The Future for Pharmacy Exploring Strategies for Competitive Success By James W. Dudley 2015 www.james-dudley.co.uk
Agenda The European Pharmacy Market The Changing Business Environment for European Pharmacy Channels Changing Demographics and Pharmacy Shopper Expectations Mass Market Chains new Stakeholders in Consumer Healthcare Challenges of Mail Order and Internet Pharmacies in Europe Major Pharmaceutical Distributors Driving Change in Europe Emergence of Global Players in Pharmacy retail and wholesaler Channels Summary Conclusions - European Pharmacy Channels - Change Drivers Affecting Competitive Success James Dudley International Ltd 2015 2
This presentation is based on 2 Major European Consumer Healthcare Market Reports from James Dudley Management James Dudley International Ltd 2014
OTC Distribution in Europe 2014 edition A Study of Consumer Healthcare Channels in 22 European Countries 671million inhabitants 224,000 pharmacies 247 billion Retail Pharmacy Market 4
Agenda The European Pharmacy Market The Changing Business Environment for European Pharmacy Channels Changing Demographics and Pharmacy Shopper Expectations Mass Market Chains new Stakeholders in Consumer Healthcare Challenges of Mail Order and Internet Pharmacies in Europe Major Pharmaceutical Distributors Driving Change in Europe Emergence of Global Players in Pharmacy retail and wholesaler Channels Summary Conclusions - European Pharmacy Channels - Change Drivers Affecting Competitive Success James Dudley International Ltd 2015 5
European Retail Pharmacy Market (22 Market Study) + 250 billion European retail pharmacy market Average pharmacy turnover in Europe is 1.158 million p.a. Nearly 70% of pharmacy turnover is price regulated i.e. reimbursed pharmacy, fees and services rce: James Dudley - OTC Distribution in Europe 2014 edition European retail pharmacy is made up of relatively small turnover enterprises each highly dependent on price regulated business Source: James Dudley - OTC Distribution in Europe 2014 edition
Agenda The European Pharmacy Market The Changing Business Environment for European Pharmacy Channels Changing Demographics and Pharmacy Shopper Expectations Mass Market Chains new Stakeholders in Consumer Healthcare Challenges of Mail Order and Internet Pharmacies in Europe Major Pharmaceutical Distributors Driving Change in Europe Emergence of Global Players in Pharmacy retail and wholesaler Channels Summary Conclusions - European Pharmacy Channels - Change Drivers Affecting Competitive Success James Dudley International Ltd 2015 7
The Changing Business Environment for European Pharmacy Channels DEMOGRAPHIC Ageing populations which are increasingly healthier, wealthier, better educated with access to information technology and social media connectivity SCIENTIFIC & TECHNOLOGY Game changing medical advances which improve patient outcomes and expand healthcare choices but adding to costs as well as requiring Investment in technology to meet increasing service demands DOWNWARD PRESSURES ON PRICES AND FEES IN A DEFLATIONARY ENVIRONMENT GLOBALIZATION OF CHANNEL INVESTMENT, PROCUREMENT AND COMMODITISATION OF GENERICS Overall deflationary factors subduing prices combined with payer cost management and procurement strategies, service contracts and technology & information flows - lower earnings for more work from pharmacies Corporate geographic expansion, global/regional brands and M&A strategies to achieve scale economies and management synergies resulting in competitive global supply & procurement networks and international financial flows CONSUMER APPETITE FOR MULTI-CHANNEL RETAIL ACCESS AND DEMANDS FOR HEALTH RELATED FRONT END MERCHANDISE Competitive advantage through multi-channel applications, e-commerce digital applications and end to end customer shopping experience Latent demand for health related front end merchandise e.g. skincare and cosmeti PURE PLAY INTERNET PHARMACY & MASS MARKET Pure play Internet pharmacies taking share of homecare, self-care and COMPETITION 8 front-end 19 March pharmacy 2015 categories. Mass market retailers' ambitions to capture a share of the pharmacy market through products licensed for sale in non-pharmacy outlets and the acquisition of pharmacy licenses
