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Report indicates how pharmacists can remain competitive in their local market

AIB has released its 2018 Pharmacy Outlook Report, which shows an improving outlook for pharmacists, but pressure remains on the sector. 

With over 1,800 pharmacies operating throughout Ireland, the importance of the sector cannot be underestimated, in terms of the contribution it makes to the healthcare needs of the population as well as the wider economy.

The Pharmacy Outlook Report is supported by a survey carried out by JPA Brenson Lawlor. The Outlook focuses on the trends within the pharmacy sector and how pharmacists can remain competitive in their local market. 

Alan Makim, Head of Retail & Franchising, Retail & Business Banking AIB said: “As the population grows older, the demand for healthcare services will increase and this will present opportunities for pharmacists to grow their business in the future if they evolve with the changing trends in the sector. 

According to the survey 71% of pharmacists have joined a buying group, with 83% saying that this led to an immediate increase in their gross margin.  This trend could be expected to continue if further pricing cuts are introduced.

Alan notes “Since joining a buying group, many pharmacists have graduated to a full franchise offering that provides marketing, category management,  and sophisticated business intelligence supports to optimise sales performance.

“This frees the pharmacist up to concentrate on the service offering to customers, whether that’s in the form of better customer interactions, dispensary efficiencies or additional health and screening services which may, in some cases, add to revenue.”.

Also in the Outlook, Jason Bradshaw, Partner, Corporate Finance, at JPA Brenson Lawlor says: “With a majority of pharmacist looking to expand their business, 2017 was a buoyant year for M&A activity.” 

This is a trend Jason believes is set to continue in 2018 thanks to “an increase in the availability of finance and strong multiples of between 5-6 times maintainable EBITDA” as sales prices.  This message is further emphasised by Alan, who points out “Capital expenditure programmes like store renovations and acquisitions have been a common theme throughout the sector over the last two years.”

With 6,038 registered pharmacists – 3,637 of whom are community pharmacists- and 363 pharmacist assistants working in 1,851 community pharmacies throughout the country, the sector is benefiting from the general uplift in the economy but with an ageing population combined with an increase in chronic illnesses, it will face both challenges and opportunities in the future.

Operating in the competitive Irish retail market, sales growth for many pharmacies is hard-won. In 2017, for example, the sector reported a modest 4% increase in sales while the actual volume of sales increased by 6%, according to research undertaken by JPA Brenson Lawlor.

According to Jason Bradshaw, Partner, Corporate Finance with JPA Brenson Lawlor: “Consumer confidence is high which should lead to strong sales growth for the remainder of 2018. Brexit, however, may lead to a softening of consumer confidence in the latter part of 2018.”

“In addition, the total number of items dispensed under all State schemes during 2016 was up by 2.2% on 2015 and this is a trend which continued into 2017,” he says.

He points out that the average amount paid out by the State, by way of reimbursements for prescribed medicines, has fallen from €18.78 per item in 2009 to an estimated €12.50 per item in 2016.

“This trend continued into 2017/2018 and pharmacists are now dispensing additional items at a significantly lower value than in previous years. This has resulted in reduced turnover in pharmacies although over-the counter and front-of-shop sales increased in 2017 and this had a stabilising effect on overall turnover for many pharmacies,” he adds.

The survey also notes that 38.5% of pharmacists believe that the outlook for their business would not improve over the coming years with just 25.3% of the opinion that it would improve. The remaining 36.2%, meanwhile, were broadly neutral.

Among the key issues facing the sector, according to the survey, are increased Government regulation, Reference Pricing, margin pressure, the growth in online pharmacies and the perceived lack of finance for businesses looking to expand.

“Reference Pricing continues to put pressure on margins, but pharmacists should try to  pivot into new service areas and retail offerings which may reduce the impact of Reference Pricing. With regard to online pharmacies, they haven’t really made an impact in Ireland in terms of dispensing because of regulation in the sector but online is having a small impact on cosmetic and higher-end items,” says Jason.

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