Building a Pharmacy Giant: Strategic Insights from Jack Gance

Australian businessman and the visionary founder of Chemist Warehouse, Jack Gance began his career as a pharmacist with a single store in 1972, but his innovative approach and strategic acumen quickly led to the creation of a pharmacy distribution empire. He is known for creating the Le Specs, Le Tan, Australis, and Colours of Australia brands of sunglasses, sunscreen, fragrances, and cosmetics, which he sold in 1991. He completed his MBA at Monash University and NYU Stern School of Business and returned to revolutionize the pharmacy industry with the My Chemist chain. From there, he went on to found Chemist Warehouse, now a multibillion-dollar powerhouse.
 
Jack brings a natural strategic mind to the puzzle of scaling a business. Thanks to a sequence of smart strategic choices, Chemist Warehouse, under his leadership, has grown to encompass around 600 stores, generating approximately $7.9 billion in total sales annually. He was recently named EY Entrepreneur of the Year for Australia and has also received the Retail Innovator Award and the Lifetime Achievement Award from the Australian Retail Association.
 
 In the episode, we dig into Jack’s strategic decisions with the goal of capturing some key strategic concepts we can all apply to scale whatever we are building with greater speed, easy, and success rate. We will cover: 

• Why he doesn’t write a business plan 
• The trick not trying to predict the future but, instead, limiting the downside
• The benefit of looking for what your competitors are ignoring … or are avoiding
• Why you need to underperform on some things, make tough choices, and overperform in other areas 
• Why you shouldn't focus just on customers at the detriment of suppliers 
• How to align culture to strategy 
• Why business school didn’t really teach him new things as much as validated what he learned as an entrepreneur 
• The benefit of taking action on idea to prove it, rather than seeking to prove it to take action

Thanks for listening! This episode is brought to you by Kaihan Krippendorff of Outthinker Networks, Verne Harnish of Scaling Up, and the team at Growth Institute.

Transcript

Welcome to the Strategy at Scale Podcast brought to you by Scaling Up, Outthinker, and Growth Institute. Our mission is to cut through a sea of contradictory business advice and get to what actually works. We interview entrepreneurs and business builders who have successfully scaled companies across industries to extract proven high impact strategies to scale the value of whatever where you are building in this world. Let's dive into this week's episode.  

Jack Gance, a legendary Australian businessman and the visionary founder of Chemist Warehouse. Jack began his career as a pharmacist with a single store in 1972, but his innovative approach and strategic acumen quickly led to the creation of a pharmacy distribution empire. He's known for creating the Le Specs, Le Tan, Australis, and Colours of Australia brands of sunglasses, sunscreen, fragrances, and cosmetics, respectively. He sold them in 19 91, He completed his MBA at the Monash University and NYU Stern School of Business, and then he returned to Australia to revolutionize the pharmacy industry with the My Chemist chain. From there, he went on to found Chemist Warehouse, now a multibillion-dollar powerhouse with over 600 stores.  

As you're going to hear, Jack brings a natural strategic mind to the puzzle of scaling a business, thanks to a sequence of smart strategic choices, and, of course, there were also missteps, he will admit. Chemist Warehouse under his leadership has flourished. He was recently named EY Entrepreneur of the Year, for Australia and has also received the retail innovator award and the lifetime achievement award from the Australian Retail Association.  

Now we don't aspire to give you another rendering of the company story. You can get that from other places. Instead, we try to focus here on strategy. We know there are other important areas to get right, execution, cash, people. But here, we dig into Jack's strategic decisions. How he thought about them, how he made them with the goal of capturing some strategic concepts we could all apply to scale whatever we are building with greater speed, ease, and a greater success rate. We will cover why he doesn't write a business plan; the trick to not trying to predict the future, but instead limiting the downside; the benefit of looking for what your competitors are ignoring or even better avoiding; you need to underperform in some things to make those tough choices, but why you need to also perform well enough on everything; why you shouldn't just focus on customers at the detriment of suppliers and how to turn suppliers into a competitive advantage; how to align culture with strategy, why business school didn't really teach him new things as much as validated what he learned as an entrepreneur; and the benefit of taking action on an idea to prove it rather than seeking to prove it to take action.  

Ladies and gentlemen, Jack Gance.  

The first question is it seems like your focus has been, particularly with Chemist Warehouse, but perhaps also the other brands, that you saw this opportunity to radically cut prices by 25 percent. And that was in a period where there was a very different norm. So my question is, how do you recognize that as the right opportunity? Because, you know, lower prices sort of always you could always charge less, but you're talking 25 percent less in an industry where there was sort of price stability.  

