Can e-commerce in Healthcare Succeed? Developments in Mail Order and Internet Pharmacy in Europe

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1 Can e-commerce in Healthcare Succeed? Developments in Mail Order and in Europe By James W Dudley June 2012 Summary Mail order and pharmacies have been a success in the USA and take around a quarter of the non-institutional healthcare market. In Europe while e-commerce in healthcare has been around since 1998, its progress as a pharmacy channel has been slow and patchy across the region. But is this about to change? successfully appealed to the European Court of Justice. The ECJ ruling eliminated opposition by EU Member States to mail order and pharmacies at least for non-prescription medicines. A European Court ruling in late 2003 in favour of the Dutch pharmacy DocMorris that was fighting courts in Germany for the right to supply consumers with medicines by mail order opened the doors for e-commerce in medical supply across the European Union 1. While some States have embraced the new pharmacy channel, others have been reluctant to do so. Hence and mail order pharmacies in Europe have evolved into different forms in response to the different regulatory environments in each EU State. This article looks at the evolution of mail order and pharmacy in Europe, explores the way different models in e- commerce have emerged and compares these to developments in the USA. Can e-commerce in Healthcare Succeed? Developments in Mail Order and in Europe Mail Order and Pharmacies have grown out of the online extension of discount home shopping but increasingly American retailers are morphing the concept into a multichannel shopping experience that presents both threats and opportunities to healthcare suppliers. In Europe e-commerce in healthcare has been around since 1998, but only began to take off in a big way in This was for the large part due to a European Court ruling in late 2003 in favour of the Dutch pharmacy DocMorris. Having been banned by Landgericht Frankfurt am Main, a German Court, from shipping prescription and non-prescription medicines direct to patients in Germany the company 1 p03113en.htm While some States have embraced the new pharmacy channel, others have been reluctant to do so. Hence and mail order pharmacies in Europe have evolved into different forms in response to the different regulatory environments in each EU State. Thus, despite the relative success of and mail order as a retail pharmacy channel in the USA development in much of Europe has been dogged by regulatory conservatism. As a result progress has been very patchy across the Region. Resistance to and mail order expansion is based on the objections by key interest groups at the heart of which are the perceptions by pharmacists and manufacturers that it presents as a price cutting threat and by regulators as a channel presenting safety risks to patients. A 17 country online pharmacy study representing 67% of Europe s users published by James Dudley Management shows fourteen out of the seventeen countries in the study permit and mail order transactions for non-prescription medicines under domestic law. Only Denmark, Germany, the Netherlands, Norway, Sweden, Switzerland and the United Kingdom allow prescription only medicines to be dispensed by online pharmacies. Although Finland is expected to be included on the list in 2013 when e- prescribing is introduced. In three European States: Austria, France and Italy transactions are still technically illegal but are permitted under EU law for non-prescription medicines only. 1

2 Figure 1: Mail Order and Regulatory Status 17 Country Study 2012 % Users Europe Mail Order and OTC Medicines Mail Order and Prescription Only Country Austria 1.30% No No Yes Belgium 1.70% Yes No Czech Republic 1.40% Yes No Denmark 1.00% Yes Yes Mail Order and OTC under EU Law only Finland 0.90% Yes Expected 2013 France 9.50% No No Yes Germany 13.70% Yes Yes Hungary 1.30% Yes No Italy 6.30% No No Yes Netherlands 3.10% Yes Yes Norway 0.90% Yes Yes Poland 4.70% Yes No Slovakia 0.90% Yes No Spain 6.10% Yes No Sweden 1.80% Yes Yes Switzerland* 1.30% Yes Yes United Kingdom 10.80% Yes Yes Total 17 Countries under Study 66.7% *Restricted to companies providing medical supervision Austria is unique in that it permits mail order for nonprescription medicines from other EU States in compliance with EU regulations on a very restricted basis but not from domestic pharmacies. This has led to a situation where the Swiss company Zur Rose is the leading online consumer healthcare provider in Austria through its EU based subsidiary in the Czech Republic. Zur Rose also provides the druggist chain dm with a pharmacy pick-up service. Traditionally mail order and pharmacies were seen as being synonymous with so called pureplay mail order and online pharmacies. Pureplay retailers are basically standalone enabled mail order pharmacies that deliver directly to their customers by post or courier. Even so, companies have to conform to the legal requirements of their domestic governments by having a retail pharmacy as a home base. Pureplay retailers operate in much the same way as Amazon in structure and marketing. They are also heavily reliant on affiliate promotion i.e. banners on other web sites to generate traffic. However, pureplay retail enterprises now have to compete with retail chains which increasingly can provide shoppers with a multi-channel experience. While mail order pharmacies have shown considerable growth in terms of sales and market share in the USA this has largely been achieved through prescription delivery of relatively expensive medicines with attractive discounts to patients with chronic conditions. Convenience and confidentiality also play a part. This is especially the case with speciality pharmacies providing solutions to patients in long term care. The development of the prescription based model in the USA is in contrast to the European model which is still very much led by non-prescription demand. Figure 2: Retail Share of US Pharmaceutical Market by Channel 2011 Compared to the patchy impact in Europe nearly a quarter of retail pharmacy turnover is delivered by mail order and pharmacy. The growth of mail order in the USA has been largely driven by Benefits Manager (PBMs) networks. These organizations provide patient services for health insurance providers for which there is no equivalent in Europe. The largest PBMs either own or integrate selected mail order and pharmacies into their customer service networks. Multi-channel Shopping Experience However, pureplay retail enterprises now have to compete with retail pharmacy chains which can integrate online services into their traditional pharmacy offer to provide shoppers with a multi-channel experience. This according to the Dudley report is where the future lies and cites examples including innovative developments in Walgreen s and Sam s Cabin in the USA. According to Walgreens multi-channel shoppers are estimated to be three times more valuable than a single-channel shopper hence the drive to go after them. 2

