Bright spot for retail: Priceline tipped to double new stores as it moves to franchise model

Priceline is set to lure new franchisees and expand from its current 332 stores, following strong half-year results.

Priceline’s parent company Australian Pharmaceutical Industries (API) announced a profit after tax of $18.3 million yesterday which was driven in part by Priceline sales revenue which was up 3.1%.

Stephen Roche, managing director and chief executive of API told SmartCompany there was “no precise number” of Priceline stores planned but there were “significant numbers for growth” and he was “not offended” by reports that the number of Priceline stores would double.

“The profit result reinforces the fact that the underlying business is in sound condition and the compelling nature of the Priceline model is successful in the current retail environment,” says Roche.

API currently makes 70% of its earnings from selling pharmacies prescription drugs, Priceline makes up the other 30%, and API wants to increase that up to a 50/50 split between wholesale and retail over the next few years.

This will be largely driven by API’s ability to roll out its store network and attract independent pharmacists to the Priceline banner even though Priceline has historically been more of a company owned store brand.

Priceline has already significantly expanded its national retail footprint, increasing from 175 stores in 2005 to the current 332 stores.

“The opportunity for growth is significant in a landscape with 5,000 pharmacies and we have a target of significant growth we have been very deliberate in looking at the growth,” says Roche.

The plan is for virtually every new Priceline store that is opened in the future to be franchise operated rather than company owned.

API is looking to attract pharmacists as franchisees who are struggling in the face of intense competition at the front of the shop from Coles and Woolworths, and reduced profits from dispensary items as a result of changes to the Pharmaceutical Benefit Scheme (PBS).

Roche says he expects “significant impacts” from the PBS reform to hit pharmacists a year from now alongside intensifying competition from discounters and supermarkets for non-dispensary items.

“Pharmacists themselves are going to be under pressure as a result of government reforms of the PBS, there have been a series of reforms since 2008 which will continue for the next three years and  bring down the pricing of medication to the Government which reduces the income of pharmacists,” says Roche.

Roche claims pharmacists will be attracted by API’s proven ability to deliver superior profit results for franchisees.

“We do have a brand that clearly appeals to women in this country; we have 3.7 million members in our loyalty program, the Sister club which is the cornerstone of our offer.”