‘We want to build the healthcare ecosystem of choice’

Over the last three years, the Zur Rose Group has been undergoing a transformation to become a true digital company. Walter Hess, the new CEO of the group, which operates healthcare platforms and online pharma­cies—among them DocMorris—explains in our interview what he has learned along the way.

In his résumé, Walter Hess once named as a hobby “working with people.” That is quite fitting, given the big challenges and heavy workload that await the 56-year-old in his new role: Since May, he has been serving as CEO of the Swiss Zur Rose Group, which aims to build a European healthcare ecosystem connecting patients with doctors’ practices, hospitals, pharmacies, and health insurers on one single platform to provide them with optimal care and the best treatment options. The company is active in numerous European countries; its most important market is Germany, where it operates the online pharmacy DocMorris.

Sidebar

Zur Rose’s headquarters is located in the tranquil town of Frauenfeld, 45 minutes from Zurich. But Zur Rose also operates tech hubs in trendy cities such as Berlin and Barcelona—important locations when it comes to attracting digital talent.

They already develop a number of apps for Zur Rose, such as the DocMorris app, which has 1.3 million users who turn to it to access telemedicine services and pharmacy offers. The group also provides platform solutions, such as marketplace as a service, to its partners—primarily from the beauty and personal care sector. Akzente spoke with Walter Hess about his experience with the transformation to a technology company, about unexpected competitors, such as the perfume and cosmetics retailer Douglas, and about the question of what Zur Rose can learn from Amazon.

Akzente: Mr. Hess, in May you took charge of the Zur Rose Group. What’s first on your agenda?

Walter Hess: I took over a very good starting position from my predecessor Walter Oberhänsli. We are thus simply continuing to work at full speed on the most pressing current topics. The most important single project is electronic prescription. In Germany, our most important market, the test phase has been extended prior to its mandatory nationwide introduction. However, according to the latest statements of the German Federal Minister of Health on the current status of the e-prescription, we firmly expect them to be launched still in 2022. And we are continuing to work on shifting our focus from just growth to profitable growth.

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E-prescription in Germany is expected to help the Zur Rose Group achieve profitable growth, according to Walter Hess in an interview with Akzente.

Akzente: Your investments in growth so far have led to negative returns. How do you plan to operate profitably in the future?

Hess: Going forward, we want to reap the rewards of our investments. In doing so, we are focusing on two considerations: To make sure that our business has a sustainable basis, we are working on evolving into a data-based technology company. Since our IPO in 2017, we have invested a lot into technology. Now we are in the process of merging the different platforms and applications. To ensure that we continue to develop the right products and services, it is paramount that we consistently put our customers and their needs in the center of our planning and actions. At the same time, we keep developing our corporate culture to encourage our employees to assume shared responsi­bility on the basis of jointly defined binding agreements. This enables them to move the initiatives and projects forward in a targeted manner.

Akzente: Zur Rose’s origins are in conventional pharmaceutical wholesale—are all the long-­serving employees on board for your journey to become an agile company?

Hess: Through our acquisitions, we won a lot of new talents who have already worked in line with these principles before. But, of course, we have also taken our more established workforce on this journey with us, and we have adapted our processes. One of the key elements is the joint agreement on objectives. When these targets are defined in an appropriate and comprehensible way, employees understand that it gives them leeway to work independently toward them.

Akzente: How far along are you with this trans­formation process?

We are shifting our focus from just growth to profitable growth.

Hess: We started it three years ago and we are now launching the third phase. Our core focus now is on aligning the overall structure of the Zur Rose Group even more consistently with our customer segments—instead of relying on a country logic like in the past. On the level below the customer segments, we have structured our business by products. For us, this is how we are taking the next step toward becoming an agile organization.

Akzente: How are your employees responding to the changes?

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Codeveloped by the Zur Rose Group: the Swiss health platform “Well” connects patients in an ecosystem with doctors’ practices, insurers, and pharmacies.

Hess: For the most part, the reactions have been very positive. Of course, there are some who felt more comfortable in the former structures. But very few have left us. The new way of working goes along well with our dynamic environment and the type of employees we are looking for. It has already helped us to attract outstanding talent.

