Future of Pharmacy Factors For Success 2015

The Future for Pharmacy
Exploring Strategies for Competitive

Success
By James W. Dudley 2015
www.James-dudley.co.uk
Agenda
The European Pharmacy Market

The Changing Business Environment for European Pharmacy
Channels
Changing Demographics and Pharmacy Shopper Expectations
Mass Market Chains new Stakeholders in Consumer Healthcare
Challenges of Mail Order and Internet Pharmacies in Europe
Major Pharmaceutical Distributors Driving Change in Europe
Emergence of Global Players in Pharmacy retail and wholesaler
Channels
Summary Conclusions - European Pharmacy Channels - Change
Drivers Affecting Competitive Success
www.james-dudley.co.uk 2
James Dudley International Ltd 2015
This presentation is based on 2 Major European Consumer
Healthcare Market Reports from James Dudley Management
www.james-dudley.co.uk
OTC Distribution in Europe 2014 edition
A Study of Consumer Healthcare Channels in 22
European Countries
671million inhabitants
224,000 pharmacies
247 billion Retail Pharmacy Market
4
Agenda

Channels
Channels
European Retail Pharmacy Market (22 Market Study)
+ 250 billion European retail pharmacy
market
Average pharmacy turnover in Europe is
1.158 million p.a.
Nearly 70% of pharmacy turnover is price
regulated i.e. reimbursed pharmacy, fees and
services
urce: James Dudley - OTC Distribution in Europe 2014 edition
European retail pharmacy is made up of

relatively small turnover enterprises each highly
dependent on price regulated business Source: James Dudley - OTC Distribution in Europe 2014 edition
Agenda

Channels
Channels
The Changing Business Environment for European Pharmacy Channels
DEMOGRAPHIC Ageing populations which are increasingly healthier, wealthier, better

educated with access to information technology and social media
connectivity
Game changing medical advances which improve patient outcomes and

SCIENTIFIC & TECHNOLOGY expand healthcare choices but adding to costs as well as requiring
Investment in technology to meet increasing service demands
DOWNWARD PRESSURES ON PRICES AND FEES IN A Overall deflationary factors subduing prices combined with payer cost
DEFLATIONARY ENVIRONMENT management and procurement strategies, service contracts and
technology & information flows - lower earnings for more work from
pharmacies
GLOBALIZATION OF CHANNEL INVESTMENT, PROCUREMENT Corporate geographic expansion, global/regional brands and M&A
AND COMMODITISATION OF GENERICS strategies to achieve scale economies and management synergies
resulting in competitive global supply & procurement networks and
international financial flows
CONSUMER APPETITE FOR MULTI-CHANNEL RETAIL ACCESS Competitive advantage through multi-channel applications, e-commerce digital
AND DEMANDS FOR HEALTH RELATED FRONT END applications and end to end customer shopping experience
MERCHANDISE
Latent demand for health related front end merchandise e.g. skincare and cosmeti
PURE PLAY INTERNET PHARMACY & MASS MARKET Pure play Internet pharmacies taking share of homecare, self-care and
8
COMPETITION front-end pharmacy
19 February 2016categories. Mass market retailers' ambitions to
capture a share of the pharmacy market through products licensed for
sale in non-pharmacy outlets and the acquisition of pharmacy licenses
Agenda

Channels
Channels
Changing Demographics and Pharmacy Shopper
Expectations
Changing demographics - retiring baby boomers - surge

in older, richer and healthier over 65s
Emergence of want it now shopper expectations
Rapid growth in tech savvy multi-channel pharmacy
shoppers (with femail bias) buying front end products
and motivated by discounts and convenience
Massive uptake of social media and smart phone apps
Aging European Population
The number of people aged 65 years

and older living in the leading
European States now exceeds the
younger generation aged 18 years and
below
There are more people older than 65
years in Europe than children
Source: Based on OECD
18.4% of the population in leading

European States is 65 years and above
Over 5% of the population is 80 years
and above
Ageing populations which are increasingly healthier, wealthier, better educated

with access to information technology and social media connectivity Source: Based on OECD
Agenda

Channels
Channels
Mass market operators taking share of non-prescription market in the United
Kingdom, Switzerland and Sweden as well as the Central and Eastern European States
All major supermarket chains in the United Kingdom operate pharmacy chains
Tesco, Sainsbury, Morrison, Asda Wal-Mart and Waitrose
Galenica has opened 44 pharmacies in a joint venture with the Coop under the name
Coop Vitality in Switzerland
In Sweden Oriola-KD formed a partnership with KF (Kooperativa Frbundet) for a

pharmacy chain Kronans Droghandel
The supermarket chain ICA has opened up shop-in-shop pharmacies under the
banner ICA Cura. The company has also bought Apotek Hjrtat, Swedens largest
private pharmacy
Jeronimo Martins (JM), a Portuguese retailer, is developing a pharmacy chain in its