3 Walgreens is the largest drugstore chain in the US and commands some 19% share of the retail pharmacy market and 20.1% of prescriptions in The retailer serves nearly 6 million customers a day and generated sales of $72 billion in 2011 through 7,818 drugstores in all 50 states, the District of Columbia and Puerto Rico. Prescription drugs make up 65% of net sales, while non-prescription drugs represent 10% of net sales. General merchandise makes up the balance. According to Walgreens multi-channel shoppers are estimated to be three times more valuable than a single-channel shopper. To capture this target audience Walgreens has developed and expanded a multi-channel strategy through heavy investment in e-commerce and mobile technology. The new model has enabled the company to leverage its brick-andmortar locations with convenient, sophisticated online options. Another aspect of adapting to new consumer trends is Walgreens response to consumer s ownership and use of mobile and smart phone technology. Eighty- two percent of American adults own a mobile phone and some 40% of smart phone and tablet users have downloaded a health-and-wellness application. According to a Consumer Health Information Corporation study, consumers want to use health apps to keep track of health information (48.5%), help manage diseases or drugs (58.4%), and to gain information (91%). Moreover, 20% of consumers would most prefer to receive a medication reminder via an app compared to existing communication methods. Mobile device users can also access Walgreens through the company s on-site pharmacies in hospitals, worksite clinics, call centres, and social media sites, such as Facebook and Twitter. Sams Club, Wal-Mart s member only warehouse chain, serves 47 million Americans from 611 locations. The chain recently introduced two critical dimensions to Sam's Club's health-andwellness platform. These are prevention and solutions. In support of these Sam's Club's has adopted a number of interesting uses of apps for mobiles and tablets into its health and wellness programme. All its house healthcare brands have QR codes 2 printed on the labels. Shoppers can scan these with their smart phones to pick up information on the product. According to Sam s Club, one in five shoppers who scan a product s QR code makes a purchase. Chains in Europe Slow to Follow chains in Europe have so far been slow to follow suit. For example the Dudley Mail Order and report says that all the pharmacy chains in Sweden claim that e- commerce has a role to play in modern pharmacy retailing according to Apotek Hjärtat. But, only one, Apoteket provides a substantial online service. Apoteket claimed double digit growth from its online offer last year. There are however exceptions. In the United Kingdom some of the largest pharmacy chains combine online and in-store promotions. Some go further and provide online doctor services. Boots the Chemists, Lloydspharmacy and the Cooperative for example employ doctor services for patients and provide prescriptions where necessary for emergency and oral contraception, erectile dysfunction, hair loss and cystitis among a variety of embarrassing patient needs. In Poland Pelion s Apteki dbam zdrowie (I care for my Health) chain integrates the online pharmacy Doz.pl. into its retail offer through over 2,000 pharmacies bearing its brand. Pureplay Pharmacies Germany is the leading market in Europe for pureplay mail order and pharmacies. This is probably an accident of history in that the market evolved from cross border distance marketing pioneered by the Dutch company DocMorris. Furthermore, unlike the United Kingdom the absence of wholly owned pharmacy chains in Germany has not provided the brand support for integrating online and traditional pharmacy. The success of pureplay retailers is privacy, convenience and above all discounting. Since 2004 mail order and pharmacies have been licensed to operate in Germany. The combined sales of some 25 pureplay mail order ventures represent some 3.5% of the total pharmacy sales and around12% of non-prescription healthcare business. 57% of mail order sales are achieved through the high discounts on non-prescription healthcare products. Top sellers include slimming aids, circulation products, tonics and topical pain relievers. While the statutory health insurers in Germany, the Krankenkassen, offer their members mail order for their prescriptions and homecare needs, only 27% of mail order and pharmacy turnover is for prescription only medicines. Based on the estimated sales of each company the top four mail order pharmacies in Germany these represent just under two thirds of the mail order market. 2 abbreviated from Quick Response Code 3

