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Supermarkets will copy Sainsbury's sale, says economist

Michael Thomas: "Supermarkets will be looking at every square foot they’ve got to make sure it’s productive"

Sainsbury's decision to sell its pharmacy business to Lloydspharmacy is a sign that supermarkets are looking to increase their profitability, says analyst Michael Thomas

EXCLUSIVE

It is only "a matter of time" before other supermarkets follow Sainsbury’s lead and sell off their pharmacies, an economics expert has said.

Sainsbury’s sold its 281 pharmacies to Lloydspharmacy last week for £125 million, and other supermarkets will be considering whether similar deals can benefit their business, said Michael Thomas, a partner at economic analysts AT Kearney.

UK supermarkets’ pharmacy businesses are “simply not punching their weight” in comparison to their US counterparts, Mr Thomas told C+D last week (August 1).

“It’s getting tough on retail outlets. Supermarkets will literally be looking at every square foot they’ve got to make sure it’s productive,” he said.

The sale also marked the “beginning of an endgame” for how the sector was structured, Mr Thomas stressed.

“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 said.

While independent pharmacies would “always have a role” in the health sector, they face an increasing challenge to “compete profitably with the larger chains”, he said.

“That’s something the next pharmacy settlement is going to have to [bear in mind], unless there’s regulatory reform that allows independents to exploit the economies of scale that big chains do through centralised dispensing,” he said.

Lloydspharmacy told C+D last week that Sainsbury's employees' existing contractual terms will be protected when it takes over the pharmacy business in March, in the wake of fears over pay cuts.  

 


How will the sale of Sainsbury's pharmacies to Lloydspharmacy affect the sector?

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11 Comments

Chris Locum, Locum pharmacist

It is logical. The end game is on the horizon for community pharmacy in its current form. Government is unconcerned about student numbers because of the cost reductions they will pull back in due course with contractor remuneration enquiries and the decrease in salary paid....

Alia Arif, Locum pharmacist

Supermarkets do not understand Pharmacy.Multiples growing stronger could be a good thing if they learned to value their staff.Centralised dispensing is neither necessary nor desirable with our growing elderly population which appreciates a local,friendly pharmacy.

Z ZZzzzz, Information Technology

Centralised dispensing is inevitable. You can't argue with economies of scale. Otherwise Lloyds and Boots et all would never have gone down the aquisition route. What our growing elderly population appreciate is free daily deliveries for one item at a time, and they don't mind who does it!

Margaret O'doherty, Community pharmacist

It isn't economic to make free daily deliveries. The only reason it happens is competition. Once you are down to two suppliers they will stop competing, divide the market between them and put a quick end to uneconomic practices. Go into a fast food outlet and they stock either Coke or Pepsi, not both. Forget choice.

N O, Pharmaceutical Adviser

This is a bit off topic. Editor please note: Since I could not find the topic where there was a debate on the "cut backs" being offered by Manufacturers to the PCT/ CCG Pharmacists. I do remember one of the CCG Pharmacist demanding for PROOF/ EVIDENCE. I was browsing the web and found this link : http://www.telegraph.co.uk/news/nhs/11755884/Lavish-trips-laid-on-by-dru... I don't say that all the CCG pharmacists are involved in wrong practices but there are these few who do bring disrepute to the profession. Hope the message is clear

John Randell, Non Pharmacist Branch Manager

YES THEY WILL American company boots-walgreens don't play no games they will be looking to buy something to get back at lloyds..... and are no doubt knocking on supermarket doors looking for a deal.... psycology dictates this will happen especially with male run testestorone filled, board rooms where sense is replaced by ego....we must defeat the enemy talk only BOOTS-WALGREENS MORRISONS NEXT YEAR.....you hear it here first

Chris ., Community pharmacist

I would say those who qualified 2+ years ago in jobs are safe. It is those who are still training or recently qualified who should be worried as the big three will offer them lower wages and reduce costs that way. It is going to be harder to change companies now, to start a new company and it will be managed through people leaving after maternity and retiring.

Z ZZzzzz, Information Technology

I still stand by my comments made after the announcement about Lloyds and Sainsburys in an earlier article. Nothing this economist says is making me doubt the eventual end game for community pharmacy.

Clive Hodgson, Community pharmacist

The future may be even worse. It could be that we end up with Pharmacy in the UK being dominated by the Big 2….Boots & Lloyds. Well may be vulnerable in time and become a distant 3rd as they lack the vertical integration and exclusive distribution deals of Boots & Lloyds (Alliance & AAH). I also doubt they come close to having the enormous financial power of Boots & Lloyds’s overseas owners when it comes to future large acquisitions. If other Supermarkets do divest their Pharmacies it will represent a one off opportunity so bidding is likely to be intense.

Clive Hodgson, Community pharmacist

Mr Thomas’s analysis seems logical and correct. And the implications are profound. With the Government so desperate to make savings it is likely the “Big 3” (soon to be "Bigger 3") will get more or less what they want in terms of legislative change if it results in savings on the cost of medicine provision. They are ideally placed to exploit very large “hub’n’spoke” operations (with regulations tweaked to facilitate). Remote Supervision would also be very useful to them as a cost cutting measure. I am sure there are more things on their wish list. Life will be increasingly hard for independent contractors and individual pharmacists in an environment dominated by these three commercial entities

N O, Pharmaceutical Adviser

"""""What next ?? Well Pharmacy inside Tesco, Rowlands inside Morrisons ??? More the acquisitions and mergers, less the competition and fewer patient choices. Hail UK Competition law."""" ........ This is what I said when the news of Lloyds buying S's Pharmacies and my words have been now supported by an economist !!! Yet, there won't be a single buzz word from the protectors of our profession (bored of calling them Leaders) Our profession will be ruled in near future by the laws of ECONOMICS rather than the laws of PHARMACY. Sad sad sad.......

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