Well, to be honest, to be honest, I wasn't sure that it was gonna work. I mean, we had we had 50 pharmacies that were discounters, but they weren't real discounters. They were pretend discounters. What they did was they had a hundred specials, and their motto was My Chemist will save you money. It will if you buy one of the hundred specials. Everything else is called recommended retail. We built up a business where we were growing the front of shop quite strongly, and our average front of shop as a percentage of business was much greater than our competitors. And what I thought was, let's see what if we can have a big box retailer that has huge range, huge depth of product, and a 25 percent discount. Let's say we can make that work. Now we knew that, certainly, that would be something that customers would would enjoy. We wanted to surprise people. We wanted to have people, you know, surprised at at what they could see, surprised at the prices. Yeah. We wanna do that. Probably a TJ Maxx or 5 and Below are 2 examples of businesses that have a wide range of products at low prices. They get people come there and they don't expect to see what they see, and they so there's an impulse buy. So we thought we'd experiment with it. It was an experiment. Like, everything we've done, we usually just try with 1 experiment, 1 store, see how it goes. I mean, unlike others that will have a strategy and they will follow through. For example, the biggest warehouse chain here in Australia was owned by Wesfarmers, and they compared to the main competitor, Wools, didn't have a hardware chain. So they went and they started a hardware stock chain called Masters in conjunction with Lowe's. We know Lowe's the number 2 hardware retailer in America. And they thought they'd have a strategic advantage by having their support, their knowledge, and technology, and they would be able to win the market. So they built to get scale, they built 42 stores. From scratch, they built 42 stores at a cost of around about 2 billion dollars. The problem was they hadn't tested the model once before opening the first store. So when they opened the first store, and they had 41 other ones there, when they opened the first store, what they thought was a strategic advantage was actually not. They thought they'd have a strategic advantage by having a better quality building instead of the corrugated tin and tin shed that Bunnings have. They thought they'd build it out of marble and stone, and people would love it. But in reality, the customer doesn't really care what the store looks like. And they really don't wanna have white tiled floors because they're gonna leave marks, footprints as they walk on the floors. And because Masters wanted to be different they had female oriented products, whereas most people going to hardware stores are males. So they failed and 8 billion dollar loss that they made as a result of that. So what we did was we said, we've got 50 stores. We can take a punt, and we can try 1 store. Now the difficulty with a huge discount, the advantage is of course, is that customers are gonna be ecstatic about the fact that they can buy things at a much lower price. The difficulty is that it's very hard to make a margin on that, and the only way you can make it is if you reduce your overall costs, and the biggest costs that are wages and rent. And we figured that we could reduce the rent by not going to a major shopping center, but going to a secondary shopping center. And we were...  

So you had an existing store. Okay. That makes sense.  

Started from scratch, we had a greenfield site. And the thing is that as an entrepreneur, I mean, I always, you know, I mean, I always believe that an entrepreneur does not take risks. An entrepreneur mitigates risk by making sure they've got a plan b and a plan c. A true entrepreneur will not take a risk, a true entrepreneur will take a minimal risk and have a fallback position. So as a true entrepreneur, we said if this fails, we'll take a bat and ball and close and go somewhere else. 

Tasks. I'd love a specific split.  

I’d love to tell you that we had a marketing plan and we had spreadsheets and we had budgets. I’d love to tell you that, but in reality, we didn't. We did everything by gut feel. Yeah. When I when I did an MBA, I learned the benefits of writing a business plan, but the disadvantages are that if you follow business plan too much and you're not flexible, you know, you're gonna be going down the wrongtrack, whereas if you do it from gut feel and from reaction to what's happening, it can be much more flexible. And we're a very flexible and, you know, maneuverable organization. So just to give you further background to it, the first store we took was owned by a friend of ours who had a haberdashery store that they moved to another location. This was a 2000 square meter, 20,000 square foot side, which is much bigger than the average pharmacy. So we took that and we only use the ground floor, which is a thousand square meters, 2000 square feet. And the thing is, he said to me, if it doesn't work, give it back to me. We'll give you a peppercorn rent. So we had minimal...  

Oh, great. 