4 Among the top companies the overall leader is DocMorris (Celesio) with 20.2% of sales. Other leading businesses are Sanicare with 16.6%share and EuropaApotheek (Medco) with14.7%. Figure 3: Brand Owner % Share of the Market Mail Order - Germany Other major retail druggist chains in Germany with mail order and pharmacy partners are shown in the table below. Figure 4: Retail Chain Partnerships with Mail order and Partners Retail Chain Mail order and Partner dm Germany dm Austria Germany Schlecker Germany Rossmann Germany Europa Apotheek Zur Rose Vitalsana Deutsche Apotheke Müller Germany Drogeriemarkt Mycare Netto Germany Coop Plus Germany Volsversand (CZ) Zur Rose Despite the success of DocMorris in Germany its owner Celesio recently decided to sell off its mail order business. This raised the question of whether the pureplay model is sustainable. The company says it is. Celesio, one of Europe s leading pharmaceutical distributors, acquired DocMorris in May This led to considerable bad feeling among German pharmacists leading to a loss of market share for the wholesaler and was the reason given by Celesio for the disposal. A major development is the alignment of pureplay pharmacies to mass market retailers Austria and Germany. Druggist chains are not permitted to own pharmacies in Austria or Germany. Leading chains in Germany and one major chain in Austria have linked up to mail order and pharmacies to provide an ordering service by which consumers make an order online at home or at a booth instore for collection later. Online ordering for pick-up in non-pharmacy outlets is a model initially developed by the druggist chain dm in Germany in partnership with EuropaApotheek. dm has since set up a similar partnership in Austria with Zur Rose. The Future of Mail order and The future of mail order and pharmacy is likely to see the pureplay model gradually merging into the retail offer of pharmacy chains. This will occur more rapidly where wholly owned and franchise concept chains exist and this is simply because brand owners are in a position to exploit the advantages of creating a multi-channel shopping experience. In those markets where wholly owned chains do not exist there is the opportunity for virtual chains and voluntary groups to introduce online elements into their retail offerings. The example of the relatively benign online network involving all the voluntary groups in Denmark, Apoteket.dk, is a case in point. The Pureplay model will remain dominant in Germany. This said, the major players have aligned to the main druggist chains in Germany. Mail order and in Europe the 2012 edition New Emerging Multi-channel Structures is published by James Dudley Management in June 2012 details [email protected] web site 4

5 MAIL ORDER AND INTERNET PHARMACY IN EUROPE NEW EXPANDED 2012 EDITION SHARING THE MULTI-CHANNEL EXPERIENCE This is the second edition of the only strategic marketing report describing the emerging trends for mail order and pharmacies in Europe s main markets together with comparisons to developments in the USA. This is an important report that not only explores the development of an emerging channel it shows how the channel has evolved in a conservative regulatory environment. Mail order and in Europe describes how leading retailers are integrating online technologies using PCs, Tablets, Notebooks and Mobile Apps into the creation of a powerful multi-channel pharmacy experience. This expanded 2012 edition covers 17 Countries Austria, Belgium, Czech Republic, Finland, Denmark, France, Germany, Hungary, Italy, Netherlands, Norway, Poland, Slovak Republic, Spain, Sweden, Switzerland, the United Kingdom and draws comparisons and case studies from the USA. This essential 17 country study has identified new and important trends in a rapidly growing channel as well as many of the ethical and economic issues that pharmaceutical manufacturers and other healthcare suppliers need to address Download Executive Summary and Table of Contents Contact James Dudley Management [email protected] Telephone 44(0) Medotceurope.com James Dudley Management 5