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January cashflow dip will prompt spike in pharmacy sales, says broker

Anne Hutchings has predicted larger pharmacy chains will sell off more branches in 2019
Anne Hutchings has predicted larger pharmacy chains will sell off more branches in 2019

A pharmacy broker has predicted an increase in pharmacy sales in January, as contractors feel the effects of the category M clawback and drop in the single activity fee.

The Pharmaceutical Services Negotiating Committee warned last year that contractors in England would feel the effect of the 3p reduction in the single activity fee – on top of the category M clawback of £10 million a month until March 2019 – at the end of January.

Anne Hutchings, managing director of pharmacy brokers Hutchings Consultants, told C+D: “I suspect this will take some pharmacy owners by surprise and prompt more sales.”

A “large number” of pharmacies will come to the market in the first six months of 2019, as contractors have been “battered” by the effects of cuts to pharmacy funding in England, Ms Hutchings said.

“Sharp drop” in second half of 2019

However, Ms Hutchings also predicted a “sharp drop” in the number of pharmacies coming onto the market in the second half of 2019, because “owners whose primary reason for sale was due to funding cuts would have [sold] already”.

Contractors cited funding cuts and the category M clawback as the main reasons they decided to sell in 2018, Ms Hutchings said.

“I expect there will come a point towards the end of year where there is once more a greater shortage of pharmacies for sale compared with demand,” she added.

Larger groups to sell more branches

Larger pharmacy chains will sell off more branches, which “no longer fit their portfolios or are not profitable for them”, Ms Hutchings predicted.

“Generally, in the current market, better prices are being achieved by splitting groups down and selling either single branches or small groups, as there are more buyers for these and they are perceived as less risky,” Ms Hutchings said.

The trend for small to medium-sized chains “strategically acquiring” pharmacies is also set to continue, Ms Hutchings added.

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Graham Turner, Non Pharmacist Branch Manager

The big chains have the economy of scale, and pre-existing management and HR structures in place, if they are unable to turn a profit at a particular branch, then how will an independent make it work? It just doesn't make sense.

Maybe you can offer a much better customer service and attract new patients, but that doesn't happen overnight, and the next raft of cuts are likely to wipe out any progress you may have made.

If you actually have the average cost of £933k needed to buy a pharmacy (and didn't borrow it - unlikely I know), this can provide you with a passive income of £2083 a month from bonds at 2.68%, with no risk to your capital and not needing to work. Spending it on a pharmacy in this environment seems like lunacy.

Or you could spend just a third of that amount on a Dominos franchise - and that's an almost guaranteed way to make a lot of money (much better than a pharmacy). There are literally a million and one ways to make use of a sum of money like that to give you a decent income, buying a pharmacy is not one of them!

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