Lloydspharmacy's buyout of the Sainsbury's pharmacy chain came as something of a shock. Sainsbury's had not expressed any interest in selling up previously, and Lloydspharmacy had not made any significant additions to its empire in years. So what can the key figures tell us about the deal?
1,800 community pharmacies
Lloydspharmacy already had 1,500 community pharmacies in the UK, and its acquisition of the 277 Sainsbury’s retail pharmacies will make it even more of a significant player in the market. The deal will increase its number of branches by 18% to around 1,800 – 13% of the total number of community pharmacies in the UK, which stands at around 14,000. Boots is the only company accounting for a larger share – 2,300 pharmacies and roughly 16% of the market - and it dwarfs Well’s share of approximately 5%.
Michael Thomas, partner at economic analysts AT Kearney, believes the Sainsbury’s deal will herald the start of multiples becoming even more dominant in the market. He describes it as “the “beginning of an endgame”. “We’re talking a big chain buying a mid-size chain. You’re clearly going to see three big chains [dominating]: Boots, Lloydspharmacy and Well – that seems to be where the sector is heading,” he says.
£444,840 per pharmacy
Sainsbury’s pharmacies were bought for a total of £125 million, which sounds like a hefty sum. But this equates to less than £500,000 per pharmacy, which is well below the average market rate. Tony Townsend, owner of Townsends business sales, says this is unsurprising considering the scale of the transaction. “Not many potential buyers have the wherewithal financially to complete that sort of transaction, hence the average price paid for the Co-operative pharmacies [by Bestway] was below market level, and the price paid for Sainsbury’s pharmacies is again significantly below market level,” he says.
However, Bestway bought the Co-operative pharmacies for around £800,000 each – nearly 80% more. Mrl Thomas believes this says something about the appeal of supermarket pharmacies. While the Co-operative branches were “very attractive”, he says supermarket pharmacies aren’t “punching their weight in retail terms”. “In the UK – to be frank, across the whole of Europe – we still struggle to get productive pharmacies in a supermarket setting,” he explains.
Lloydspharmacy will take on an extra 2,500 staff once its buyout of Sainsbury’s pharmacies is completed, taking its total number of employees to 19,500. It’s a sizeable workforce, and the news has understandably provoked fears over the conditions of Sainsbury’s employees.
But employees are offered some protection under employment law, and Lloydspharmacy will be unable to change the fundamental terms of employment written into Sainsbury’s contracts, explains Hempsons lawyer Andrew Davidson. The only benefit they are likely to lose in the short term is their Sainsbury’s staff discount, Mr Davidson says. In the longer term, he believes Lloydspharmacy will want to make sure salaries are in line with its own – so, if Sainsbury’s staff receive a higher salary, they are unlikely to get any pay increases until Lloydspharmacy staff have reached the same rate.
Perhaps the most vulnerable group to the effects of the buyout is locums, whose rates aren’t protected by employment law. Lloydspharmacy has not confirmed whether its rates will be higher or lower than those offered by Sainsbury’s, but said its locum rates vary “by location and nature of the requirement”.