We had minimal exposure. But by the same token, we also opened a second store a few months later even though we hadn't proved the first store because what happened was we had the opportunity to purchase a site in Daniel or another area in Melbourne. And the advantage of that was if it doesn't work, we got a property we can always rent to someone else. So we had 2 stores. The difficulty was to actually get the margins up, and the average margin of an average pharmacy is about 40 percent. But because of our buying board, we have 50 stores that have good relationship with their suppliers. We were able to work at a high margin . When we reduced the price by 25 percent, we did it with the support of the manufacturers and the distributors. And we gave them the picture of what business was gonna look like. We said to them, know that My Chemist grows the business front of shop. The average pharmacy does 21 percent product shop, which is everything other than prescriptions. Our stores were doing something like about 40 percent front of shop and selling more of everyone's product. Well, because you know, like, it's like if you have if you have no inventory, you have no sales. If you reduce your inventory, you reduce your sales. So it's a downward spiral. You're in the states and you see the CVS, Walgreens, and Rite Aid stores. The front of the shop is a desert because what happened was that store was built in the eighties and seventies, and they were doing about 6 billion dollars front of the shop then. Today, because they've been focused on the prescription business, which is more profitable for them, They've neglected the front of the shop. So they [inaudible] on the pharmacy on the prescription side and as a result of that, there's a downward spiral. If you have less sales, you have less inventory, you have less staff to serve it. And therefore, what happens is you have less people there, you have more pilferage. So we need to put things behind glass. The trouble is, put things behind glass, you've got no staff. Someone presses the button to get service, it's easier to steal it than to buy it. And so their downward spiral is continuing. And we wanted to break that downward spiral. It was the same thing in Australia where with pharmacy we're selling less stuff front of shop. Supermarkets were taking over and there were other alternative retailers. So we said, well, supermarkets were doing shampoos, conditioners, everything that we have front of shop pretty well other than the medications, which is only a valid pharmacy. So what we decided to do was to really have a crack at it. And to be honest, we didn't succeed initially. I mean, we were losing money for quite some time. But we saw the shoots, the green shoots, and the benefit was that the suppliers loved what we did. We sold a lot more product per capita than anyone else, and we sold more product per square meter than anyone else. So we started to go from 2 or 3 million dollars to an average of 4 or 5 or 6 per store.  

So, you're in an industry where front of the shop is the least profitable and is the smallest portion of overall revenue. And you're saying we're going to lean into that. And so what gave you the confidence that... 

Well, nothing gave me the confidence. And so I just felt that with their experience with My Chemist, where we grew the front of shop, I believed it could happen. And, I mean, just looking at the customer delight when they came in and they saw the biggest range of shampoos, all at extremely good prices, and they were buying 2 or 3. The basket size was growing. And the best thing was that the suppliers loved the concept. Now you’d think the suppliers would be concerned about discounting, but, no, they they loved the concept because they saw an opportunity to be able to sell more product to more people or more product are the same people. And that's what happened. We were converting, people were buying more of everything. The average basket size was greater. So the two biggest expenses are rent and wages. And because we're a lower rent area, if you've got a thousand square feet and you pay a hundred, you pay a thousand dollars rent, sorry. If you've got it as a store and you pay a hundred thousand dollars rent, and you do a million dollars turnover. That’s 10 percent. But if you do 10 million dollars turnover it’s 1 percent, so it's not like I'm too fat. It's just that I'm too short. So in order to make it work, you've gotta grow the top line sales. You know? Don't try to negotiate a better rent. Try to sec grow the sales to get the percentage. So today, we do about 2 and a half percent turnover is our rent, which is the average pharmacy pays about 12 to 13 percent. So we already got nearly a 10 percent advantage. The other thing is that because the wages because our stores are bigger and the basket size is bigger, and because we're more efficient, we can have 1 person on the checkout instead of a person being on it, you know, taking the money, you know, dusting the shelves, placing orders, We've got store man that does the orders. We've got people that specifically do specific work, and so the wages at the stage, you know, comes down tremendously. So today, today the average store average is only 10 percent net profit on a 23 percent gross margin. But on top of that, we get, you know, hundreds of millions of dollars of advertising revenue, which boosts our bottom line. So the suppliers give us rebates, and they give us advertising revenue.  

Let's imagine that they're teaching this, your case at a a business school. And there's, I can think of 3 different ways, 3 different points you can make. 1 is profit pools. Your profit starts pooling at the front of the shop, rather than the back of the shop, and no 1 else recognizes. Another 1 would be shopping occasions. We, you're pursuing a different shopping occasion where people are filling up their baskets, you know, you have bigger baskets because it's a different occasion. Another 1 is sort of looking at maybe Porter’s supply, demand and you’re recognizing if you take this spot that you can have better purchasing power. Maybe it's none of those 3, but if you were to say, if this were taught in a business school, what would be the strategic...  

I think the relationship with the suppliers is critical because the suppliers give us access to inventory when it's difficult to get. Number 2, they give us rebates. I mean, we have a very, we think it's unique relationship with our supplier in that our suppliers are our partners, you know, in a strategic sense. In fact, we've got a number of strategic alliances with suppliers where in return for giving them 100 percent support in their category, they give us equity in their business. We have literally equity. We've got, literally, yeah. We've got a distributor that's a public listed company, and we have about 10 percent equity in them. Now in return, what we did was we guaranteed support, strategic support across all their range of products. Plus, we gave them our private label products to distribute to their retailers that they sell to. And that got a 10 percent equity in their company. And it's been a win-win for everybody. I mean, like, my philosophy on doing business is that if you don't have a win win win, if you don't have a win win win, then it's not really gonna work long term. If you have a deal where the supplier feels that they've been screwed or they're not happy with the deal, but they have to do it because of your power and strength. Or, if you've got a deal where the supplier wins and you aren't happy with what you've ended up with, it's not a long term strategy. So I always ensure that we have a relationship with our suppliers where everybody wins. Now I don't want my supplier to say this is the best deal we've ever done. I'm delighted. We're making a mint. I want the supplier to say, yeah. Look, I could probably get a better deal, but this deal it suits me because it gives everybody a win win. I think that's really important. And when we sit down and and we talk strategy, we don't talk about how much big of the pie we're gonna get. We look at how we’re going to make the pie bigger. For us, it's really important that we don't focus on just splitting up the pie. We focus on how we can grow the pie. There's lots of ways you can do it if you could, yeah, cooperatively. The 2 major supermarkets here have a very poor reputation where it's a zero sum game for them. For them, it's, you know, it’s whatever the supplier makes, they lose, whatever they make the supplier loses. Instead of saying, hey, let's see if we can grow this category. Let's see if we can work out ways that don't necessarily impact on your profit or my profit, but grow the pie bigger. That's a very important part about business, you know. I I keep saying, you know, if you've done a deal and the other party is doing it reluctantly, it's not gonna work long term.  

