Beauty Sleep The Drugstore Man

Erich Harsch, the chief executive of Germany's largest drugstore chain, DM, talks about the limits of online retail, the importance of organic, and why he gets cotton tote bags in India rather than Germany.

DM is one of Germany's most ubiquitous drug stores. Its chairman told Wirtshaftswoche why he is quitely confident his company can defend its markets from supermarkets and online retailers.

What do you expect for 2015? Will the German enthusiasm for consumption persist?

Erich Harsch: Many people who are doing well are asking themselves what they should do with their money. They don't earn any interest on it at the bank. They seem to be willing to spend money on themselves. Hopefully, that will continue in the coming year. DM tends to be quite sheltered from the economic cycle.

How long can you keep up this pace?

In the long term, the momentum will subside, but the sales trend still remains unbroken. We will open about 170 new stores in Germany. That gives us a tailwind. But growth isn't our goal, it’s almost a side effect. Our approach is to do what's best for our customers. If we get that right, growth follows.

Today, there is a drugstore on every corner, and DM alone has about 1,620.  How many more do you think Germany can absorb?

Five years ago, I predicted that there would be about 2,200 locations for DM in Germany but we have not got to that many. Now I'm very careful with such statements -- there are simply too many variables: Are new competitors pushing into the market, or are other providers disappearing? And what's happening with online business?

Do you buy online yourself?

Every now and then, but not groceries or other every day items. My wife is more active; some time ago, she even ordered a dirndl online. It just proves that anyone who denies the fact that the online world has increasing influence is ignoring reality.

Why does DM not operate an online shop as its competitors Rossmann and Müller do?

In the grocery and drugstore business, change is slow. By the way, DM does operate an online shop – in Austria.

That doesn't do much for the customers in Germany. When will you start here?

We're continuously monitoring the situation. We have to look and see how this area changes.

But you have been looking at developments for many years, why don't you just do it?

We have done it: We did offer our own label through Amazon, but then we stopped that experiment because it didn't meet our expectations. It is extremely difficult to work profitably with drugstore items online. Customers want convenience and mostly order the big, heavy and bulky items to their homes: diapers, cleaning products, toilet paper. These products tend to be cheap and are frequently sold on special offer, so the margins are incredibly low.

Another factor is that 80 percent of our clientele are women and the majority of them enjoy strolling through their local DM store.

Booksellers also sounded similar before the American mail order giant Amazon started. Aren't you afraid that your competitors will take away the market of the future?

Right now, no one knows what will happen. It's only clear that even in e-commerce, there isn't an unlimited boom – at least in the drugstore sector. Will that change? I don't dare to make a forecast. So far, the online boom has not, in any event, influenced our development.

But you also have to ward off new competitors in the onsite business. After Schlecker's bankruptcy, supermarkets expanded their drugstore offerings. Does that put a dent in your business?

 We notice that marginally at most. According to market researchers, a large part of the Schlecker revenue has moved to other drugstore businesses, especially us. The grocery segment has barely gained any market share.

Thirty years ago, Alnatura was the only organic label at DM. Now you are backing other organic labels. Is this a change in strategy?

We would certainly like to establish ourselves again in organics. A mono-brand strategy that was right for us in the early days but things have changed. Look at how the world of organic retail has changed and it is clear we're behind.

Will you use your market position to raise prices?

Then we would quickly lose our position. We want to continue offering our customers the most favorable prices.

 Is that why you have recently begun to produce your cotton bags in India rather instead of getting them from an ethical supplier in Germany as you had done previously? 

It was not about producing the bags more cheaply. It was simply about getting enough goods. When you have our kind of growth, you have to make sure you can cover demand. That applies to every product range. We took care in choosing suppliers, and took on a social initiative, to support textile production in India. We were also totally transparent about what we were doing. We hung a label on each bag telling customers its place of origin.


Stephanie Heise-Künne and Henryk Hielscher report on retail and markets for Wirtschaftswoche. To contact the authors: stephanie. heise-kü[email protected] and [email protected]