Solly Lew at his chemist in St Kilda. Chemist Warehouse has moved in next door. Credit:Paul Jeffers Its critics, including traditional pharmacists like Mr Lew, the powerful Pharmacy Guild, and the pharmacists' union, increasingly ask, "At what cost?" While the desire for cheaper pharmaceuticals and health and beauty products is understandable, they say the Chemist Warehouse model is a threat to healthcare standards and employment conditions in the industry. "They're like the McDonald's of the pharmacy world," says Lew. Those concerns are likely to be fuelled by the news that Chemist Warehouse has been under investigation over millions of dollars in unpaid wages.

The number of Chemist Warehouse outlets in Australia has exploded in recent years. Credit:Kate Geraghty Fairfax Media can reveal that the Fair Work Ombudsman is probing the underpayment of almost 6000 employees, including pharmacists, over outstanding wages totalling almost $3.6 million, owed for hours spent doing online training out of rostered hours. The union that represents salaried pharmacists says it is not surprised. "Chemist Warehouse always walks close to the [legal] line when it comes to workers entitlements," says Chris Walton, the chief executive of Professionals Australia. Damien Gance​ is the public face of the group. By email he said a routine audit had found that staff had completed training outside work hours, and once the mistake had been discovered, all staff were given back pay.

Fairfax understands the Chemist Warehouse underpayment was limited to particular period and is not a systematic problem. Nor is it of the scale of recent underpayment scandals such as 7-Eleven. Fairfax Media understands the underpayment was initially discovered by the Fair Work Ombudsman. A Fair Work spokesman has confirmed the discounter was "assisting with inquiries". "As the matter is currently operational, it is not appropriate to comment further at this time," the spokesman said. Since it burst onto Australian high streets in 2002, Chemist Warehouse has opened 350 stores which now generate revenue upwards of $3 billion. It has grabbed more than a 20 per cent share of the pharmacy market.

Its success has catapulted founders Jack Gance and Mario Verrocchi​ to the upper levels of the BRW rich list. Like Uber and Airbnb, Chemist Warehouse is a business disrupter. It has slashed prices - hay fever tablets are now often less than half the price of other chemists, for instance, and prescription medications are often significantly cheaper than the competition. The business model appears to rely on cheap pharmaceuticals attracting customers, who then buy up big on non-dispensary items such as vitamins, hair care products and baby formula. A 2014 report by accountants Korda Mentha found that Chemist Warehouse targets an even split between medicines and non-medical items, where the industry average of sales is 83 per cent medical. The group - which also trades as My Chemist - has brazenly challenged and skirted industry regulations that restrict ownership of pharmacies to pharmacists themselves. The rules also limit the number and location of pharmacies in any area and restrict the number of outlets each pharmacist can own (the number varies by state). To bypass the rules, Chemist Warehouse operates as a complex franchise network - a web of partnerships between the founding families and individual pharmacists. It allows pharmacists with little equity to establish and run their own stores under the Chemist Warehouse banner.

In return, they sign up to trading terms enforced across the group dictating how the stores are run. So, while individual stores claim independence for regulatory reasons, Australia's largest network of pharmacies enjoys bulk buying power and the advantage of centralised marketing, human resources and training. On the issue of wages, Chemist Warehouse has no industrial agreement, so its wage figures are not published. But Gance says his group "consistently" pays above award with generous packages comparable to or above the industry average. The claim is at odds with research by the pharmacists' union. A Professionals Australia survey in 2015 found that Chemist Warehouse paid its pharmacists more than $5 an hour less than the industry average, a wage savings upwards of $10 million a year across the chain. Gance defended his group's dispensary standards and described Chemist Warehouse healthcare as "the absolute best ... at the absolute best price … without compromise".

But the union's Chris Walton said that where the Pharmacy Board guidelines recommended pharmacists dispense no more than 150 to 200 prescriptions a day, he was aware that some Chemist Warehouse pharmacists were under pressure to dispense 300 prescriptions per day. Unlike more clinical, traditional pharmacies, Chemist Warehouse outlets are boldly commercial with products ranging from dishwashing liquid to perfume stacked high in narrow aisles akin to a real wholesale warehouse. At Chemist Warehouse the dispensary is always located to the rear so that customers are tempted, coming and going, with promises of better skin, better hair, better internal health. There are shopping baskets at the entrance and, often, a security guard. Solly Lew points out that, unlike his own store, his new neighbour has no dedicated consultation area for dispensary customers seeking a quiet word with their chemist. The Chemist Warehouse model has rattled an industry long protected by arguably uncompetitive rules that have kept supermarket giants Coles and Woolworths out of the lucrative drugs business.

So too has it challenged Australia's traditional pharmacy model which has delivered windfall profits to some pharmacists - at taxpayer expense - through the operation of the federal government's Pharmaceutical Benefits Scheme. In 2013 the Grattan Institute found the scheme was paying at least $1.3 billion too much for prescription drugs. A federal review of pharmacy remuneration and location is currently under way. In his submission, Chemist Warehouse founder Jack Gance says that over 15 years, location rules that restricted the number and location of pharmacies had prevented Chemist Warehouse opening an additional 100 stores. He rejects claims that Chemist Warehouse service is inferior and says he should be "free from regulatory constraint ... to succeed and free to fail". Lew had been one of the beneficiaries of the old rules. Chemist Warehouse seized an opportunity to move into Fitzroy Street when he moved shop one door leaving behind a licensed chemist premises. For decades, Lew has worked to keep his regular customers alive and well.

Now he is looking to them for support and loyalty as he goes head-to-head with the restless industry upstart. He says he is David in a battle with Goliath. "We're only small but we're competing." Got a tip? Contact us securely on JournoTips Follow Ben Schneiders on Facebook