Domzdrowia.pl Spółka Akcyjna (DMZ) was founded in 1999. On Poland’s EU accession in May 2004 the company, inspired by the proliferation of online pharmacies in western European countries, undertook to start a similar business in Poland. In June 2004, the company obtained a permit to open and run a limited pharmacy in Zielonki near Kraków and began selling medicinal products via the Internet. Initially, its product range was limited to OTC drugs and dietary supplements. As a first step, a simple Web application was developed to handle transactions, and foundations were laid for a logistics system. Next, the e-commerce software was substantially enhanced and integrated with the pharmacy’s inventory management system; a high-performance logistics system was also put in place. In October 2005, on acquiring a shareholding by the investment fund MCI Management SA, the company was transformed into “Domzdrowia.pl” Sp. z o.o.
In 2006–2007, the company focused on further extending the functionalities of its e-commerce platform, streamlining its logistics operations, and refining its financial and accounting system. Vertical portals were created in conjunction with Internet platforms Interia and Wirtualna Polska (WP), and partnerships or cooperative links were established with other Web portals. The company expanded its product range to over 15,000 items by incorporating cosmetics and Rx medicines and took an active approach towards search engine optimization, which resulted in a considerable increase in the number of customers. In 2008, the company continued to expand its services portfolio and significantly strengthened its leadership position in online sales of pharmaceuticals and cosmetics (to approximately 15%), with more than 300,000 unique users monthly. At the same time, work was underway on further vertical portals and a novel website combining online shopping with social networking to foster the formation of an active community around the store, utilizing the social shopping model. In addition, a partnership program was launched to bring together businesses running traditional pharmacies, whether full or limited, in an effort to optimize logistics processes. It was estimated that in the first quarter of 2008 there were around 100 pharmacies in the Polish market, but few could effectively compete with DMZ. These included: i-apteka.pl, Cefarm24.pl, Vitanea.pl, aptecus.pl, and e-lek.pl. The key suppliers to DMZ were at the same time the country’s major pharmaceutical wholesalers, providing a complete range of drugs, dietary supplements, and pharmacy cosmetics. The business terms and conditions were similar with all the suppliers, including a standing discount of 10–11% from the wholesale price on virtually all items and standard payment terms of 30 days. Most orders were placed automatically twice a day using a computer application capable of comparing the prices at which an item could be purchased from specific wholesalers. Orders were also delivered twice a day against an electronic invoice. Inputting the underlying sales documents into the system was almost fully automated, too. The procurement process was organized in much the same way as in the case of cosmetics wholesalers, only with slightly less automation due to the absence of a consistent product code system. In 2007, a process was inaugurated whereby smaller suppliers were brought in (Prosper, Phoenix, Slawex, Salus). The company implemented a policy of sourcing only selected items from small wholesalers and negotiating terms that would make room for higher mark-ups than on products bought from major suppliers. Because such purchases were not automated and therefore time-consuming, the company never aimed to make more than a certain part of their purchases that way. An increasing proportion of supplies was procured under direct-to-pharmacy schemes or, even if bought through wholesalers, on conditions agreed directly with manufacturers. In 2006–2007, the so called “manufacturer promotions” were, on average, worth more than 10% per purchase. The largest supplier to DMZ was Polska Grupa Farmaceutyczna (PGF), yet its share of total supplies declined over the years (from 58% in 2006 to just 36% in 2007)—a trend that was to continue. Other ‘Top 5’ wholesalers were TORFRAM SA (some 17% of the purchases in 2007, ACP PHARMA SA (16%), and Polska Grupa Kosmetyczna (6%). In September 2008, DMZ made its debut on the NewConnect stock market, raising PLN 1.4million of equity. The funds were spent on developing the proprietary e-commerce platform that was finally launched in November 2009. Under its strategy, DMZ pursues the goal of maintaining its number one position in online shopping for healthcare and beauty products in Poland alongside leadership development goals and its partner network and a chain of its own pharmacies with a view to expanding its distribution channels and optimizing its logistics processes. Prior to that, the company was solely focused on selling via its own e-commerce platform; alternatively, customers