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Pharmacy Start-ups Set Stage for West Coast Duel

April 24, 2008

8 Min Read
Pharmacy Start-ups Set Stage for West Coast Duel

A natural products showdown hits the streets of Berkeley, Calif., next month when two new companies begin competing for business in the nascent natural pharmacies category.

Sometime in November, Elephant: The Green Pharmacy will open its first store in the heart of the city's renowned Gourmet Ghetto district. The Shattuck Avenue location is just a half-mile from the Pharmaca Integrative Pharmacies store that opened in August on Solano Avenue.

Though the store concepts are somewhat different, their proximity will provide a great test case to determine what kind of retail experiences natural pharmacy shoppers prefer—a big box or a tiny neighborhood store—and, perhaps, a glimpse of the future of this business segment.

Both stores offer supplements, homeopathic and herbal remedies, natural products, as well as conventional over-the-counter medicines and traditional pharmacies. Both emphasize top-notch customer service from well-trained store staff and research libraries.

Both companies also have ambitious expansion plans and strong financial backing, they say.

After that, the concepts diverge considerably.

Saving The Family 'Pharm'
Pharmaca President Barry Perzow pioneered the category when he opened his first store in 2000 in Boulder, Colo. Seven stores have opened since, and Perzow says revenue is exceeding expectations. Perzow was president of Capers Inc., a Canadian naturals retailer that merged in 1996 with what would become Wild Oats Markets Inc.

The Pharmaca business model is unique: Perzow buys independent, neighborhood pharmacies, retains the pharmacist and provides training in natural products. The stores are then remodeled and reopened under the Pharmaca banner. Over the last 20 years, independent pharmacies—many of them in downtown or Main Street locations—have been driven out of business by giant chain stores. But Perzow believes independent pharmacies still appeal to customers who like small stores and attentive customer service.

"We're saving the family 'pharm', so to speak," Perzow says. "We do a lot of study and make sure the pharmacist is a long-term player in the area. Then we leverage off of the neighborhood trust and loyalty."

Besides filling standard prescriptions, Pharmaca also offers customers information on complementary therapies. Pharmacists explain to customers, for example, that if they're taking antibiotics, they may also want to take acidophilus to help restore digestive bacteria.

Pharmaca stores are small, about 3,000 to 4,200 square feet.

"That's the optimum size. We have an expensive product line; we're not interested in stocking a little bit of everything," Perzow says. "I don't believe in big box stores."

Size Matters
But, as the name might indicate, size matters for Elephant. The company is modeling its stores after the large chains. The first outlet will be 13,000 square feet and carry a wide range of products beyond supplements and medicine.

But don't expect a Walgreen's with a few supplements displays. Think Whole Foods Market without the food.

"We want this to be an experience for the consumer and not just a place to make a transaction," Elephant Chief Executive Officer Lisa Klausen says.

At the front of the store will be huge displays of flowers and plants, a stand-up tea and elixir bar and a large display of healthy snacks. Other features will include photo developing, stationery, toys, seasonal gifts and plenty of everyday essentials like soap and toilet paper. Elephant also is betting big on natural cosmetics, but not just with racks full of organic rouge and lipstick. Much like upscale department stores, staff will be available to help explain and apply the products.

That type of personal service, Klausen says, will be key to the store's success. She says Elephant will be crawling with associates, offering advice on everything from herbal remedies to supplements to nutrition. Pharmacists will be trained in the particulars of complementary medicines. Customers will have access to meeting rooms and volumes of information.

Stuart Skorman, one of the store founders and an early executive at the famed East Coast naturals chain Bread & Circus, which eventually was absorbed by Whole Foods Market, exudes confidence about the big-store, high-touch concept.

"We'll be creating a store that is so cool it will draw a lot of people and do a big volume," Skorman says. "And I like the big box because we can create a lot of excitement and it tells customers that we have everything."

And like at Whole Foods Market, many of the products will be high-margin items that will make Elephant stores very profitable, he says.

Accompanying Skorman in the venture is Anthony Harnett, the founder of Bread & Circus and a pioneer in high-touch, high-quality retailing. Harnett tried the pharmacy concept before, opening natural stores in Cambridge and Newton, Mass., and Palo Alto, Calif. Only the Cambridge Harnett's store remains open.

Still, Skorman and Harnett's other retail successes have enabled them to attract plenty of investors, and also to convince Klausen to leave Nike Inc., where she ran a $4.5 billion division.

Klausen says the business plan calls for aggressive expansion, although she won't give specifics. Perzow hopes to open another six Pharmaca stores by the end of 2003.

Skorman says that because Elephant stores will be so big, the primary competitors will be Walgreen's and even big grocers—but not Pharmaca. Perzow is not so convinced.

And here's where the story of Elephant and Pharmaca develops some corporate intrigue.

Last fall, Perzow put out the word he was seeking investors in his company. Skorman says he and Harnett had discussed a similar idea over the years and decided to visit Perzow's Boulder headquarters last November. Skorman says that while he liked the Pharmaca store, he didn't think small outlets could generate adequate profits. He called Perzow a few weeks later to say he and Harnett decided to start a big-box variety of natural pharmacies.

Perzow felt duped: "We think they misrepresented themselves when they came to us. First they say they might want to invest, and the next thing they're opening a store down the street from us.

"But they're doing something different. We'll just see what happens when they open," Perzow says.

In the meantime, Perzow continues to open stores. There now are three Pharmaca locations in Colorado; three in the Bay Area; and one each in Portland, Ore., and Seattle.

Both companies are betting aging baby boomers will provide a substantial customer base. And given the size of that demographic bulge, it's likely both are making a pretty good bet.

Joseph P. Lewandowski is contributing editor to Natural Foods Merchandiser. Contact him at [email protected].

Natural Foods Merchandiser volume XXIII/number 10/p. 30, 36, 38

Natural Foods Merchandiser volume XXIII/number 10/p. 36

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