“And in our business electricity is a material expense but not one yet that has necessitated significant price changes. We continue to be able to manage our way through it … we have had (large electricity price increases in our own business). It has bubbled its way up the management levels within our business and has come to my attention.’’

Mr Gance is the latest senior executive to warn of swelling energy bills affecting business operations and consumer prices, and over the past few months a growing army of corporate leaders has highlighted energy security as a key threat and challenge to profitability, the economy, living standards, employment and house­hold budgets.

Recently the boss of BlueScope Steel, whose plant at Port Kembla, in NSW’s Illawarra region, is the largest steel production facility in Australia, warned the nation was facing an “energy catastrophe”.

The bosses of leading construction materials companies Brickworks and CSR have pinpointed spiking energy costs as a spectre that could see manufacturing shift offshore, while this month Rio Tinto CEO Jean-Sebastien Jacques warned Australia was an energy-rich country that had seen its global reputation diminished from having some of the most competitively priced energy in the developed world “to having nearly the most expensive’’.

At The Australian’s Global Food Forum this year, Woolworths boss Brad Banducci said that ultimately the contagion of steeper energy bills for corporates such as the supermarket giant would spread to consumers in the form of higher prices for goods and services.

“We manage what we can manage with energy efficiency,” Mr Banducci noted on Woolworths’ attempts to swallow higher energy costs, “but given the cost increases that are coming through right now, we are trying to outrun a bear, but I am not sure we can”.

Troubling for retailers such as Chemist Warehouse and its more than 350-strong store network is that increasing utility bills come at a time when the retail sector is highly competitive and consumers are weary of spending money, and often require discounts and promotions to act. “We are seeing it takes a lot more to get consumers to spend on discretionary items … in motivating people to buy more discretionary products and we are finding that we need a better promotional offer, a better call to action, a better retail execution,’’ Mr Gance said.

“And it is something we have spent the last 17 years perfecting and we are making sure we have the right promotional offer to motivate people to get off the couch.”

Mr Gance said the retail environment now was as tough as the chain had experienced during the GFC and when it was first established.

“We have had multiple challenging periods, trading through the GFC, the initial building of the business was difficult and it is certainly an area we are finding that you need to continue to innovate, you need to continue to do more in order to get the same growth that was coming somewhat easier historically,” Mr Gance said.

The co-founder said Chemist Warehouse was not for sale to private equity and there were no plans at this stage to float it in an initial public offering.
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