James Dudley Management

James Dudley Management

New Market Report - OTC Distribution in Europe - Meeting the New Challenges in 2014

Taking 18 main markets from within the European Union plus Russia, Norway, Switzerland and Ukraine these together have a population of 671 million generating a market for non-prescription medicines worth around €36 billion at consumer prices. This represents about 40% of the global non-prescription medicines market.

Yet the European healthcare market is entering a period of major change as it recovers from the aftermath of an economic downturn. New strategies from pharmaceutical distributors and retail pharmacy multiples are changing structure of the supply chain through new forms of pharmacy groupings as well as the rise of multi-channel shopping. So says a major new 22 Country study of Europe’s consumer healthcare market ‘OTC Distribution in Europe - the 2014 edition – Meeting the New Challenges, covers 22 countries in Europe James Dudley which is due to be published February.

The Dudley report found 208,750 pharmacies in the 22 countries under study of which 77% are owner managed independent businesses. The independent pharmacy sector includes branch pharmacies of independents which account for 4% of pharmacies. 23% pharmacies in the 22 countries in the study are independents affiliated to virtual pharmacy chains i.e. voluntary chains which allow pharmacists to be a member of a group of pharmacies for procurement, marketing and services whilst remaining independent. The remainder are unaffiliated independents.

16% of pharmacies are in wholly owned chains and 4% are in State Owned chains. The latter excludes 11,000 municipal pharmacies attached to hospitals in Russia. (figure 1)

Figure 1: Pharmacies in 22 European Countries Split by Grouping Type 2013

Source: James Dudley Management OTC Distribution in Europe - the 2014 edition – Meeting the New Challenges

Retail Pharmacy Groupings in Europe

The Dudley study shows that there is a clear drift towards pharmacy groupings. While only 16% of pharmacies are owned by chains, the number would rise if all markets were free to permit such groupings. Wholly owned chains are permitted in 14 out of the 22 countries in the study.

The Netherlands, Norway and Ukraine have reregulated pharmacy ownership in the last few years. This has led to a growth wholly owned chains in these countries.

In 2009 Sweden diluted its State retail pharmacy monopoly by selling off 450 of its 960 Apoteket pharmacies and relaxing the law with regard to pharmacy ownership and the opening of new pharmacies. This has led to pharmacy chains taking over most of Sweden’s pharmacies.

Most recently the Slovakian Medicines Law was amended to permit companies to run pharmacies.

Along with these more recently deregulated territories retail pharmacy chains are permitted in Belgium, Bulgaria, Czech Republic, Ireland, Poland, Romania, Russia, Switzerland and the United Kingdom. (figure 2).

There are however, anomalies in Italy and Hungary.

  • Celesio, Alliance Healthcare and Phoenix own 212 retail pharmacies between them in Italy as a result of past deals with municipalities. As Italian law forbids public companies owning chains of pharmacies further expansion of chains by these three major distributors is no longer permitted.
  • Having reregulated pharmacy ownership in 2006, since the beginning of 2011 Hungary has re-imposed restrictions to prevent new chains being formed by third parties and to progressively restore pharmacists as the majority shareholders of their stores.

Figure 2: % of Pharmacies in Wholly Owned Retail Chains 22 European Country Pharmacy Study

Source: James Dudley Management OTC Distribution in Europe - the 2014 edition – Meeting the New Challenges

“There is a continuing trend towards pharmacy groupings and whether these are through wholly owned entities or affiliations of independent pharmacies their main purpose is to strengthen their competiveness in terms of procurement, pharmacy management efficiencies and marketing and this presents both opportunities and threats to suppliers”, says James Dudley author of OTC Distribution in Europe.”

Role of Major Channel Players in Pharmacy Groupings in Europe

The expansion of international wholly owned retail chains in Europe has been the lead taken by, Celesio, Alliance Boots and Phoenix which together own 44% of pharmacies in the large chains found in the Dudley report as well as capturing some 28% of all pharmacies affiliated to virtual pharmacy chains. (figure 3).

In Switzerland the principal pharmacy chain operator is Galenica, in which Alliance Boots has a minority holding. Phoenix also has small chain of around eighty stores under the Benu name.

Well over a quarter of pharmacies in Russia are owned by large national or multi-regional operators. The majority are local companies and among the leaders are Apteka 36,6, A5, Pharmakor, Implosia, Doctor Stoletov, Vita and Rigla. The ten leading chains represent 17% of retail pharmacies in Russia. However, Oriola KD, the Finnish distributor, is among the leading players through its ownership of Staryj Lekar.

Growth of Cooperation Pharmacy Groupings or Affiliated Chains in Europe

Over the last decade there has been a phenomenal growth in voluntary groupings or so called ‘virtual’ chains. While these have existed in France and the UK for many years, the pace of growth has been greater in Germany, the Netherlands, Poland and Switzerland. Virtual chains have formed to provide independent pharmacists with competitive levels of procurement, pharmacy management systems and marketing support to achieve a competitive edge and efficiency economies to compete as a chain, while remaining independent. In countries such as France and Germany this is the only legal form of pharmacy grouping permitted.

Again the main international wholesalers Alliance Boots, Celesio and Phoenix are the main drivers behind this form of retail grouping. It is fully expected that virtual chains will expand across the whole continent by the end of the decade. Already, in the twenty two countries under study there is an estimated membership of 49,000 participating pharmacies. This is equivalent to almost one in four pharmacies in the study. (figure 3).

Along with the major European-wide operators, local players such as Pharma Privat in Germany, Galenica in Switzerland, Hungaropharma in Hungary and Doz in Poland have built large affiliate memberships for their cooperation partner pharmacy chains in their domestic markets.