You're saying both it's not gonna work long term, but also you're saying that becomes a competitive advantage because now that supplier... 

Yeah. It is. When we have a negotiation, it's not a hard negotiation. It's a you know, it's a relatively let's how much bigger do we want to make this pie? And they know we're pretty hard negotiators. I mean, we'll negotiate a very hard deal. But we always wanna make sure that there's enough in this for them for them to to be able to say this deal makes sense for me. Otherwise, what they're gonna do is is they're gonna look for other retailers to promote through. You know, if it becomes unprofitable for them to work with us, they're gonna be looking around, you know, it's like if you're married and your relationship with your wife isn't great, you’ll be looking around. If you’ve got a relationship and things are good, then, you know, it doesn't matter how pretty the blonde that walks past is. You're not gonna look around.  

Is this, it’s competitive reaction in the conversation?  

Yeah. And people say to me, you know, did you realize, you know I mean, I didn't know about strategic competitive advantage until my MBA. I had a pharmacy, I mentioned I started another business distributing sunglasses, fragrances, cosmetics, which became the biggest distributor, Le Specs, Le Tan. So we sold that in 91. I did an MBA. I didn't, until then I’d never heard the the words strategic advantage or strategy. I mean, the first thing that I learned when I went to the MBA class was write down this word strategy you probably never used before, but you're gonna be using it a lot there. So I learned all these things that I intuitively had done, but I think the reason why we were successful is because we have a very laser sharp focus on the customer. Not the supplier. The supplier is important, but the laser sharp focus is on what does the customer really want? Because, you know, don't give the customer what you want. I say to my buyers, If I hear you say, I like this, I'll fire you. I don't care what you like. I want you to say, the customer will like this. If I stop the stalls with everything I liked, we wouldn't sell anything. Because my likes are quite different than our average customer's likes.  

I got you. So you're kind of like bringing the customer, you're bringing the business, bringing the market access to the suppliers. How do you know what the customers want? What do you do? I don't know. People, operational, culturally, or whatever to make sure that you guys are doing what's right for the customer.  

Well, we ask around. I mean, we have gut feeling. I mean, the thing is all that buyers that come through the stores. I mean, their buyers have been around for about 10-15 years. Not like a lot of large corporations that rotate their buyers around because they’re scared of being bribed and being too close to the manufacturer. We want our buyers to be experts in the field. When I had the sunglass distribution business, I would purposely go to work, to a store, a large department store and sell the product. And I would you know, I'd say, you know, I do a pitch, and I'd say yeah come back next month that I'll put it in. Come back the next month, and there's a new buyer there. And I’d say the last buyer said that he's gonna put it in. Oh, yes but I need to make a new decision. Okay. What did you do before this? I sold, I bought baby prams. I said, okay. That gives you a lot of credibility and I never said that, but that's what I thought. It doesn’t give you a lot of credibility in sunglasses. And that's the stupidity of it. You know? They move around and they have no expertise. And they miss a lot of points. So they can't work strategically with the supplier because they don't know the market. Yeah. I mean, if you run the business through spreadsheets and reports, it's a pretty, yeah, it's a pretty poor way of running a business.  

Seeing Le Specs to the supplier relationship kind of approach. I just read that there an interesting situation where you were working with an advertising agency and you were able to negotiate an interesting relation with them.  