Agenda The European Pharmacy Market The Changing Business Environment for European Pharmacy Channels Changing Demographics and Pharmacy Shopper Expectations Mass Market Chains new Stakeholders in Consumer Healthcare Challenges of Mail Order and Internet Pharmacies in Europe Major Pharmaceutical Distributors Driving Change in Europe Emergence of Global Players in Pharmacy retail and wholesaler Channels Summary Conclusions - European Pharmacy Channels - Change Drivers Affecting Competitive Success James Dudley International Ltd 2015 9
Changing Demographics and Pharmacy Shopper Expectations Changing demographics - retiring baby boomers - surge in older, richer and healthier over 65 s Emergence of want it now shopper expectations Rapid growth in tech savvy multi-channel pharmacy shoppers (with femail bias) buying front end products and motivated by discounts and convenience Massive uptake of social media and smart phone apps James Dudley International Ltd 2015
Aging European Population The number of people aged 65 years and older living in the leading European States now exceeds the younger generation aged 18 years and below There are more people older than 65 years in Europe than children Source: Based on OECD 18.4% of the population in leading European States is 65 years and above Over 5% of the population is 80 years and above Ageing populations which are increasingly healthier, wealthier, better educated with access to information technology and social media connectivity Source: Based on OECD
Agenda The European Pharmacy Market The Changing Business Environment for European Pharmacy Channels Changing Demographics and Pharmacy Shopper Expectations Mass Market Chains new Stakeholders in Consumer Healthcare Challenges of Mail Order and Internet Pharmacies in Europe Major Pharmaceutical Distributors Driving Change in Europe Emergence of Global Players in Pharmacy retail and wholesaler Channels Summary Conclusions - European Pharmacy Channels - Change Drivers Affecting Competitive Success James Dudley International Ltd 2015 12
Mass Market Chains new Stakeholders in Consumer Healthcare Mass market operators taking share of non-prescription market in the United Kingdom, Switzerland and Sweden as well as the Central and Eastern European States All major supermarket chains in the United Kingdom operate pharmacy chains Tesco, Sainsbury, Morrison, Asda Wal-Mart and Waitrose Galenica has opened 44 pharmacies in a joint venture with the Coop under the name Coop Vitality in Switzerland In Sweden Oriola-KD formed a partnership with KF (Kooperativa Förbundet) for a pharmacy chain Kronans Droghandel The supermarket chain ICA has opened up shop-in-shop pharmacies under the banner ICA Cura. The company has also bought Apotek Hjärtat, Sweden s largest private pharmacy Jeronimo Martins (JM), a Portuguese retailer, is developing a pharmacy chain in its Biedronka discount chain, the largest in Poland with more than 800 outlets ww.james-dudley.co.uk Dudley International Ltd 2015 Coop Italia, Auchan, Leclerc and Carrefour have set up pharmacist managed pharmacy corners in their hyper-markets in Italy
Deregulation of Consumer Healthcare - General Sale List (GSL Non-prescription Medicines) in Europe Deregulation of distribution of nonprescription medicines has had a major impact on self-medication in the United Kingdom, Denmark, Norway and Sweden Traditionally Druggist chains have been the main channel for nonprescription medicines in the Netherlands - although supermarket share is increasing James Dudley - OTC Distribution in Europe - 2014 edition. James Dudley International Ltd 2015
Mass Market Chains Collaboration with Pure play Internet Pharmacies to Provide Healthcare Solutions in Germany and Austria German and Austrian mass market chains taking a pharmacy position in partnership with major mail order and Internet pharmacy operators Source: Mail Order and Internet Pharmacy in Europe - the 2015 edition
Agenda The European Pharmacy Market The Changing Business Environment for European Pharmacy Channels Changing Demographics and Pharmacy Shopper Expectations Mass Market Chains new Stakeholders in Consumer Healthcare Challenges of Mail Order and Internet Pharmacies in Europe Major Pharmaceutical Distributors Driving Change in Europe Emergence of Global Players in Pharmacy retail and wholesaler Channels Summary Conclusions - European Pharmacy Channels - Change Drivers Affecting Competitive Success James Dudley International Ltd 2015 16
