Natural Foods Merchandiser

Pharmaca Founder Announces Expansion Plans

Convinced that he can write the prescription to revive neighborhood pharmacies, Barry Perzow is launching a national expansion of his Pharmaca stores.

Within seven years, Perzow, CEO of Pharmaca Integrative Pharmacies Inc., plans to open more than 100 stores throughout the United States. The Boulder, Colo.-based company now operates four stores, and three more are under construction. Its first store opened in late 2000.

Pharmaca boasts a back-to-the-future concept, setting up small stores that focus almost exclusively on health needs. Customers don't find clock radios, pantyhose or school supplies, but they do find a full-service pharmacy, a variety of supplements, natural products and body care items as well as regular over-the-counter medicines. Besides pharmacists, stores employ herbalists, homeopaths and other wellness specialists.

"Our message is all about health and wellness," Perzow said. "Traditional pharmacies don't make statements about health. Now they're all trying to be mini Wal-Marts."

Along with medicines and health-related products, Pharmaca staffers also dispense plenty of information to customers—and that's what Perzow believes is critical to making his chain successful. For example, when a customer buys a regular prescription drug, the pharmacist provides information about natural products that counteract the medicine's side effects.

"People love that," Perzow said.

All Pharmaca stores have a tearoom where customers can sit, sip, relax and peruse health information in publications or at a computer loaded with a database of information.

Expansion Strategy
To pick store locations, Pharmaca executives look primarily to existing locations of independent pharmacies. Then they pinpoint spots that fit the company's ideal profile. Those places are communities with highly educated populations and where alternative health and wellness practices are accepted.

Faced with major competition from grocery stores and discounters, independent pharmacies are finding it difficult to stay in business. Perzow explains that 10 years ago 50,000 independent stores operated in the United States. Since then, the number has been halved.

Most of the independents are operated by pharmacists who don't have the expertise to run a retail store that can compete with chains such as Walgreens. A retail veteran, Perzow's strategy is to buy independent stores in prime locations, retain the pharmacist, convert to a Pharmaca layout and institute his retailing tactics.

Perzow said even in this hypercompetitive category, his stores will turn a profit. Other industry observers aren't so sure. Essentially, Pharmaca is attempting to start a new retail category that runs counter to long-term trends, they say.

Jay Jacobowitz, president of Brattleboro, Vt.-based Retail Insights, which specializes in picking retail locations and marketing consulting, said it might be tough to draw old customers into a new store.

"The key issue that he'll have to grapple with is that the pharmacy consumer has an illness mindset; and the complementary and integrative medicine consumer has a wellness mindset," Jacobowitz said. "And possibly, never the twain shall meet."

But even though he's skeptical, Jacobowitz admits that he's fascinated by the concept: "[Perzow's] idea is attractive; it's like the old-time pharmacy that blended medicine in the back room. That's customization, and that's appealing to customers."

But Pharmaca still faces the same problem all independents do: There is little profit in prescription drugs these days because insurance companies, under the mantel of managed care, tightly control prescription prices.

What might help Pharmaca is the current trend toward integrative and complementary care in which doctors and other health practitioners recommend not only prescription drugs, but herbs and supplements, too, Jacobowitz said.

"I think there will be a melding of practitioners in the future. Medical schools are emphasizing that now. But I think that's a generation or two away. He may be ahead of his time," Jacobowitz said.

Clear Spring Pharmacy, a Denver-based company, opened a year ago with a business model similar to Pharmaca's. But so far, Jim Cary, the company's president, has found it tough going. A retail veteran and former business partner of Perzow's, Cary was a founder of the Einstein Bagels chain that boomed in the early 1990s. But the pharmacy business, Cary said, is not like selling bagels and coffee.

"This is a bigger challenge than any other business I've ever been in," Cary said. "I think there's a huge opportunity, but it's a lot more complicated than I originally thought."

Customers like receiving great information, Cary said, but he's not sure that's enough of an incentive for them to make a trip to a specialty store.

"People don't know what they don't know. It's tough to get people to understand the information. And they don't walk in with their wallets open."

Cary wants to open more stores, but said he needs to spend more time learning the business and testing the concept.

"We want to get this one right," he said.

Pharmaca is still in the start-up phase, Perzow said, and the company is not making money. But he's pleased with the cash flow from existing operations.

"The stores that are open are performing very well. I think we'll be profitable when we get 10 or 12 stores open."

Pharmaca is backed by private investors; the company is currently working with investment bankers to secure financing for continued expansion.

Natural Foods Merchandiser volume XXIII/number 4/p. 15

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