‘Scalpel, Clamps. . .’--Discounter to Offer Warehouse Full
In search of bargains, Southern Californians flock to Home Club for kitchen sinks, Office Club for paper clips and Price Club for just about everything else.
Now they can hunt for the best price on a wheelchair, a deep-heat massager or a glucose monitor at MedChoice.
In a giant warehouse popularized by chains like Price Club, MedChoice will offer 6,500 products, from lab coats and latex gloves to dental bonding systems and tongue depressors.
MedChoice, which opens its first Southern California store Friday in Fountain Valley, will cater to doctors and dentists, and many items will be off limits to those without a medical license. But the general public is expected to account for about a third of MedChoice’s sales.
“Not everybody’s ready for it, but just like with office and home supplies, the business of selling medical supplies needs shaking up, and we’re doing it,” MedChoice Chief Executive Vern Stigge said.
MedChoice, financed by some of the investors who started the Office Club chain, is convinced that the same marketing principle applies to medical products as office and home supplies. The theory holds that buying goods in huge volumes, displaying them in a low-overhead warehouse setting and selling to an established membership base can lead to profits.
Founder Ted Morgan, also a founder of Office Club, said he developed the MedChoice concept two years ago because he saw that the medical supply market was dominated by small vendors, just as the market for office supplies was.
The distribution by the small, often family-owned businesses meant profit margins as high as 40% for distributors, he said, compared to margins of 10% to 15% for retailers in the discount business. By buying in large volumes and eliminating sales reps, MedChoice says it has cut margins to about 20% at its two stores in Northern California.
Others are skeptical of the MedChoice strategy. Critics contend that the medical supply business is not as sensitive to prices as other industries, that doctors place great value on service from their sales representatives and that they have long-term relationships with sales representatives that would be difficult to break.
“I have a longstanding relationship with my supply salesperson,” said Dr. Gerald McClellan, a Costa Mesa dentist, who is president of the Orange County Dental Society. “I’m not going to breach that for a couple of dollars of savings.”
George Aumiller, president of D&M; Enterprises, an Orange County dental products distributor with 350 customers, said the arrival of MedChoice will hurt some distributors but not radically change the way medical supplies are sold.
Membership Drive Successful
“This market isn’t as price sensitive as they think,” Aumiller said. “I’ve been in the business 28 years, and I couldn’t touch most of the business out there even if I came in at a lower price.”
Nonetheless, the company said its membership drive in Southern California is running ahead of expectations. So far, about 600 medical professionals have paid $25 for a one-year membership. Non-medical, individual members pay $10 a year to belong. Shoppers not wishing to buy a membership pay 10% more for goods.
The company estimates that it can eventually sell memberships to 35% of the county’s doctors and dentists.
Stigge projects that the Fountain Valley store will have sales of about $5 million in its first year. MedChoice estimates that the medical supplies market in Los Angeles and Orange counties is nearly $1 billion.
Dentist Jerry Malleus, who runs the San Fernando Dental Center, a four-dentist office, learned of MedChoice at an Anaheim dental show this spring and immediately joined.
“I can save several thousand dollars a year there. For a dentist that’s significant,” said Malleus. He said MedChoice will ship him products until a store opens in his area.
The Orange County Medical Assn. sent a letter to its members endorsing MedChoice’s price-saving strategy, but other medical professionals expressed concern that some of the restricted products in the store could fall into the hands of the public.
“Some of those products are very caustic,” said McClellan.
MedChoice said doctors and dentists must file a copy of their medical certificates with the store for doctors or their representatives to buy the restricted products.
Profitable in Oakland
Some manufacturers apparently have not been persuaded to join MedChoice.
For instance, needle and syringe maker Becton-Dickinson said it does not sell its product to MedChoice and that MedChoice is not authorized by Becton-Dickinson to sell its products.
Robert Stein, Western-area manager for the manufacturer, said his firm is satisfied with its distributor network. But Becton-Dickinson products do appear in MedChoice stores at prices far below those of authorized Becton-Dickinson dealers. Stein said MedChoice buys his firm’s products through a hospital supplier, which Becton-Dickinson has no control over.
MedChoice opened its first store in Oakland last June and a second store in San Jose in March. Stigge said the Oakland store, which has 6,000 members, already has an operating profit and he predicted that the San Jose outlet soon will be making money.
The company plans to open two more stores in Culver City and the San Fernando Valley by fall and expects to lose $2 million to $3 million this year, Stigge said. By next year, MedChoice expects to be operating 16 stores, mostly in the West. Within five years, the company plans to operate 51 stores across the country.
MedChoice could face a challenge from MedClub, which opened its first store in Mira Mesa in San Diego County in May, 1988. MedClub plans to open three stores by year-end in Orange and Los Angeles counties.
But MedClub has not signed lease agreements on the stores, and its first store, originally 60,000 square feet, has been scaled back to 40,000 square feet since then.