When we started selling sunglasses, I used the strategic advantage that I didn't realize I had. Because I didn't know about strategic advantages until I did my MBA. But then I looked back, and I thought what strategic advantage did I have. So we started looking at, I wanted to do some some of the entrepreneurial. I wanted to, you know, travel the world and do importing, etcetera. So I looked around at what products we could do, and I decided to look at sunglasses because we sold a fair few sunglasses. So I went to the Taiwanese council. This is 1972. I went to the Taiwanese consulate. There was no Google. There was no there was no mobile phones. There was no cameras. There was no photocopies. I went to the Taiwanese consulate. And I looked up in phone books. I looked up names of sunglass manufacturers in Taiwan. Took them back to the pharmacy, and with 2 fingers, I'd type a letter “Dear sir, you've been recommended by the Taiwanese consulate. We are the largest sunglass importer around Australia.” Now that wasn't a lie. It was a timing difference. So, anyway, what happened was we want to import your products. Well, we were after a while. We became the largest sunglass importer. Anyway, so all the sudden we thought, you know, this is terrific. You know, the products are good. The prices are great. I'll sell them to other pharmacies. So I was going, what I was gonna do was write a letter to every pharmacy in Australia and say, Dear Fellow Pharmacists, I'm a pharmacist like you and I'm importing their sunglasses. If you wanna buy them from me, you'll save a lot of money and don’t buy from the multinationals, support a fellow pharmacist. The strategic advantage that I had was because I could cut through to talk to pharmacy. I mean, the pharmacist gets, you know, a hundred reps, you know, a day, whatever it is, and he doesn't wanna see any of the reps. But if someone says, I'm a pharmacist, they get immediately to the front of the queue. So my sister decided that she wanted to do something entrepreneurial. So she joined us, and she went around with samples to pharmacies. And she said, Hi, my brothers a pharmacist. Would you, like to look at these sunglasses or whatever? You know? And she got through. So the strategic advantage was that we could get to the front of the queue and speak to the pharmacist and speak to the buyer immediately. Then what happened was we got agents in other states that we hired as agents, and they were selling the product. Again, you know, on the basis, they got to the front of the queue because these are imported by fellow pharmacists from Melbourne, but we got to a stage where all our product was selling well. We could prove that we could sell better than any other brand. They said, we need advertised product because we need advertising to bring customers in the store. I said, well, you've got a choice. We can advertise these products and sell them to you for 8 dollars, or we can sell them to you for 4 dollars without advertising. And they said, we want advertising, and we want 8 dollars. We want 4 dollars. We want advertise. I said, yeah I wanna be 6 foot 6 and handsome, but some things I'm not gonna have. Anyway, I read a book by John Singleton, who is a guru with advertising in Australia, and he talked about contra advertising where you pay for advertising based on either percentage or set units per dollars per unit you sell based on the advertising campaign you create. So I read that book, and we're in France and my wife who's got eagle eyes at the back of a stand, saw a pair of glasses with a feather hanging off it as a swing tip. It was a feather? And she said, 1 of those, and the guy said, well, this is a new product we developed called Crylon. It's very light flexible and unbreakable. We don't know what to do with it. It's just a good product. And so I took a sample back, and I read the book, I read that chapter, and I said, look, you know, I don't wanna spend millions of dollars advertising if I can do it with no risk, get the advertising agency in the TV station to put the ads on, I’m prepared to invest in their glasses. Worse comes to worst they've got 3 years for supply. So we went to the advertising agency and they were so excited. They gave it the name Le Specs. They gave it a campaign which was extraordinary campaign. It was revolutionary. We went to the market and it absolutely boome. We had to make a decision, and we we couldn't do it on a national basis because every station was state based. So, you know, there was no network, you know, like, you've got networks in America, we've got networks in Australia today. But back then they had individual stations at every state. So we decided to bite the bullet and go ahead and spend the millions of dollars advertising, and it worked and, you know. Well, it's a lot more expensive. The advertising agency, you know, negotiated rates. But so we had to run advertisements in every capital city, and then we ran advertisements in every regional city to regional area. And it was all based on eyeballs. I mean, you know, you pay so much tops that's target at rating points. So you pay for... but then with the paid advertising, we scrutinized, but it worked. I mean, we would spend dollars, and then we get multiples back in sales, and it created a terrific awareness of the Le Specs brand. And so we said Le Specs, sunglasses isn’t our business. Our business is distributing product into pharmacy. So let's have a look at what else we can do. So we decided to look at suntan lotion, call it Le Tan, and we went out with a mock up bottle. And because of the success of Le Specs, the retailers, the pharmacists said, Yeah, well, you did it with Le Specs. We'll take a part, and we'll put this in. So we've got almost almost tailored coverage in pharmacy with a suntan lotion product that was born 6 weeks ago.  

And then we advertised Le Ten with a unique campaign, and that took off as well. But first of all, that's the sales when you’ve gotta get the product into the store. And so you gotta get the customers take it out. You know? 

Yeah.  