had an option of placing orders on the premises (in a partner or DMZ-operated pharmacy) that would then be transmitted electronically and filled by delivering the purchased items to a DMZ pharmacy of the customer’s choice. Consideration was also given to a blended model where the order would be placed at a pharmacy and delivered to the customer’s home address. The company’s network of partner pharmacies and DMZ-branded outlets covering the country’s largest agglomerations was supposed to streamline logistics processes and minimize the delivery time through the use of urban services. Alongside the e-commerce platform, the company owed a pharmacy situated in Zabierzów and a limited pharmacy in Zielonki (both locations are within the precincts of Kraków) that branched out into a network of DMZ and partner pharmacies supporting the company’s online operations and at the same time providing for compliance with regulations on handling transactions in pharmaceuticals. To cater to its pharmacy chain, the company opened a wholesale warehouse in Zielonki near Kraków. Besides generating a wholesale margin, the key benefits included increased flexibility in filling orders, and more consistent pricing. DMZ’s strategic objectives were defined as, on the one hand, maintaining its industry leader position in Poland with an online market share of at least 15% and, on the other, expanding its chain of partner pharmacies in an endeavor to diversify its business model and optimize its logistics processes. Further enhancements to its e-commerce platform were contemplated, such as the addition of new functionalities and the launch of satellite content websites to accelerate lead generation. The websites were to be based on the social shopping model and targeted at the most attractive groups of commodities associated with specific themes. There were also plans to earmark additional funds for Internet search engine optimization and customer loyalty programs. In an attempt to boost growth in the offline segment, the company intended to build its own logistics platforms in Kraków and Warsaw and to develop partner networks around its proprietary e-commerce platform (with partners from Wrocław and Łódź). In 2008, it was estimated that in the next few years the online pharmacy market will grow at a rate of around 6% per year to exceed PLN 500 million and attain a share of some 1.5% of the pharmaceutical market. In fact, this sales channel did not grow any faster than 1% until 2011, up to a total worth of around PLN 80 million. As the online pharmacy business clearly did not work out and failed to generate expected profits, the company altered its strategy and sought to improve performance by taking over drugstore chains. One of them—Fabrykazdrowia.pl—dealt primarily in cosmetics, but also retailed dietary supplements and medications, making a net profit of nearly PLN 2.8 million in 2011. To be able to buy out the Fabrykazdrowia.pl website, the pharmacy Dom Zdrowia issued bonds to the value of PLN 5 million. Besides www.domzdrowia.pl and www.fabrykazdrowia.pl, the company controlled such electronic retail channels as: www.101promocji.pl, www.dbamyoceny.pl, www.sexizdrowie.pl, and www.pretty.pl. For this reason, a decision was made to rename the company Internetowy Dom Zdrowia (IDZ). However, these moves did not lead to much improvement in the company’s financial performance. In 2006–2011, IDZ managed to bring its net loss down to PLN 0.1million from PLN 1.3 million but failed to significantly increase its revenue that stayed below PLN 7.5 million even after 2008. In 2012, the company made a net loss of PLN 803,000. In February 2013, a majority interest in IDZ (62.5%), hitherto held by MCI Management, was purchased by Frisco SA, the Warsaw-based operator of the food e-store frisco.pl. Midway through 2013, IDZ had incurred nearly PLN 3.5 million in liabilities and a negative equity. On October 9, 2013, IDZ filed for bankruptcy proceedings, primarily due to an inability to service its cash debt. In January 2015, the official receiver announced the sale of the company’s intangible assets, including its title to the online store IDZ and the six other websites that it controlled. Arguably, IDZ’s bankruptcy stemmed partly from such externalities as, in the first place, the unstable regulatory environment (although the relevant risks were correctly identified by the company). At the same time, however, the company was overly optimistic about the growth potential of the e-commerce market in the pharmaceutical sector and pursued a flawed strategy that included taking a long time to mitigate some of the burden of transport costs, an emphasis on prescription-only medicines, and an insistence on operating a pharmacy chain of its own. Some industry experts point to legal disputes that cost the company time and money, the competitors’ over aggressive pricing policy, and inefficient logistics impinging on the quality of customer service.
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