Bestway aims high in the UK pharmacy market
The new owner of the UK’s third largest pharmacy chain has plans to expand the business in the coming years.
Source: Bestway Group
Nearly 70 years after it was established in 1945, the UK’s 771-strong Co-operative pharmacy group announced it had a new owner, the Bestway Group, a family-owned business known for food retailing and wholesaling with no experience in the pharmacy sector.
The £620m deal, announced on 18 July 2014, is the largest in the sector since 2012 when Walgreens, the biggest pharmacy chain in the United States, acquired a 45% stake in European health and beauty retailer and wholesaler Alliance Boots, which has more than 2,300 Boots pharmacies in the UK.
Once the deal is finalised, Bestway will own the third largest pharmacy group in the UK after Boots and Lloydspharmacy, which has 1,600 pharmacies. How will this inexperienced player perform in the pharmacy market? And, crucially, will it change the Co-operative model?
A spokesperson for Bestway says it will not be “disrupting or changing” the way the business operates but it is keen to grow the business.
“It is a well-run business with a fantastic management team whom we fully support,” the spokesperson says. “We will certainly be looking to expand the network of pharmacies.”
The company has experience with general sale list medicines. It sells 160 over-the-counter (OTC) medicine lines, including paracetamol, which are sold to retailers from its cash and carry sites, although they are not manufactured in house. It says that it is not buying the Co-operative’s OTC lines, which include 40 own-brand medicinal products, including paracetamol, aspirin and cough mixtures.
Bestway says it was attracted to the healthcare sector because of its potential for consolidation and growth. “With population size increasing and people living longer, demographic trends are encouraging for the sector as well. So there is no doubt that there are opportunities within healthcare,” the spokesperson says.
For the 1,000 pharmacists working at the Co-operative pharmacies, no redundancies are planned. Bestway has confirmed the company will run as a standalone business and will continue to be run from Manchester by its existing management team.
Bestway can use the Co-operative name for up to a year from when the deal completes in October 2014. During the coming months, the company will be working closely with the management team to develop and roll out a new brand.
The new owner stresses that it will be backing the “very experienced and knowledgeable existing management team to continue to run and grow the business, looking to support them in any way we can, which will minimise risks”.
A fragmented marketplace
Bestway, which has the second largest wholesale business in the UK, is entering a fragmented marketplace. Out of the 14,361 pharmacies in England, Wales and Scotland on the General Pharmaceutical Council’s books, 4,201 independent owners (defined as owning up to five pharmacies) have 5,590 pharmacies, while 174 multiple owners (owning six or more pharmacies) have 8,771 pharmacies. Four food retailers currently in the marketplace – Tesco, Sainsbury’s, Asda and WM Morrison – have more than 880 UK pharmacies between them.
There is every indication that Bestway can make a success of its newly-acquired pharmacy business. The Co-operative’s pharmacy arm was doing relatively well in what is considered a tough market with pressures from government drives to make NHS efficiency savings. The Co-operative Group did not sell the business because it was performing poorly but in order to relieve its £1.4bn debt.
The Co-operative pharmacy group’s sales for 2013 were down by 0.5% (or £4m) to £760m compared with 2012, but underlying profit saw a 17.9% jump (+£5m) to £33m because of strong cost control and distribution efficiencies.
The number of Co-operative pharmacies has more than doubled since 2004, rising from 352 outlets to 771 in 2013. In a 2013 customer satisfaction survey involving 1,952 pharmacy customers, 93.4% said they were satisfied with the services they received at Co-operative pharmacies.
The pharmacy sector is still waiting to see how Bestway does things, but some are optimistic about the entry of a new player.
“Everyone should be quite pleased that it hasn’t gone to the big players in pharmacy,” says John Murphy, the general secretary of The PDA Union, a union for pharmacists. “We could have had too much power in one pair of hands.”
Noting that more than 64% of pharmacies are owned by multiples, Murphy believes that increasing the size of these chains would increase the “corporatisation” of pharmacy.
Ian Strachan, the chairman of the board of the National Pharmacy Association (NPA), which represents independent pharmacies, suggests that a new owner with no experience in the pharmacy market will be able to cherry pick best practice.
“If they go about it in the right way — keeping up with the best schemes of innovation, pursuing the best practice and professionalism — they won’t make the mistakes that we may have been making. I see this as an opportunity and I am optimistic about this,” he says.
“Pharmacy is an attractive market for anybody, as seen with the supermarkets, and Bestway are able to extend family value services. Pharmacy is core to people’s lives, it forms part of the fabric of people’s lives. So if Bestway can be involved in that, it can increase their profile.”
Strachan’s advice to Bestway is to make use of the expertise they have in house and to avoid the “numbers game”.
“I hope they pursue stability. I would not like to see them acquire more, but build on what they have got,” he adds.
What wholesaler model will Bestway use for pharmaceuticals?
Co-operative pharmacies rely on a “self-distributor” model, where wholesalers deliver medicines to a central hub and these are then distributed to individual outlets. It works with Alliance Healthcare and AAH Pharmaceuticals. The Co-operative’s hub — known as the National Distribution Centre — is 200,000 sq ft and is based in Stroke-on-Trent. It distributes generic medicines and a selection of branded medicines, including dispensary and OTC lines to the Co-operative pharmacies.
Will Bestway change the model by setting up its own pharmaceutical wholesaler or embed medicines distribution into its 64 depots? “There are no plans to do either,” it says.
Sawer says that given that other major retail groups use pharmaceutical wholesalers for distribution, “one might suppose that Bestway will follow that model as well because it ensures frequent delivery and there is an inbuilt resilience ensuring medicines get to patients”.
Steve Allan, a director of Cox & Robinson, which has 12 pharmacies in the Milton Keynes area, questions whether Bestway will keep the Co-operative sites as pharmacies or whether the sites could add value to another part of the Bestway brand.
“No one knows their philosophy on pharmacy as yet,” he says. “Will their model be a hybrid model made of pharmacy and groceries or will they diversify? Are they hoping to bring innovative management into the equation?”
The organisation that represents full-line pharmaceutical wholesalers is also positive about the entry of a new player. Martin Sawer, executive director of the British Association of Pharmaceutical Wholesalers (BAPW), says the deal demonstrates the “vibrancy” of the pharmacy sector.
“The deal is good for competition in the marketplace, for the benefit of patients getting their medicines and for having a choice of different pharmacy offerings,” he says.
One thing is clear. After the sale goes through in October, all eyes will be on how the new player in pharmacy does things. Richard Perks, director of retail research at analyst Mintel, sums it up: “If they have any sense they will learn the business.”
Co-operative pharmacy growth between 2004 and 2013
Source: Co-operative group
Citation: The Pharmaceutical Journal DOI: 10.1211/PJ.2014.20066074
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