If you don't get a product in store, it's not gonna sell. And if you don't have customer demand, then you're not gonna get repeats, and it's gonna be thrown out. So we've got it into the store on the strength of Le Specs success. But we've got it into the customer's hands on the strength of the Le Tan TV commercial. And we became heroes in pharmacy. Yeah. Whatever we did, they lapped up. And so we said we wanna get into fragrances. So we said let's go into, let's do Le Parfum. But Le Parfum was a brand already taken. So what we decided to do was to create a new brand, we call it, Australis, and to be different, to be to be completely different. We decided instead of trying to make our boxes of fragrances, you know, more golden, more embossed, more, you know, more glossy, etcetera. Let's go the opposite direction. If we're gonna have a strategic advantage, it's gotta be different. And so we said, we’ll create a lifestyle fragrance where people say, I'm not aspiring to fly in a Learjet over the Eiffel Tower in Paris. I'm aspiring to have fun in Australia. I'm aspiring to eat a meat pie and have drip on my shirt. And have a lifestyle theme. So we created a lifestyle fragrance. So we had an Australian artist called Ken Done, who was on his way up. We had him design our artwork. It was completely different. It was like naive art. If you look up Ken Done and look up it's like naive art. When we took the artwork to Taiwan or to China to have it printed for if we'd purchase items, They said, where's the real artwork? And I said, this is the real artwork. No. No. No. Your child did this. This looks like child art. I said, No. No. No. You're you're looking at a famous Australian artist. Just print it that way. Don’t change it. 

And this is probably too long a journey, but for you know, to go into all the details, but what was the process that by which you discovered like that was the right positioning? Because, you know, perfume would naturally would be positioned?  

I wish I could tell you that we had focus groups and we spent millions of dollars on research. I don’t believe in focus groups. I've got a belief in personally being out there and looking around, speaking to buyers, speaking to people. I mean, one of the agencies said at our expense, we'll do a focus group on Le Specs and see how to improve it. It was a very successful brand. Well, the focus group didn't show anything. I mean, you've got a strong character in the focus group, and all of a sudden, they delude the discussion. Whereas, I would rather speak to someone and get understanding of the marketplace while just looking and hearing and seeing. You know, it was a lot of gut feel. I mean, I, you know, I just think that I know retail. I know what people want. I think I know what people want. And we focus on providing, delighting, and surprising the consumer with things that they didn't know they wanted. I mean, the consumer didn’t know they wanted alifestyle fragrance. When the first computer was created, the client you know, the customer didn't say, they didn't say the customer, what do you want from a box with wires? What do you want a box to do? They provided, they thought intuitively or instinctively or by research, but they would want spreadsheet. They would want a calendar. They want to be able to communicate. They didn't say to the customer, what do you want? Oh, I want a diary system, I want to be able to communicate. Send messages. How are they going to know what they want? But there we give me I agree. I mean, we make sorry. We make mistakes too. I mean, like, yeah. When we created Australis, we had created a sub brand called Friends of Australis. Friends of Australians would save the earth. We had ecologically friendly, environmentally friendly product. It was 15 years ahead of its time. And so timing could be [inaudible]. We ditched the whole range about a year after we launched it. So we made a big mistake. It cost us millions of dollars. Had we persevered, we might have been able to succeed. But, you know, we're not pioneers. Pioneers get scalped. I'd rather, you know, be behind them. Mhmm. Pioneers. Trust me. It's very hard to say when I did fail, but you've got to make a decision with the facts, the sell through, the customer support, the sell through was woeful. You know, we produced a TV commercial. The sell through was terrible. The consumer wasn't ready for an ecological friendly product. You gotta yeah. I think we make decisions that can be quite hard and quite against what we... You know, if we decide to do something, it's very hard to make a decision to abandon it. It's very hard to make a decision. But when I did the MBA, there was a concept. I think it just confirmed expectancies. They did this experiment where 2 groups of people will give it a marketing task, and 1 of them was told what to do. The other 1 made a decision. In both cases, the decision, what they did was wrong. It didn't work out. And the 1 that was told to do it, abandoned it very quickly because it wasn't their decision. The 1 that decided to do it made the choice, gave it work, and they threw more money after that. And as a result of that, they lost more money and they went backwards. So I say,I've gotta look at something as if I didn't make the decision. Because if I look at it as, I made the decision, my decision, if I abandon it, I’ve abandoned something that I've made a bad decision on. And, you know, like, I mean, I say to my people, I want you to make mistakes. Because if you don't make mistakes, then you're not going outside the outside the envelope. But if you make the same mistake twice, I'm gonna fire you. Because the mistake should be a lesson to you, should learn a lot from the mistake. If you don't make any mistakes, then you're gonna do everything, you know, everything, you know, secure and, you know, and safe. But you're not gonna be able to experiment and find new things that are gonna give you, new things that that they're gonna grow the business.  

And so let me then shift now to 1991 where you decide to back out of something that was not a mistake, that was hugely successful. You sell Le Specs, Le Tan, Australis brands. What told you that that was the right thing to do?  