Challenges of Mail Order and Internet Pharmacies in Europe From Mail Order and Internet Pharmacy - the 2015 edition Entering the Digital Battleground Covering 482 million Internet users in 17 European Countries with online pharmacy development +7,000 authorised pharmacy e-commerce websites. Majority are operating as small scale independent pharmacy based Internet businesses Clusters of large cross border pure play mail order pharmacies serving Germany and Austria James Dudley International Ltd 2015 Significant number e-commerce pharmacy sites integrated into the multi-channel digital strategies of leading retail pharmacy chains
Regulatory Status of Mail Order and Internet Pharmacies in Europe Distance marketing pharmacies are permitted to offer nonprescription medicines in all EU member States, Norway and to a limited extent in Switzerland Distance selling of prescription medicines is permitted in Denmark, Germany, Netherlands, Norway, Sweden and the United Kingdom and under restricted conditions in Finland and Switzerland James Dudley International Ltd 2015 Thus Digital pharmacies can be either Full pharmacy (including prescription business) or limited Para-pharmacies with non-prescription self-care depending on national regulations Source: Mail Order and Internet Pharmacy in Europe - the 2015 edition
w.james-dudley.co.uk Multi-channel Pharmacy - a Competitive Response to Pure-play Mail Order and Internet Entrants in Europe Four broad clusters Full pharmacy pure-play clusters Full pharmacy multi-channel clusters Para-pharmacy pure-play clusters Para-pharmacy multi-channel clusters Influence of national regulation determines scope of offer i.e. permitting prescription only medicines or not Source: Mail Order and Internet Pharmacy in Europe - the 2015 edition Competition tends to be Pure Play Internet driven mail order in the absence of competition from retail pharmacy chains (e.g. Germany) Multi-channel response by pharmacy chains and groups to Pure play Internet competition Where retail chains or pharmacy groups dominate they develop multi-channel i.e. bricks and mortar and online options to compete with pure play competitors
Pure Play Mail Order and Internet Pharmacies in Europe More than 7,000 authorised online Pharmacies in Europe Majority are micro businesses run by independent pharmacies The largest pure-play online pharmacies operate in the German/Austrian Cluster e.g.zur Rose/DocMorris, EAV/Shop-apotheke Source: Mail Order and Internet Pharmacy in Europe the 2015 edition James Dudley International Ltd 2015 Zur Rose a Swiss pharmaceutical distributor owns DocMorris brand in Germany and Austria and Zur Rose brand in Switzerland, Germany and Austria making the company the largest pure play pharmacy operator in Europe The majority of Europe s pure play Internet pharmacies have a turnover of less than 100 million Pure play pharmacies in the United Kingdom have relatively low turnovers compared to online business of the major pharmacy chains e.g. Boots, Superdrug and Lloyds
Importance of Germany - Growth of Internet and Mail order Pharmacy Germany is the largest pure play Internet pharmacy market in Europe 1.41 billion Growth in the absence of wholly owned pharmacy chains Shake out and consolidation of the pure play sector i.e. Zur Rose acquisition of DocMorris (Germany, Switzerland, Netherlands & Austria) urce: Mail Order and Internet Pharmacy in Europe - the 2015 edition Three pure play operators (4 brands) take 63% share of the mail order and Internet pharmacy market in Germany Importance of alignments with Druggist chains in Germany and Austria e.g. DM and Rewe In Germany Pureplay and Bricks and mortar pharmacies are seen as separate and competing channels James Dudley International Ltd 2015
Linking mail order Internet technology with traditional bricks and mortar pharmacies into a multi-channel shopping experience New trends in the USA and progressive European States James Dudley International Ltd 2015 22
Pharmacy Shopper Appetite for Multi-Channel Retail Access in Europe Source: Semporah 2014 More than 33% of pharmacy users in Germany and 30% in the United Kingdom are multichannel shoppers. Order online pick up in store option is popular in Spain, United Kingdom and Nordic markets James Dudley International Ltd 2015
Pure-play Mail Order and Internet Pharmacies compared to Multi-channel Pharmacies in Europe Competition tends to be Pure Play Internet driven mail order in the absence of retail pharmacy chains (e.g. Germany) Where retail chains or pharmacy groups dominate they develop multi-channel i.e. bricks and mortar and online options as a strategic response to pure play competitors Pharmacy chains can compete with pure play Internet pharmacies on price and online convenience but can outclass digital rivals with personal service and delivery/collection options The slow down in development of pure play Internet pharmacies in USA, Australia and United Kingdom is due, at least in part, to the development of multi-channel strategies among major pharmacy and drugstore chains