Akzente: What have you learned from the transformation process so far?

Hess: When we started, we were still thinking in terms of conventional projects with fixed start dates and equally fixed deadlines. Now, we rather think and act in sprints and backlogs along a road map. We have learned that we have to give our teams—we call them squads—very intensive training and fully staff them from the beginning. In addition, there always needs to be a critical mass of people who have already mastered the new way of working—who will then take the others along with them. Over time, we have also moved away from organizing and implementing our initiatives and “epics” at an individual company level and toward setting them up and implementing them across countries and companies.

Akzente: One effect of the COVID-19 pandemic has been to accelerate the digitization of the healthcare market. Which countries are in the lead?

Hess: In Europe, smaller countries such as Estonia or Denmark tend to be leading the way in healthcare digitization. Ironically, our home market, Switzerland, and our largest market, Germany, are lagging behind. However, in Switzerland we managed to launch the digital health platform “Well” in collaboration with several partners last year—an app that patients can use free of charge and that connects them in one ecosystem with doctors’ practices, insurers, and pharmacies.

Akzente: What exactly does “Well” do?

Hess: It can, for example, be used to arrange telemedicine appointments, to order medications from home with an e-prescription, to manage COVID-19 vaccination certificates and other medical documents, or to run digital symptom checks and provide preventive care recommendations. All health services on the app are quality checked, and all data is encrypted and stored securely.

It is the users that decide who can access which of their data. In general, it is our vision at Zur Rose to create the preferred digital healthcare ecosystem for patients—a place where they will be able to find all health-related services, offers, and information they need—from prevention to diagnosis and treatment to adherence.

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Zur Rose is also active in brick-and-mortar retail: the group is increasing its brand awareness with shop-in-shop offerings, here at Migros in Berne.

Akzente: In the German market, DocMorris launched a health app in 2021. What has been the experience with it so far?

Hess: The reception has been very positive. We have already seen more than 1.3 million downloads. Services such as direct access to brick-and-mortar doctors’ practices and telemedicine, adherence solutions, same-day delivery options, and marketplace offerings are already available alongside pharmacy offers. In addition, the app has a scan function for elec­tronic prescriptions, which can then be delivered securely and quickly to a chosen pharmacy. We expect this to become a breakthrough application once the full rollout of e-prescriptions happens in Germany in the near future.

Akzente: It has been years now since e-prescription was first announced and your group has already invested a lot into preparing for it—when do you expect it to launch?

Hess: The National Agency for Digital Medicine, gematik, which the German Federal Ministry of Health charged with reviewing the technology, announced that they expect all defined quality criteria to be met by August of this year. We expect the nationwide roll-out to start in the second half of the year and e-prescription to be mandatory by the beginning of 2023 at the latest. We are well prepared for this and expect a major boost in sales for DocMorris as a result. And because we will generate these additional sales on the basis of an optimized cost structure, we expect it to be profitable growth.

Akzente: Recently, companies from outside the industry have also shown an interest in your core business, such as the perfumery chain Douglas, which just acquired the online pharmacy Disapo, or Amazon, which successfully sells over-the-counter medicines. Are they troublesome competitors or do they rather stimulate business?

Our vision is to create a healthcare ecosystem for patients in which they can find all relevant services, offerings, and information.

Hess: Competition stimulates business, in particular in the prescription sector. At present, 99 percent of prescriptions are filled by brick-and-mortar pharmacies. The greater the presence of online channels for prescription drugs and the greater the market awareness, the better.

Akzente: It’s not a big step from Douglas’ beauty business to your core business—health. Does the market entry of industry outsiders also inspire you to expand your product range?

Hess: We have been working for a long time and persistently on the expansion of our ranges. In the future, we will focus heavily on expanding our marketplace and our partnerships with sellers on our platform.

Akzente: Can your industry also learn from a competitor, such as Amazon?

Hess: You can always learn from Amazon. How they have built and how they operate their business, for example, or how they develop and grow their products and services.