Well, when you get a offer you can't refuse, you don't refuse the offer you can't refuse. So I was made a offer I couldn't refuse, althought I could refuse it. The thing was that in distribution, in retail, it's usually cash flow positive. If you write a good retail operation, the 60 days or 30 days supplier finance that you get, it should be enough to be able to provide positive cash flow moving forward. If not, then you're either increasing inventory or you're making a loss. But in distribution and manufacturing, the bigger you get, the less money you have because what happens is that you've got more inventory You've got more inventory. You've got more debtors. So I'd say to my accountant, how we're going. And the accountant would say, fantastic. You're making great profits. And I said, where is the money? And he take me out to the warehouse, and he point to the stuff, and he said there. And he pointed to the box and he says there, the customers owe you a fortune, and you got a fortune of inventory. And I said, well, let's reduce the inventory. And he said, if you reduce the inventory, what are you gonna sell? If you can't sell, you're gonna go broke. So inventory is required. You make sure you have the right level of inventory. But my brother and I had signed a bank guarantee that we couldn't count the number of zeros. And I thought, this is really, really difficult. If something goes wrong, and all business, something can go wrong. If something goes wrong, I've got everything invested here. Everything. If something goes wrong, I could be wiped out. Now we didn't think anything was gonna go wrong, we’re very positive thinkers, but something could go wrong. And we had a product that was French, Le Specs. Well, it wasn't made in France anymore. It still had French connotations, and the French were doing nuclear testing in the Pacific. And there was talks about banning companies that were associated with French. And, you know, we were scare we might get picked up in the boycotts. So we thought if we get boycotted and there's negative impact on us as a brand. We don't want that risk. And we were made an offer we couldn’t refuse. It would give us financial stability. We'd never have to worry financially. So trust me, it was a hard decision, and our children hated it because they wanted to be in the business. They wanted to run it. They were at 18, 19 at the time. And, you know, were just getting into adulthood. I mean we all lived the business together. They traveled with us, obviously, buying, and I loved the business. I loved it. So, yeah, when the business was sold, the purchasers said you had to work in the business for 2 years. And I said, okay. Sure. The guy showed a good salary, and then within 6 months, he wanted to fire me because my experience and my experience that I've found elsewhere is that when someone buys your business, not the same effect they said that you did the best job in running it. They wanna do it their own way. And then there’s a clash between you and the people that buy it. And, ultimately, they wanna run and put their own stamp on things. By the way, I was also happy to leave because I saw the business being destroyed by decisions that were made. They screwed the suppliers. They went to all the suppliers and screwed their suppliers. And instead of being a win win situation, it was a win lose. The supplier lost. On a spreadsheet, they were making millions of dollars more money. But in reality, if you get supplied faulty products, you know, you go backwards. Anyway, so I did an MBA semi-retired, which is, the best thing I could do. And then I went back and I decided to reinvigorate the pharmacies. We had 35 stores and we formed My Chemist, which was the beginning of the journey to the discount. And that was a pretend discounter because everything was for recommended retail price except for the specials. My Chemist will save you money if you buy the specials. But when we had the complete change to Chemist Warehouse, it was a dramatic increase in success.  

Is there something that you learned during your MBA that you then applied? It seems like it validated a lot of things that you adopted intuitively. So maybe that kind of solidified, but what did you learn? 

I learned that if I had done the MBA before I started business. I would never have started a business. Because the big thing about doing about, you know, education and knowing too much is that the more you know sometimes it doesn't give you the solution. If you know too much, sometimes you become, you know, you just don’t move. You become frozen because you worry about all the things that can go wrong. And I think it's better to make small mistakes because you can make mistakes. You definitely can make mistakes. Like, small mistakes which are gonna be minimally expensive rather than make some big mistakes or, you know, you say, when do you make a decision on something? When you got all the data? No. If you want all the data, it's impossible. You know? You'll never know everything. And some things are gonna conflict other things, and you're gonna get conflicting data, and which 1 do you use? You make a decision when you think you've got enough. To be reasonably satisfied that you got something to go forward with. You know? I mean, you know, the perfect data. You know? We do a lot of things with minimal knowledge of what we're doing, and we learn as we go. And if it turns out we made a mistake, we're that far ahead of the curve because we're into it much quicker, and we can you know, when we opened that first store in New Zealand, we opened 1 store. We sat there for 6 months and learned all the mistakes we made because New Zealand while it's very close to Australia, isn’t the same as Australia. And after we learned what we needed to learn, we open our second and third store. Now we've got 50 stores. We're doing about a billion dollars turnover in there. We've got, like, 50 percent market share in New Zealand. And we did it by slowly, slowly going there. You know, if we had investigated every aspect of New Zealand, we probably would have still been looking. Now we've got 50 stores, and we're doing a billion dollars.  

What would you say, if anything, is different about your strategic approach or how you think about what the strategy was for Chemist Warehouse?  