Walgreens Boots Alliance Multi-channel Case Study Philosophy - Walgreens multi-channel shoppers are estimated to be three times more valuable than a single-channel shopper Walgreen s stated objective is to become the multi-channel retailer for consumer health and life needs in America. James Dudley International Ltd 2015 In order to capture the multi-channel 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-and-mortar locations with convenient, sophisticated online options. Walgreens has also developed mobile phone applications into another channel which allows customers to refill prescriptions, order photos, browse the weekly ads and other applications Acquisition of Drugstore.com and integration into the multi-channel offer Source: Mail Order and Internet Pharmacy in Europe - the 2015 edition
Boots Leading Pharmacy Chain in the UK - Multi-channel Strategy Source: Mail Order and Internet Pharmacy in Europe the 2015 edition Boots, Britain s number one pharmacy chain is the largest online pharmacy in the United Kingdom Internet pharmacy shoppers 4 times more likely to purchase online from Boots than pure play leader Chemistdirect 60% of Boots online business is order online pick up in store E Commerce - Channel Order online pickup in-store Online promotions E Pharmacy E Clinics Mobile apps In-store Channel Loyalty schemes and rewards On-shelf promotions In-store based clinics including smoking cessation, flu jabs etc Front end pharmacy development (cosmetics advisors) James Dudley International Ltd 2015
Agenda The European Pharmacy Market The Changing Business Environment for European Pharmacy Channels Changing Demographics and Pharmacy Shopper Expectations Mass Market Chains new Stakeholders in Consumer Healthcare Challenges of Mail Order and Internet Pharmacies in Europe Major Pharmaceutical Distributors Driving Change in Europe Emergence of Global Players in Pharmacy retail and wholesaler Channels Summary Conclusions - European Pharmacy Channels - Change Drivers Affecting Competitive Success James Dudley International Ltd 2015 27
Major Pharmaceutical Distributors Driving Change in Europe James Dudley - OTC Distribution in Europe - 2014 edition. A small number of distributors control well over half the intermediary pharmaceutical market in Europe These companies invest in retail pharmacy as wholly owned chains or as affiliated marketing groups (voluntary groups) Alliance Boots(Walgreens Boots Alliance), Celesio (McKesson) and Phoenix are driving the future of retail pharmacy in Europe 28 19 March 2015
Pharmacy membership of Groupings in Europe James Dudley OTC Distribution in Europe 2014 edition. 42%of Europe s Pharmacies are in groups wholly owned, state owned or voluntary affiliated groups of independents 4% are branches of independent pharmacies 54% are unaffiliated independents 29 19 March 2015
Number of Pharmacies in Wholly Owned Groups in Europe Main international distributors forming pharmacy chains in selected markets - Celesio, Alliance Boots, Phoenix, and Doz SA Limited sized wholly owned groups reducing economic inefficiencies - e.g. Germany Reductions in State owned pharmacies Italy, CEE and Sweden James Dudley OTC Distribution in Europe 2014 edition 24% of Pharmacies in Europe are owned by Retail Chains New entrants - Major International retail groups participating in the pharmacy sector Walgreens, McKesson, Leclerc, Carrefour, Auchan, Penta, Tesco, Sainsbury, Jeronimo Martins, Wal-Mart. A.S Watson etc. Restrictions on wholly owned groupings in Europe s largest markets: France, Italy, Germany and Spain
Pharmacies in Voluntary Groupings (Virtual Chains) 63% of pharmacies in virtual chains are located in France and Germany where they do not have to compete with large wholly owned chains Largely driven by main international pharmacy distributors e.g.:- Celesio (McKesson), Phoenix, Walgreens Boots Alliance & Sanastera Local players include Doz S, Poland, Galenica Switzerland, Hungaropharma Hungary Strengths of a chain, benefits of independent management - Branding, buyer power and patient/consumer services Nearly a quarter of Europe s pharmacies in voluntary groupings Source: OTC Distribution in Europe - 2014 edition 31 19 March 2015
