James Dudley Management

James Dudley Management

Industry must Embrace Change in European Non-prescription and OTC Self-medication Markets – Results from a Major 18-country Study

Deregulation of distribution channels, continuing de-reimbursement on a large scale; abandonment of resale price maintenance; concentration of wholesaler networks; emergence of pan-European pharmacy chains and the rapid growth of ‘virtual’ chains and pharmacy symbol groups are among the factors driving change in Europe’s non-prescription medicine market.

Furthermore, A European Court ruling legitimizing Internet and mail order services for OTC pharmaceutical products has led to a rapid growth in the Internet pharmacy opportunity, especially in Germany. Standard retail pricing for self-medication brands is also under the pressure from private label products and undercutting by Internet pharmacies.

So says a major new 18-country study from one of Europe’s top self-medication marketing experts. James Dudley - ‘OTC Distribution in Europe – The 2005 edition – Embracing Change’.

Among some of the key issues identified in the Dudley report are: -

  • Radical reform of reimbursement for non-prescription and OTC medicines, pharmacy establishment and the abolition of retail price maintenance for OTC medicines, especially in Germany in 2004
  • The rapid growth of large ‘virtual’ pharmacy chains or pharmacy symbol groups especially in Germany, Switzerland and the Netherlands coupled with their moderate growth in the UK and their emergence in Italy and the Nordic and Baltic region
  • The implications of the concentration of pharmaceutical wholesaler’s buying power across European borders and vertical integration into retailing
  • A gradual deregulation of the supply chain especially pharmacy establishment and ownership rules in Europe
  • The growing significance of the Internet Pharmacy as an evolving distribution channel. The expansion of general sale lists (GSL) for OTC medicines and the attraction of self-medication to supermarket chains in Europe
  • Accession of Poland, Czech Republic, Slovakia, Hungary and the Baltic States into the European Union in 2004 introduces a 73 million population and a rapidly growing €1.2 billion OTC medicines and self-medication market to the European Union

Information for Editors

This is the fifth edition of a report that identifies and tracks emerging themes driving change and influencing the shape and structure of Europe’s non-prescription and OTC pharmaceutical products markets.

OTC Distribution in Europe – the 2005 Edition – Embracing Change
£1,495
For details contact James Dudley Management
information@james-dudley.co.uk
www.jamesdudley.info
++44 (0) 1562 747705

Topics Covered in the Dudley Report

Deregulation of Pharmacy Monopolies and Resale Prices

Reimbursement has been an issue since the mid-1990’s and this has been largely fuelled by governments’ perceptions of cost and best therapeutic value, particularly in regard to non-prescription medicines. Deregulation of distribution pharmacy channel monopolies for OTC self-medication and abolishing retail price maintenance on the other hand is about creating competition in hitherto restricted markets. While such measures will over time influence the structure of the supply chain in favour of retail chains and the mass-market, they present serious challenges to the manufacturing sector.

Pharmaceutical Wholesaler Concentration across Europe

Another on-going theme is the pressure for cost efficiencies, automation and competitive service levels in the European pharmaceutical wholesaling sector. These combined with gradually diminishing margins are among factors driving the consolidation of the European pharmaceutical wholesaler industry.

“The combined European market share of the leading pharmaceutical companies Celesio, Phoenix and Alliance UniChem has increased from two thirds of the wholesale pharmaceutical market in 2002 to almost three-quarters in 2004 as a result of mergers, acquisitions and strategic alliances. Such a share gives these players awesome buying power”, says James Dudley author of the report.

Growth in Pharmacy Chains across Europe

The development of pharmacy groupings throughout the region by the major European pharmaceutical wholesalers, Celesio, Alliance UniChem and Phoenix, is fuelled by their intentions to move up the supply chain through direct pharmacy ownership and to secure their independent retailer franchises through associated ‘virtual’ chains and pharmacy symbol groups.

  • The growth of retail pharmacy chains is the result of the major wholesalers responding to the gradual deregulation of the pharmacy establishment particularly in Northern Europe and the privatization of publicly owned wholesaler and pharmacy chains in Poland and to a lesser extent in Italy
  • The development of associated ‘virtual’ pharmacy chains of independent retailers based around key wholesalers is a rapidly evolving trend as retailers perceive their need to band into effective buying and marketing groups in an ever increasingly competitive and cost driven sector
  • The major wholesalers all enjoy pan-European networks serving around 40,000 pharmacies each including their own managed pharmacy chains and associated ‘virtual’ groupings and could be capable of integrating regional pharmacy chains of between 8,000 and 10,000 pharmacies given further deregulation.

The table below shows the major European wholesalers, their turnover in 2003, their own chains and their involvement in their associated pharmacy voluntary groupings.

Table 1
Leading Pharmaceutical Wholesaler Retail Interests in Europe

Company

Group Turnovers 2003(euros bn)

Owned Retail Outlets

Associated ‘Virtual’ Pharmacy Chains

Celesio

18.5

1,882

UK, Netherlands,

Norway, Belgium, Ireland, Italy, Czech Republic

Vantage - UK

Commitment - Germany

Phoenix

16.2

+560

Norway, Baltic States, Italy, UK

MVDA/Linda & Midas - Germany

SPEM -- Italy

Apteek - Estonia

Selmos Valstine - Norway

Numark - UK

Alliance UniChem

12.7

1,130

UK, Netherlands,

Norway, Italy

Alphega - France & Italy

Community Pharmacy Initiative (CPI), and Pharmacy Alliance - UK

Kring - Netherlands

Sanacorp

2.4

none

Meine Apotheke - Germany

Anzag*

3.2

none

Vivesco - Germany

OPG

2.1

376

Netherlands, Poland

Extra Apotheek - Nethetlands

Galenica**

1.8

+100

Switzerland

Winconcept Switzerland


*Largest shareholder is Alliance UniChem ** In partnership with Alliance UniChem
Source: OTC Distribution in Europe the 2005 edition Embracing Change
© James Dudley Management 2005

Rapid development of ‘Virtual Pharmacy Chains in Europe

The growth ‘virtual’ pharmacy chains is one of the most significant developments in European pharmacy retailing particularly in Germany where the number of pharmacies involved with major ‘virtual’ chains has tripled to almost 40% of German pharmacies since 2002.