Well, as I said, I didn't really know what a strategic approach was, what I did it. I think there's just a gut feeling. But since I did the MBA, people can be all the time and say, Jack, I've got this business idea, what should I do? And I said, what's business idea of this? So I've got an automatic dog poo picker up. Just as an example. And I say to him, look, yeah, that's a fantastic idea. But the guy over there has got the same idea as you're having. So is the person over there. What strategic advantage do you have above the guy over there? And if you're gonna tell me I'm smart, I'd say that's not a strategic advantage. If your father-in-law is the head of the Veterinary Association or you have contacts that have 2000 veterinary clinics and veterinary retail outlets, you've got a strategic advantage. Everybody's got strategic advantage. Just think about it. If you're gonna go into business, use your strategic advantage because if you have an even contest with someone else in the marketing, you’ll both end up with bloody noses. You know, you want a strategic advantage. I mean, I'll give you another strategic advantage that you want to think of. Gillette, huge company in razor blades. And Dollar Shave came along. And their strategic advantage was that they're gonna sell it in a different market online for a dollar a week or whatever it was. And they had the distribution set up. So this strategic advantage was that people could buy it easily, quickly. And it was a lot cheaper. Because, basically, the dollar blade was the same as the 30 dollar blade, but with 29 dollars profit taken out, and they still made a profit. And they had a huge, I think, Procter and Gamble ended up buying them for billion dollars after about a year. They were competing with Gillette or someone, I don't know. So thinking what the strategic advantage is, it can be quite small or it can be quite difficult to see. But think about what you can bring to the table that's different than someone else and see whether that is enough to be able to give you a strategic advantage, then you have to have a good a good business case. You know, when I did the MBA, they said there's 2 parts to it, to a successful business. 1 is the idea and 2 is what you can bring the strategic advantage, you can bring to the table. And they said if Nabisco thought of, if you thought of a fat free cookie, this was many years ago when I did the MBA 90, 93. If you think of the fat free cookie as a product, but you've got no distribution. The fat free cookie’s a 5 out of 5. The distribution’s a 0 out of 5. 5 by 0 is 0. If you've got Nabisco who’s got great distribution and have a fat free cookie 5 by 5 is 25, and they're gonna be successful. And even if they have a 5 for distribution and a 2 for product, that's still 10. Tens better than 0. So, the 2 of them are multiplied. It's your idea, the strength of your idea, and the strength of your strategic advantage. And if either of those are a 0, then you've got a 0 chance of success.  

I think some people listening to this are gonna be thinking, like, oh, I get a 5, I get a 5, I multiply them, and then I let it run. Now you could do that when it's your sister selling glasses with your first store, but when you start scaling to the scale that you've scaled, you need to keep making those decisions. So my question is, how do you, what's the key to making sure that you actually align the organization to the strategy? Or Make sure you continue with the strategy when you don't get to make all the decisions anymore? 

 Well, the corporate culture of the organization is really important, and I think the corporate culture of our organization both for Le Specs and Le Tan when we had that, and Chemist Warehouse is very, very hands on. We have, let's say in Chemist Warehouse, we have about 500 students come through to do a traineeship. And they see the way that we run the business, which is quite different than the average pharmacy. It's all hands on, and everyone that’s involved, everyone rolls their sleeves up and does it. When I started the business, I did everything myself. There's not a thing in the business that I have today that I haven't personally done. I personally did all the importing. I personally did all the buying. I personally did all the shelf locations. I did everything so that when I give someone a responsibility to do it, I know what they've gotta do and they know how I've done it, the culture comes through. We believe the culture trumps experience. The culture and attitude is more important than experience. You can always teach someone the skills, but you can't teach him the culture. You can't teach them the attitude. I’d much rather have someone with a great attitude that doesn't know the industry than someone that knows knows the industry but has terrible attitude. We've had the 5 people that have got the wrong attitude. I mean, we hired in a particular area, we hired someone that had great understanding of knowledge of the industry, but we ended up firing him because he didn't fit in with our culture. Because, you know, he didn't have the same attitude and the same view as we did on the way the business should expand and grow.  

Is there anything that I missed? Anything that you didn't get to say?  

Well, I think probably the most important thing is to know who you are and be humble because I think the problem with a lot of organizations is they become so fixated with their growth, and they think their shit doesn't stink. And they think that they’re so wonderful that they can’t make mistakes and that, you know, I think you've gotta be humble and you've gotta know that, you know, we're just human. We're gonna make mistakes and that, you know, we've gotta understand that you've gotta go down and you gotta go down to the trenches. You've gotta understand the people you're working with. If you become so up there that, you know, that, you know, in in a rarefied atmosphere... you know, like, our offices are very sparse and I mean, we count the rolls of toilet paper to go into the toilet. We measure everything. I mean, if you start to ignore the cents and you focus on the dollars, you're gonna go backwards. Things are gonna fall apart.  

Great. Good luck everybody. Remember look at the strategic advantage and take advantage. But you know that where it is, it could be around the corner. Thank you. 

Thank you. Thank you for being here. Thanks for taking the time.  

Thanks for listening to this episode of Strategy at Scale. Thank you to our producer, Oscar Perez, and our teams at Scaling Up, Outthinker, and Growth Institute. If you like what you heard, please follow download and subscribe. I’m Kaihan Krippendorff. We'll catch you soon with another episode of Strategy at Scale.