Akzente: Start-up delivery services such as MAYD, kurando, or FIRST A are now active in the pharmacy delivery business. Are they of any interest to you?

Hess: Yes, we see them as potential partners in our ecosystem as they would allow us to expand the range of our delivery services. Currently, we deliver within one to two days using our own logistics. For same-day delivery, we already have more than 200 partner pharmacies in Germany. If we want to accelerate this process even further, we will need additional delivery partners. I can imagine that we will take advantage of this opportunity—and this is where the new delivery services will be interesting, of course.

Akzente: After your IPO in 2017, you expanded your portfolio through strategic acquisitions. Will you continue to make acquisitions? After all, you want to significantly increase sales in the next few years ...

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The group’s flagship with sales of more than €500 million, DocMorris, expects the introduction of e-prescription to provide a decisive boost: logistics hub in Heerlen, Netherlands.

Hess: Through our various acquisitions, we have achieved and expanded market leadership and created the largest possible customer base ahead of the e-prescription launch. Now, our focus is more on consolidating brands and structures. In 2021, for example, we integrated the newly acquired brands Vitalsana and apo-rot into DocMorris. We are now expecting a boost from organic growth, fueled by the introduction of e-prescription. However, I would not rule out selected acquisitions where they help us accelerate the implementation of our strategy.

Akzente: In partnerships with the pharmaceutical companies Novo Nordisk and Roche, you have developed healthcare apps for people with obe­sity and diabetes. How are these collaborations working out?

Hess: Excellent—both partners are highly familiar with patients’ needs. We can offer real added value through our technology when patients use our apps, and we can help increase the effectiveness of treatments. Digital solutions can really make patients’ lives easier. The same applies to many other chronic diseases, including diabetes, heart disease, and migraines. We see a large playing field here.

Akzente: In Switzerland, you have a presence, with a shop-in-shop system at Migros, and in Germany you are also present with a private-label range at REWE’s brick-and-mortar stores. What’s the benefit of that?

Hess: First of all, by their nature, these business activities must be profitable. But they also bring visibility and brand awareness. And the shop-in-shop pharmacies in Switzerland allow us to offer an omnichannel service to our customers.

Akzente: DocMorris is the flagship of your group with around €510 million in sales in 2021. What are you doing to strengthen the brand against new competitors?

Hess: We invest a lot in brand awareness, which has reached 71 percent in Germany—making us by far the best-known pharmacy brand. And we invest in technology and platforms, always with the aim of generating added value for our customers. Again, we are pursuing the idea of creating an entire ecosystem—a digital health destination that will be offering much more than just an online pharmacy.

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The Zur Rose Group (photo: headquarters in Frauenfeld, Switzer­land) is Europe’s largest e-commerce pharmacy, with sales of around CHF 2 billion and approximately 12 million active customers. The group employs 2,400 people, 350 of whom work in software engineering and UX design. Its most important market is Germany, with the DocMorris pharmacy brand.

Akzente: You already have 12 million active customers. Do you think you exhausted your market potential?

Hess: On the contrary, we are gaining access to new target groups all the time. As a result of the COVID-19 pandemic, ffor example, older age groups have learned to use apps and QR codes. Both play a major role in e-prescriptions, so we now expect to be able to get this target group interested in our offers more easily.

Akzente: A relatively new area of business for you is platform as a service. What does that actually entail?

Hess: In this area, we act as a technology vendor—we offer solutions we developed for our own business to other companies. We leverage our healthcare expertise and translate it into technical solutions. We already have some experience in building healthcare platforms and have now further strengthened our position in this area: our CTO, Madhu Nutakki, comes from Silicon Valley, where he helped develop Kaiser Permanente’s platform, which is considered the global benchmark for integrated healthcare platforms.

Akzente: You have been very active on the investment side so far—where do you think the Zur Rose Group will be in five years’ time?

Hess: We are going to be the ones who best understand and meet customer needs. Based on this and helped by electronic prescription, we will have significantly expanded our leading market position among online healthcare providers in Germany. Our consistent customer focus and technological expertise will have allowed us to successfully enter more international markets.

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