Types of Retail Pharmacy Voluntary Group in Europe Loose unbranded wholesaler group Tight branded wholesaler group Branded cooperative (independents) Unbranded buying group Group of independent pharmacies aligned to a wholesaler usually low cost membership, range of services members can choose from the main purpose is to promote loyalty to the sponsoring wholesaler Group of independent pharmacies aligned to a wholesaler members sign up to a brand concept and services and participate in promotions, advertising campaigns and share consumer loyalty programmes including store cards Group of independent pharmacies formed into a cooperative sharing a common brand, or speciality members buy shares in the cooperative, usually appoint a management team - participate in promotions, advertising campaigns and share services Group of independent pharmacies acting as a buying collective Franchise Concept Independent pharmacies invest in a retail brand umbrella whose marketing, procurement operations and formats are controlled by the brand owner Source: OTC Distribution in Europe - 2014 edition
Problems with Voluntary Pharmacy Chains There are few mechanisms to maintain the discipline of the chain The failure on the part of their managements to understand the importance of differentiating their retail offer, positioning and branding Wholesalers have concentrated on retaining pharmacy loyalty through the leadership of groups Members cherry pick intermediary offers rather than building a retail brand Lack of full hearted support for organized brand promotions by group members is frustrating for manufacturers and undermines the group s buying strength Consumers trust in retail brands reflect their experiences, expectations and quality and cost perceptions, so chains which fail to provide a consistent consumer offer undermine this trust...members are realising that as well as good buying, innovation such as loyalty cards, branding, formatting and promotions are important elements for competing in a competitive retail sector... James Dudley International Ltd 2015
Major Multi-country Retail Pharmacy Chains in Europe OTC Distribution in Europe 2014 edition Expanding the size and geography of retail pharmacy multiples through the creation of hybrid groupings made up of mixed estates of wholly owned, franchise concept chains and affiliated voluntary members 34 19 March 2015
New Model for Retail Pharmacy Groupings A Strategic Response to Global Challenges Mergers between large US pharmacy channel players and European majors offer global economies and procurement strengths endow such players with considerable competitive advantages that would force a structural response from the rest of the market New Europe-wide healthcare retailers strategies which combine wholly owned pharmacies, franchise concepts and cooperation partner independents into competitive retail pharmacy brands rather than retail estates are changing the landscape for marketing healthcare. Investment into end-to-end customer service models meeting the complex needs of patients and healthcare consumers in a rapidly developing digital age Development of front end and consumer healthcare business through in store branding, private label and multi-channel marketing James Dudley International Ltd 2014 35
New - European Multi-format Pharmacy Brands Multi Channel Technologies End to end logistics Economies of scale Vision Leadership Brand Big data Consumer focus Differentiation and positioning Omni-channel shopping experience Franchise Partners Core of Wholly owned Pharmacies Europe-wide format Co-operation Partners and Affiliated Independent Pharmacies Integration of partners into brand Training Motivation/loyalty Integrated Multi-channel Strategy across brand Modular in-plants Selective brand inputs Additional economies of scale Source: OTC Distribution in Europe - 2014 edition
Agenda The European Pharmacy Market The Changing Business Environment for European Pharmacy Channels Changing Demographics and Pharmacy Shopper Expectations Mass Market Chains new Stakeholders in Consumer Healthcare Challenges of Mail Order and Internet Pharmacies in Europe Major Pharmaceutical Distributors Driving Change in Europe Emergence of Global Players in Pharmacy retail and wholesaler Channels Summary Conclusions - European Pharmacy Channels - Change Drivers Affecting Competitive Success James Dudley International Ltd 2015 37
