James Dudley Management

James Dudley Management

OTC Consumer Healthcare Companies will need to Prepare for Significant Changes to Retail Channel Management in Europe – New findings of Major 18 Country Study

In 2007 European consumers are expected to purchase nearly $40 billion worth of non-prescription OTC medicines for self-medication representing around 36% of world demand.

Yet, unfolding regulatory issues combined with intensifying competitor activities among major pharmaceutical distributors as well as the ambitions of international supermarket and health and beauty discounters to get a share of this high margin sector are heralding large structural changes along the supply chain - responses to which will need to rise up the strategic agenda .

These are among a number of far reaching conclusions taken from the results of the 6th edition of an 18 country study into factors driving change across the non-prescription and OTC self-medication industry in Europe – OTC Distribution in Europe the 2007 edition published this month by James Dudley Management.

“Growing concentrations of Europe-wide retail groupings and the emergence of new aggressive channels are among the key factors gradually shifting the balance of power of influence over consumers’ choice, access and demand for self-care away from brand owners to organized distribution channels. Yet, this change in the balance of influence over consumer behavior has to be seen in the context of slowing demand and maturing markets. This is important for manufacturers and other suppliers in terms of finding a strategic focus to match medium term opportunities and challenges unfolding within the distribution channel system”, says James Dudley author of OTC Distribution in Europe the 2007 edition.

OTC self-medication sales account for roughly 16% of all European retail pharmaceutical business.

In most European States non-prescription medicines have been almost exclusively available through mostly independently owned pharmacies. With most European States chiseling away at pharmacy margins of social medicines in an attempt to cut healthcare costs, Europe’s 141,000 pharmacies like the extra profits that OTC medicines offer.

Unlike the situation in the USA, retail distribution of OTC medicines other than through pharmacies is highly restricted in most European States. A number of European States, including Austria, Belgium, France and Spain, have so far resisted licensing medicines which do not require a doctor’s prescription for sale in outlets other than pharmacies. Germany, Switzerland, the Netherlands and more recently Italy license non-pharmacy outlets to sell a limited range of OTC medicines under the supervision of a qualified druggist or in the case of Italy a pharmacist.

A so called general sale list (GSL) of medicines that can be freely sold in any outlet has long applied to Britain but in recent years has extended to Czech, Poland, Norway, Denmark, Portugal, Hungary and on July 1st 2007 to the Netherlands.

With the numbers of markets for medicines licensed for sale in non-pharmacy channels such as supermarkets and convenience outlets expanding as part a continent-wide process of deregulation more and more major chain retailers are being drawn into the OTC self-medication sector.

“Major international chains including Auchan, Leclerq, Carrefour, Tesco and Wal-Mart as well as druggist chains Schlecker, and A.S. Watson are among the international chain retailers aggressively looking for a share of the European pharmacy market – pharmacy acquisition and channel access to non-prescription OTC medicines appear to be high on the retail agenda along with dietary supplements, parapharmacy and medical devices”, says James Dudley author of the 2007 edition of OTC Distribution in Europe.

(see notes for editors 1)

Furthermore, Internet and mail order pharmacies are growing in Germany, Netherlands, Nordic markets, Switzerland and the UK. These, while only picking off relatively small segments of the market, are creating pricing turbulence in markets which have historically been fairly stable – especially Germany.

While 14% of Europe’s pharmacies are locked into retail chains, over a third of these are controlled by six international groups of which two – Alliance Boots and Celesio are emerging as the front runners.

Furthermore, the number of pharmacies being captured into virtual chains of voluntary groupings and franchise concepts is rapidly approaching 30% in Europe’s main markets with Europe’s second largest wholesaler Phoenix controlling the largest number.

The expansion of Europe-wide pharmacy chains has so far been limited by national laws limiting pharmacy ownership. Yet, these restrictions are currently being challenged by the European Commission or the European Court of Justice in 5 European States (Austria, France, Germany, Italy and Spain).

A major question is - will retail pharmacy chains appear in Germany, the prize market for retail pharmacy chains where under recent regulatory changes a single pharmacist is able to own up to 4 pharmacies? However, the German restriction that pharmacies can only be owned by a pharmacist is being referred to the European Court of Justice for a ruling under a case brought against the mail order company DocMorris by pharmacists in Germany. A ruling in favour of DocMorris could open the door to retail pharmacy chains in Germany according to Celesio. In May 2007 Celesio acquired DocMorris as a preemptive move.

“There are a lot of people taking bets on further liberalization of the German retail pharmacy sector according to many of the key players we interviewed for our study, OTC Distribution in Europe. The major channel managers, especially Celesiso, seem to be positioning themselves for what they perceive as a major retail opportunity. Conversely, some senior pharmacy industry managers and pharmacy trade association people we spoke to believe that it won’t happen soon. Even so some 20% of pharmacists are believed to be prepared to sell their businesses according to research. It’s probably down to the European Court now and whatever compromises the German Government wants to negotiate. I think the issue should remain on manufacturers’ strategy agenda and that companies should at least prepare for it”, Says James Dudley

(see notes for editors 2)

End

Notes for Editors – Plus Figures

1.   Growth of Mass Market Access to OTC medicines in Europe

Figure 1: % Share of the Non-prescription OTC Self-medication Market taken by Non-pharmacy Outlets in Europe’s Main Markets 2006

Source: © James Dudley Management 2007 – OTC Distribution in Europe the 2007 Edition – Exploring New Frontiers

2.         Europe-wide Pharmacy Chains - Capture of Retail Pharmacies into Wholly owned and Voluntary Groupings Controlled by Europe’s Leading Pharmaceutical Distributors

Figure 2: Estimated % Share of European Wholesale Pharmacy Market by Leading Distributors

Calculated as a share of wholesale sales excluding group retail business

Source: © James Dudley Management 2007 – OTC Distribution in Europe the 2007 Edition – Exploring New Frontiers

Figure 3: Estimated % Share of Number of European Pharmacies by Ownership Classification

Source: © James Dudley Management 2007 – OTC Distribution in Europe the 2007 Edition – Exploring New Frontiers

The number of pharmacies being captured into virtual chains of voluntary groupings and franchise concepts is rapidly approaching 30% in Europe’s main markets with Europe’s second largest wholesaler Phoenix controlling the largest number.

Figure 4: Emerging Virtual Pharmacy Groupings in Europe 2007

Country

Group

Sponsor/owner

Baltic States

Apteek

Phoenix

France

Pharmactive

Celesio/OCP

 

Alphega

Alliance Boots

Germany

Commitment /DocMorris*

Celesio

 

MVDA/Linda & Midas

Phoenix

 

Meine Apotheke

Sanacorp

 

Vivesco

Anzag

 

EMK

von der Linde

 

Parmapharm

Independent co-operative

Italy

Alphega

Alliance Boots

 

SPEM

Phoenix

Netherlands

Mediq

OPG

 

Kring

Alliance Boots

Norway

Selmos Valstine

Phoenix

Spain

Alphega

Alliance Boots

Switzerland

Winconcept/Amavita

Galenica

UK

Numark

Phoenix

 

Vantage

Celesio/AAH

 

Pharmacy Alliance

Alliance Boots/ Unichem

Source: © James Dudley Management 2007 – OTC Distribution in Europe the 2007 Edition – Exploring New Frontiers

3.         Details

Title: OTC Distribution in Europe – the 2007 Edition – Exploring New Frontiers
Published by James Dudley Management Summer 2007
For details call James Dudley Management telephone  +44 (0) 1562 747705

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