Dutch Web Pharmacy Battles for German MarketA start-up Dutch Internet pharmacy is battling three German associations in and out of German courts for the right to sell prescription and over-the-counter drugs to German consumers for an average of 20 percent below going rates.
DocMorris launched in July and now has 18,500 customers, 80 percent of them Germans who live in the population-rich areas along the Dutch border.
The company is located in a village near the German town of Aachen and sells 1,300 items, ranging from birth control pills to food supplements.
The company first aroused the ire of the German Association of Pharmacists, which took it to court in Frankfurt. The Association for Social Competition took the Dutch to court in Berlin, while GEHE, Europe's largest pharmaceutical wholesaler, complained to a Stuttgart court.
The plaintiffs lost in Berlin and Stuttgart, but the pharmacists association won in Frankfurt and, under German law, the Frankfurt injunction holds nationwide.
DocMorris cannot deliver goods to German buyers. But it can handle requests for delivery German consumers make online.
"We had to be creative and found an intermediate solution," said marketing manager Jens Aperman.
"When a customer places an order," he explained, "we give him a choice on how he wants it delivered -- come to our pharmacy and pick it up in person or send somebody else, in this case a courier service. And that's how we do business."
DocMorris mostly uses the German Parcel Service, a division of Royal Mail that operates in Germany, and on occasion UPS. DocMorris pays for delivery. Customers only have to press a delivery button on screen.
With conflicting decisions coming down from German courts, the Dutch company thinks it has a good chance of winning on appeal. The company has three court dates in Frankfurt alone in the first quarter of this year.
"If necessary, we will take this case to the European Court of Justice in Brussels," Aperman said.
The main opposition comes from Germany's 22,000 pharmacies that have never dealt with competition or promotion.
"German pharmacists are gods in white coats," Aperman explained.
"Their attitude is that we have been needed for 800 years, so why should we change? Our customers get drugs quickly, and our standards are high. That's true, but the high cost structure is breaking down the health insurance system."
Nevertheless, German pharmacists think there is no need to change.
DocMorris disagrees. "We want to bring some competition to the market," Aperman said.
Health authorities agree. They like lower prices, and that's one reason behind the split court decisions.
The Germans can't put DocMorris out of business because it is a legitimate Dutch company operating under Dutch law. But even without court orders, the pharmacy can't market and promote itself. Most European law bars that.
But law can't stop public relations, and the German plaintiffs may have hurt themselves. The court cases received so much coverage in German media that "we are pretty famous in Germany right now," Aperman said.
Moreover, not only are health insurance systems behind DocMorris, but so are pharmaceutical companies.
Aperman said that two trends favor development of his company. One is a switch from prescription to over-the-counter drugs because government money for prescriptions is drying up.
Another is the rise of global competition.
"Companies need to work on brand development and customer loyalty, but they can't because they are too far removed from consumers and therefore have no idea what their customers want.
"We are a sort of intermediary because we are close to consumers, collect data and are a good partner for compliance management. We know how satisfied consumers are with brands and how loyal they are to them."
German pharmacies can't do that. Because all must be individually owned and few have more than 700 customers each, they do not have any marketing power. But Germans spend 50 billion Deutschmarks ($25 billion) annually on drugs, making it the world's third-largest pharmaceutical market.
A venture capital company in Hamburg, Techno Nord, put up 40 percent of the money to finance DocMorris. Money comes from patients with chronic diseases, not from those who buy aspirin three times a year.
"We have 15,000 such patients now," Aperman said. "We need 100,000 to break even. We finished our 2000 business year with 107 percent of our budget, and we think we'll be profitable at the end of 2002."
DocMorris' next market, he said, will be in Scandinavia.
"They suffer from high prices and have a high affinity for the Web and mail order."