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Pharmacy will continue to face staff and inflation pressures in 2023, broker says

Community pharmacy will continue to face pressures from inflation, drug prices and staffing shortages across 2023, broker Christie & Co has predicted.

But pharmacy contractors are continuing to expand through “acquisition and the development of additional services” and activity in the market remains “positive”, a 2023 business outlook report published by the broker today (January 19) found.

Cost pressures in the sector that impacted operating margins led to a “more cautious” 0.7% growth in the price index in 2022 compared to the 4.3% seen in 2021, Christie & Co said.

It predicted that 2023 will see “reductions in profitability as staff shortages, energy, supply, and the cost of borrowing impact operators”.

 

Significant offloading of pharmacies

 

More recently, the “offloading” of “significant volumes of pharmacies” by “a number of corporate operators” implementing “disposal strategies” in some areas has led to an additional supply of businesses on the marketplace, the report said.

Read more: Lloydspharmacy to ‘withdraw’ pharmacy services from all Sainsbury’s branches

Boots UK is among those divesting pharmacies in its estate and “these opportunities generate interest from a range of first-time buyers and existing operators who are keen to provide a flexible and local approach to patient care”, Christie & Co added.

The report also pointed to The Hub Pharmacy Group that sold its 16 businesses in the north of England to Essex-based pharmacy group Allcures PLC.

This year will see “a continuation of corporate divestments giving more choice to buyers”, it predicted.

Read more: ‘Significant number of pharmacies' offloaded by multiples last year, broker says

 

Difficult for first-time buyers

 

Yet the sale conditions and liabilities involved may make it “challenging” for anyone new to the market looking to acquire a pharmacy business or those “reliant on funding to support acquisitions”, it added.

“Whilst many operators are feeling the squeeze, the increased supply of pharmacies in the market creates a strong opportunity for acquisitive, experienced operators with good track records and funding support,” Christie & Co said.

This is backed by figures showing that while 80% of those on the broker’s database interested in acquiring a pharmacy are first-time buyers, only 23% of sales went to those buying for the first time with vendors seeking “the security of selling to more experienced and well-funded operators”.

 

“Unsustainable” locum rates

 

Rising interest rates and increasing locum costs also caused lenders to adopt “a more cautious approach” in the later stages of 2022, something that is expected to continue, the report said.

Pharmacy as a sector continues to see reductions in profitability due to staff shortages, rising energy costs, drug supply and cost, interest rate rises and “unsustainable” locum rates, Christie & Co said.

Read more: Locum pharmacists: Industry rate rises unsustainable, Numark director warns

In the context of inflationary pressures, the flat funding model agreed in 2019 is causing real challenges and ongoing staffing issues continue to be “exacerbated” by community pharmacists and technicians moving to fill GP and PCN roles.

“The challenges seen in recruiting and retaining staff in 2022 will continue throughout 2023,” the report warns.

“The lack of pharmacists available to fill permanent positions in community pharmacy has led to locum costs increasing to unsustainable levels in the current funding environment, in turn leading to an increase in temporary pharmacy closures,” it said.

 

Market activity “positive” but pharmacists “negative” about 2023

 

“Despite continued pressures in the sector and the wider economy over the course of 2022, activity in the pharmacy market remains positive, with competitive bidding for quality businesses in areas of low supply very much being a feature,” the report concluded.

The broker sold 105 pharmacies in 2022, with a combined value in excess of £90 million, it said.

However, a survey of pharmacy professionals done for the report found that 59% felt negative about the year ahead. Their figures also showed that 27% were looking to sell in 2023 and 35% looking to buy.

“With negotiators due to discuss funding with the Department of Health and Social Care for after the expiry of the five-year deal next year, the successful outcome of such discussions will be crucial to the health and wellbeing of the sector,” Christie & Co said.

“Whilst there has been little impairment or distress in the sector to date, like many, it faces several headwinds that may create a more challenging trading environment over the coming year,” it added.

 

Challenges will remain in 2023

 

Christie & Co head of pharmacy Tony Evans said: “Whilst, from a market perspective, performance last year was encouraging, there is no doubt that those operating in the sector have seen increasing cost and operational challenges exert huge pressures on their day-to-day trading.

 

“As we enter 2023, many of these challenges remain and, therefore, will continue to influence decisions on selling, refinancing, or buying as the year progresses.”

 

He added: “It is hoped that recent, well-publicised campaigns highlighting the pressures contractors are having to endure will result in recognition of the issues but, more importantly, funding resolutions that will offer much needed respite.”

Read more: Pharmacy bodies join forces to fight for more funding as closure threat looms

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