Chemist Warehouse merger a potential boon for Aussie body wash, lolly brands

Growing Australian businesses with products stocked in Chemist Warehouse are excited by its proposed merger with pharmacy titan Sigma Healthcare — and the prospect of Chemist Warehouse growing even further on the global stage.

Big box pharmacy chain Chemist Warehouse, and Sigma Healthcare, an ASX-listed wholesaler and chemist operator, on Monday outlined plans to merge into a single entity.

The proposed deal would result in an entity with a market capitalisation of $8.8 billion, making it more valuable on a market cap basis than Qantas, TPG, and Medibank.

Speaking to the Australian Financial Review, Chemist Warehouse chief executive Mario Verrocchi said the merger could allow the brand to grow overseas, following in the footsteps of US chain Walgreens and UK giant Boots.

Chemist Warehouse already operates in New Zealand, China, and Ireland, but the Sigma Healthcare merger — if approved by Australia’s competition regulator — promises to turbocharge its expansion plans.

A chance to expand brand presence

Speaking to SmartCompany, local brands in the Chemist Warehouse retail network say its new trajectory could benefit small and medium-sized businesses across Australia.

Anthony McDonough is the co-founder of Unlabelled, a body wash brand and social enterprise that donates all profits to youth mental health charities.

Unlabelled secured its place on Chemist Warehouse shelves last year, after working with the retail giant to fine-tune its product offering.

“Chemist Warehouse have been a great partner for Unlabelled, being the first retailer to bring our products to Australian consumers across 100% of their network”, he told SmartCompany on Tuesday.

The merger deal raises the possibility of close ties between Chemist Warehouse, Amcal, and Discount Drug Stores, the latter two of which are owned by Sigma Healthcare.

Accessing Amcal and Discount Drug Stores “would be great for expanding Unlabelled’s presence in pharmacy within Australia, giving more people the opportunity to buy Unlabelled and support our cause of preventing youth suicide,” McDonough said.

Unlabelled sees talk of further international expansion as a “positive opportunity” for the brand to reach new markets, he continued.

Daniel Kitay, owner of the FUNDAY natural sweet company, agreed the merger could have significant flow-on benefits for up-and-coming producers.

The expanded domestic retail network, and the potential for global market expansion, both offer game-changing opportunities for local brands, he said.

Merger its own local business success story

Beyond the startups eyeing even greater exposure, the proposed merger represents its own small business success story.

The Chemist Warehouse empire emerged from the partnership of brothers Jack and Sam Gance, who bought their first Melbourne pharmacy in 1972, and Mario Verrocchi, who joined the fold eight years later.

Chemist Warehouse launched as a brand in 2000, and the franchisor has long been subject to conjecture over an attempted IPO.

The Australian Financial Review reports Chemist Warehouse’s shareholders, including the Gances and Verrocchi, will pocket about $700 million as part of the deal.

Other pharmacies, outside the collective Chemist Warehouse and Sigma Healthcare networks, have a significantly different view of the proposed deal.

If enacted, the merger will create what is, by far, the largest pharmacy network in Australia.

In a statement, the powerful Pharmacy Guild of Australia last week voiced its concern over rumours of the merger.

“We recognise, with the appropriate regulatory oversight, that franchising can and does legitimately and conveniently support many community pharmacies providing health and other services to their patients,” it said.

However, regulators must “be wary of increased corporatisation in the community pharmacy sector, and carefully scrutinise complex business models for compliance with community pharmacy ownership laws,” the Guild continued.

The deal is subject to a number of conditions set out by the Australian Competition and Consumer Commission, which this year vetoed the similarly headline-grabbing proposed merger between the banking arm of Suncorp and ANZ.