Figure 3: % of Pharmacies in Cooperation Pharmacy Groupings or Affiliated Chains in Europe

Source: James Dudley Management OTC Distribution in Europe - the 2014 edition – Meeting the New Challenges

The Dudley study reveals the evolution of a new form of pharmacy brand. This is made up of a mixed portfolio of wholly owned, affiliated independents and franchised concept stores which operate under a single trade name with a common facia and store formatting tailored to individual shopping locations. In some cases a multi-channel element is added through an Internet portal and e-commerce. Celesio, for example has made great play of in its development of a Europe-wide pharmacy network in recent investor presentations. Phoenix has also begun to unfold a similar strategy to develop its multi-country brand Benu which includes wholly owned pharmacies and offers different levels of affiliation to independents.

“This is an important and unfolding development in that it is about developing a brand rather than a pharmacy estate”, says James Dudley.”

Self-Medication in the Pharmacy Sales Mix in 22 European Countries

The Dudley report reveals that the average turnover of a pharmacy in Europe is €1.2 million. 69% of turnover on average is derived from prescription only medicines and other social health services. These are largely funded by statutory healthcare providers except in Ukraine and only partially Russia. As a consequence such products and services generally price regulated and subject to price and margin controls. (figure 5).

Pharmacies sell a wide range of non-medicinal lines other than prescription medicines, which include nutritional and baby products, health related and premium personal care items, cosmetics, nursing aids, hygiene products and medical devices. Together these represent 19% of turnover of an average pharmacy. However, as attractive as many of these lines can be in terms of prices and margins the pharmacy has no monopoly and is subject to mass market competition.

Yet when prescription business is excluded from non-prescription medicine turnover, consumer purchases of OTC self-medication represent only 12% of sales turnover of the average pharmacy in Europe. (Figure 4).

Figure 4: Average % Share of Pharmacy Turnover by Category in Europe

Source: James Dudley Management OTC Distribution in Europe - the 2014 edition – Meeting the New Challenges

While there is competition from non-pharmacy channels and the Internet in a number of markets, nearly 90% of the licensed consumer healthcare market in the 22 countries under study is delivered through pharmacies. Furthermore, there are categories of the non-prescription market which will remain in the pharmacy regardless of mass market competition.

“Clearly there is a continuing opportunity to further develop OTC self-medication in pharmacy in many European countries - especially those in Northern Europe, says James Dudley.”

In Ukraine and Russia OTC self-medication represents between a third and 40% of the turnover of the average pharmacy and in Poland it is 25%.

In nine countries OTC self-medication accounts for less than 10% of average pharmacy turnover. That said pharmacies in the Netherlands are not the main channel for OTC self-medication.

OTC self-medication represents 15% or more of turnover in Hungary, Norway, Slovak Republic, Bulgaria, Switzerland and Czech Republic. (figure 5).

Figure 5: Average % of Turnover taken by Consumer Purchases of OTC Self-medication per Pharmacy in Europe (excluding prescription business) 22 Country Study

Source: James Dudley Management OTC Distribution in Europe - the 2014 edition – Meeting the New Challenges

E-commerce and Multi-channel Pharmacy in Europe

OTC Distribution in Europe 2014 edition points out that E-commerce based mail order pharmacy is a reality despite its slow take up. It plays a significant role as a retail channel for pharmacy in Germany, the United Kingdom and to a lesser extent in Poland and the Nordic region.

German mail order pharmacies represent some 3.2% of the total pharmaceutical and healthcare market – equivalent to the sales value from about 680 pharmacies. The average share of the German non-prescription market taken by mail order and Internet pharmacies is 12% by value. In Germany e-commerce is largely based on ‘pureplay’ online pharmacies. That said there is a growing ‘order on line pick up in store’ business being developed by partnerships between the major druggist chains such as dm and online pharmacies such as DocMorris.

In the United Kingdom online transactions make up 3.7 per cent of health and beauty purchases. Estimates suggest that about 13% of British pharmacy shoppers do so online. Yet of these only an eighth use ‘pureplay’ pharmacies. Indeed of all pharmacy shoppers who bought online in the previous 12 months 37% claimed to have bought from Boots (Alliance Boots) 16% from Lloyds (Celesio).

Emergence of Global Pharmacy Channels in Europe

The intermediary sector has continued to consolidate around a few key players, and in particular Alliance Boots, Celesio and Phoenix which together represent 60% share of the intermediary market in the 22 countries in the Dudley study. At least one of these leaders or an associate is present in 20 out of the 22 countries under study with a top three position in 17.

Furthermore, these three companies own or have concept affiliation partnerships with almost 10% of all pharmacies covered in the study. They own 21% of all pharmacies in wholly owned chains (excluding State owned) and have affiliations with 27% of all pharmacies in virtual chains.

The strategic partnership of America’s largest pharmacy chain Walgreens with Alliance Boots and McKesson’s absorption of Celesio are analysed in the Dudley report which concludes these are game changing events which shift the two largest regional players into the global arena. The effects of which will send a wave of restructuring through pharmacy channels of distribution across Europe as company’s scale up to compete for procurement terms and efficiency economies.

The report, ‘OTC Distribution in Europe - the 2014 edition – Meeting the New Challenges, covers 22 countries in Europe: Austria, Belgium, Bulgaria, Czech Republic, Finland, Denmark, France, Germany, Hungary, Italy, Netherlands, Norway, Poland, Romania, Russia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Ukraine and the United Kingdom. For Further Information go to http://www.james-dudley.co.uk/

Return to Homepage

Return to Homepage