While voluntary pharmacy groupings are not new in Germany the development of symbol group branding is. MVDA with some 2,800 members, of which Phoenix is the logistics partner, is the oldest grouping of independent pharmacies with a history stretching back some thirteen years. Around 1,000 members of this group have banded together under the name Linda.

Germany becoming the largest Internet Pharmacy Opportunity in Europe

Internet pharmacies, particularly in Germany, Switzerland, the Netherlands and the UK have to be recognized as a retail channel of growing significance.

There are 102 million active Internet users in Europe and an Internet universe of over 150 million people in Europe according to Nielson //NetRatings in April 2004.

The Internet is growing in significance in the distribution of OTC and prescription only medicines in Germany with over 800 online pharmacies emerging during 2004. Despite the fact that German Pharmacists Association, the Apothekerverband, had tried to stop Internet pharmacies with an action against the Dutch trader, DocMorris. This was upheld in November 2000 when a court in Frankfurt, the Landgericht, ordered DocMorris to stop its deals with German customers because trading drugs by post was not allowed in Germany. The case was referred to the European Court who ruled in Favour of DocMorris. This ruling has effectively legitimized the Internet as a pharmacy channel for OTC medicines and has had a profound change in governments’ attitudes towards distance selling of OTC pharmaceuticals across the European region.

Since the beginning of 2004, the statutory health insurers in Germany have set up contracts with Internet pharmacies to dispense prescription medicines and actively promote the concept among their 30 million members.

As at September 2004 there were approximately 800 Internet pharmacies in Germany, of which a handful could be described as big players selling around 1,000 packages a day.

The Internet pharmacy concept has also attracted major players from outside pharmacy retailing including KarstadtQuelle, one of the largest German mail order companies. These companies have got around the qualifying restrictions for an online pharmacy license by setting up collaborative deals with pharmacy co-operatives.

Furthermore, the number of foreign companies operating online and mail order in Germany has also increased since the DocMorris ruling. The principal foreign regional Internet operators are Dutch or Swiss companies and Germany is their primary target market.

While the Internet market is still in its infancy and will take time to impact on community pharmacies’ volume sales, online pharmacies are undermining pricing stability in Germany by offering price discounts of between 10% and 40% on major OTC brands.

According to leading Dutch Internet pharmacies, DocMorris and Sanicare, OTC medicine sales account between 25% and 30% of Internet pharmacy turnover in Germany.

Expansion of OTC Medicine Sales through Supermarkets in Europe

Expansion of the self-medication market through supermarket and convenience stores in Northern Europe will follow a trend towards deregulating selective OTC medicines from pharmacy only channels through the introduction of free sale and general sale lists (GSL).

Licensed drugstores have long played a role in OTC distribution in Germany, Netherlands, and Switzerland and there is a tradition for grocery outlets to sell OTC products in the UK. Norway, Czech Republic, Denmark and Poland are more recent markets to have introduced GSL categories to OTC medicines in Europe. Even so, the introduction of GSL in the Netherlands is expected soon and the development of the UK GSL medicines market is expanding on the back of the deregulation of more categories including nicotine replacement and anti-fungal products. The development of non-pharmacy distribution for OTC medicines brings with it key issues for manufacturers: -

  • In some markets pharmacies will refuse to stock OTC medicines available in the mass market although this attitude was quickly attacked by government action in Norway.
  • The mass-market is largely ruled by chains many of whom aggressively promote on price and compete with their own private label brands
  • Assortment selection is based on market share and turnover rates. This has a rationalizing effect on brands with low market shares or slow turnover rates

Table 3
% Sales through Non- Pharmacy Outlets

Country

% Sales through Non Pharmacy Channels

Denmark*

11.0

Germany

11.7

Netherlands*

84.1

Norway**

10.0

Poland

+10.0

Switzerland***

19.2

UK

32.0


* Licensed outlets
**First year sales estimate
***Excludes dispensing doctors
Source: OTC Distribution in Europe the 2005 edition – Embracing Change © James Dudley Management Winter 2004

Future Opportunities and Challenges for Manufacturers in Europe’s Non-prescription, OTC Medicines and Self-medication Markets

“It is clear that over time manufacturers will need to create opportunities by understanding the purchasing criteria of regionally organized channel managers in terms of competing for retail shelf-space and negotiating competitive terms. Key account and category management skills exist in retail chain dominated markets such as the UK and the Netherlands yet for the majority outside these markets a strategy shift will probably be necessary.

There is a need for companies to explore their strengths and skills to develop marketing strategies for their brands and implement key processes that will enable them to grow in a consumer driven market in which potentially powerful retailing groups compete. Buying organizations, whose priorities are to generate consumer footfall through chain branding, format, space efficiencies, promotions and cost-effective logistics to grow and thrive, are becoming a major force in the European self-medication market”, says author of OTC Distribution in Europe, James Dudley.

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