A key focus of the WCM International Small Cap Growth portfolio is to find quality global companies with durable, strengthening economic moats and corporate cultures aligned to this growth. An example of a company that demonstrates these characteristics is Zur Rose Group (Zur Rose).
Zur Rose is the leading e-commerce pharmacy in Western Europe, with a main focus on Germany and Switzerland. It aims to provide consumers with a seamless experience and empower them to manage their own heath with digital solutions.
In this update, Greg Ise of WCM Investment Management (WCM) explains how Zur Rose’s economic moat and its ‘opened and shared’ culture enables the company to offer consumers a high-quality and cost-effective online pharmaceutical solution.
Tom Hickey (TH): Hello and welcome to this Stock in Focus update for the WCM International Small Cap Growth Fund. Today I’m joined by Greg Ise, from WCM Investment Management. Thanks for joining us, Greg.
Greg Ise (GI): No, my pleasure. Thank you for having me.
TH: Today we’re talking about a stock called Zur Rose Group. Can you tell us a bit about what it does?
GI: Zur Rose consists of a couple of brands underneath it, but basically, it’s the leading online pharmacy in Western Europe with a specific focus on both Switzerland and Germany. The brand in Germany would be called DocMorris. This is literally a business that is focused on sending prescription drugs over the counter or OTC products, in addition to health and beauty products and shipping them online to customers.
TH: So direct to consumer?
TH: What’s the competitive advantage like in that space or for that business?
GI: There’s a few regulatory aspects that really drive the moat trajectory of Zur Rose. One of which, and arguably the biggest is that in 2022 the German government is mandating that everyone can have and that doctors are required to provide electronic prescriptions.
Basically what this means is that as opposed to today where people get paper prescriptions and have to mail them in or go to their local pharmacy, it will move to a digitized version where people can immediately order their prescription or over the counter drugs online through their phones and receive those products in some cases same day, if not next day. That’s really a driver.
The other key aspect is that in Germany, it’s against the law for pharmacies to be owned by large corporations. This prevents pharmacies from moving into this online space.
TH: What about the culture within the organisation, how does that support those sorts of tailwinds and that competitive advantage?
GI: There’s a couple of companies that are competing in this space, but I’d say it’s the culture that really does differentiate the two. Zur Rose (or DocMorris) have been all about trying to create an ‘opened and shared’ ecosystem. It’s taken the initiative of partnering with the German insurance companies, German pharmacies and physician offices, so that it can create a win-win model for everyone where the consumers will have the convenience of online.
In addition to the offer of an omni-channel solution, if a consumer wants to, they can even order online real-time through their smartphone and go to a local pharmacy to pick up their prescription, say on the way home from their doctor. By doing that, Zur Rose is bringing what might otherwise be a competitor in the way of the pharmacies into the mould with them and really create an overall ecosystem that wins and benefits everyone.
TH: How does it compete on pricing with traditional bricks-and-mortar pharmacy stores?
GI: That’s another interesting aspect. In Germany, when it comes to prescription pricing it’s regulated and because Zur Rose is operating from outside of Germany, it can charge a different level of pricing – what’s called the bonus. In many cases, it can undercut or compete with a more compelling pricing offer for consumers.
TH: Great, thanks for your time Greg.
GI: No, my pleasure, thank you.