Walgreens Boots Alliance AmericansourceBergen Global Footprint 12,800 wholly owned stores in 11 countries 340 Distribution centres serving 180,000 customers in 19 countries + 9,000 affiliate partner pharmacies Aggregation of Purchasing Power Global pharmaceutical pipeline as a result of ABC tie up Buying leverage for generics lowest cost advantage Cross organizational and global buying power Leading Innovation in Pharmacy Retailing Leadership in multi-channel retailing in USA and UK Global synergies in customer loyalty programmes Development of front-end pharmacy and consumer healthcare value Walgreens Boots Alliance Estimated global sales 2014 - $115 billion Sales target 2016 - $130 billion
McKesson Corporation acquisition of Celesio Global Footprint +12,000 wholly owned and banner stores in 10 countries 120,000 customers in 20 countries Aggregation of Purchasing Power Global sourcing expertise and scale to create value in the pharmaceutical supply chain Buying leverage for generics Cross organizational and global buying power Leading Expertise in Pharmacy Distribution Leadership in managing affiliate partners (banner management) in North America and Europe Top wholesaler positions in USA and Europe (10 major markets) Top 3 drugstore positions in USA and Europe McKesson Estimated global sales 2014 $170 billion
Agenda The European Pharmacy Market The Changing Business Environment for European Pharmacy Channels Changing Demographics and Pharmacy Shopper Expectations Mass Market Chains new Stakeholders in Consumer Healthcare Challenges of Mail Order and Internet Pharmacies in Europe Major Pharmaceutical Distributors Driving Change in Europe Emergence of Global Players in Pharmacy retail and wholesaler Channels Summary Conclusions - European Pharmacy Channels - Change Drivers Affecting Competitive Success James Dudley International Ltd 2015 40
mary Conclusions - European Pharmacy Channels - Change Drivers Affecting Competiti Success Pharmacy Channels Globalization of Retail and Wholesaler channels Further consolidation of wholesale channels Retail consolidation into groupings Growing power over suppliers as buyers and distributors IT and Digital capabilities become core competitive advantages Multi-channel and Omni-channel shopping strategies Growing trend towards promoting profitable front end and OTC medicines Suppliers Diminishing power over channel buyers New channel focused trade marketing structures Movement to direct supply of in patent products and branded services Commoditization of generics, private label and concentrated buyer power of major groups forcing supplier consolidation Gloablization of consumer health brands by main players with consequent spin off of local and regional brands to niche players. Consumers Changing demographics - retiring baby boomers - surge in older, richer and healthier over 65 s Emergence of want it now shopper expectations Rapid growth in tech savvy multi-channel pharmacy shoppers (with femail bias) buying front end health related products and motivated by discounts and convenience Massive uptake of social media and smart phone apps New Entrants Non-pharmacy competition from mass market retailers in developing rival pharmacy chains and multi-channel alliances with online pharmacies Pure play mail order and Internet pharmacy GSL and Free Sale OTC Medicines in mass market, convenience and gas stations James Dudley International Ltd 2015 Politics/Regulation Re-regulation of pharmacy establishment and deregulation of non-prescription products Europe-wide Rx to OTC regulatory framework Recognition of Internet pharmacy and responsive regulation Downward pressures on price regulated services and pharmacy contracts (lower margins/higher costs) Technology Digitital revolution planning, logistics and marketing Rapid growth of Internet access among key consumer segments Adoption of digital applications as a competitive advantage Technololy to create a seamless shopping experience omni-channel
This presentation is based on 2 Major European Consumer Healthcare Market Reports from James Dudley Management James Dudley International Ltd 2014 4
Retail pharmacies and their suppliers will need to find new strategies for competitive success in a healthcare supply chain increasingly driven by the needs of empowered consumers and impacted on by the challenges of new global players with aggregated buying power, multi-channel retail strategies and spreading multi-format European retail pharmacy brands James Dudley author of OTC Distribution in Europe and Mail Order and Internet Pharmacy