Biedronka discount chain, the largest in Poland with more than 800 outlets
s Dudley International Ltd 2015 Coop Italia, Auchan, Leclerc and Carrefour have set up pharmacist managed
pharmacy corners in their hyper-markets in Italy
Deregulation of Consumer Healthcare - General Sale List (GSL
Non-prescription Medicines) in Europe
Deregulation of distribution of non-

prescription medicines has had a
major impact on self-medication in
the United Kingdom, Denmark,
Norway and Sweden
Traditionally Druggist chains have

been the main channel for non-
prescription medicines in the
Netherlands - although supermarket
share is increasing
James Dudley - OTC Distribution in Europe - 2014 edition.
Mass Market Chains Collaboration with Pure play Internet Pharmacies to
Provide Healthcare Solutions in Germany and Austria
German and Austrian mass market chains taking a pharmacy position in partnership
with major mail order and Internet pharmacy operators
Source: Mail Order and Internet Pharmacy in Europe - the 2015 edition
Agenda

Channels
Channels
From Mail Order and Internet Pharmacy - the 2015 edition

Entering the Digital Battleground
Covering 482 million Internet users in 17 European Countries

with online pharmacy development
+7,000 authorised pharmacy e-commerce websites.
Majority are operating as small scale independent pharmacy

based Internet businesses
Clusters of large cross border pure play mail order

pharmacies serving Germany and Austria
Significant number e-commerce pharmacy sites integrated

into the multi-channel digital strategies of leading retail
James Dudley International Ltd 2015 pharmacy chains
Regulatory Status of Mail Order and Internet Pharmacies in
Europe
Distance marketing pharmacies are permitted to offer non-

prescription medicines in all EU member States, Norway and to a
limited extent in Switzerland
Distance selling of prescription medicines is permitted in

Denmark, Germany, Netherlands, Norway, Sweden and the United
Kingdom and under restricted conditions in Finland and Switzerland
Thus Digital pharmacies can be either Full pharmacy

James Dudley
(including prescription business) or limited Para-pharmacies
International Ltd 2015 with non-prescription self-care depending on national
regulations
Source: Mail Order and Internet Pharmacy in Europe - the 2015 edition
Multi-channel Pharmacy - a Competitive Response to Pure-play Mail Order and
Internet Entrants in Europe
Four broad clusters
Full pharmacy pure-play clusters
Full pharmacy multi-channel clusters
Para-pharmacy pure-play clusters
Para-pharmacy multi-channel clusters
Influence of
national regulation
determines scope
of offer i.e. Multi-channel
permitting response by
prescription only pharmacy chains
medicines or not and groups to
Source: Mail Order and Internet Pharmacy in Europe - the 2015 edition Pure play
Competition tends to be Pure Play Internet driven mail order in the absence of Internet
competition from retail pharmacy chains (e.g. Germany) competition
Where retail chains or pharmacy groups dominate they develop multi-channel i.e. bricks
and mortar and online options to compete with pure play competitors
ww.james-dudley.co.uk
Pure Play Mail Order and Internet Pharmacies in Europe
More than 7,000 authorised online Pharmacies in Europe
Majority are micro businesses run by independent

pharmacies
The largest pure-playonline pharmacies operate in the

German/Austrian Cluster e.g.Zur Rose/DocMorris ,
EAV/Shop-apotheke
Zur Rose a Swiss pharmaceutical distributor owns

DocMorris brand in Germany and Austria and Zur Rose
Source: Mail Order and Internet Pharmacy in Europe brand in Switzerland, Germany and Austria making the
the 2015 edition
company the largest pure play pharmacy operator in
Europe
The majority of Europes pure play Internet pharmacies

have a turnover of less than 100 million
Pure play pharmacies in the United Kingdom have
relatively low turnovers compared to online business of the
major pharmacy chains e.g. Boots, Superdrug and Lloyds
Importance of Germany - Growth of Internet and Mail order
Pharmacy
Germany is the largest pure play Internet pharmacy

market in Europe 1.41 billion
Growth in the absence of wholly owned pharmacy chains
Shake out and consolidation of the pure play sector i.e.

Zur Rose acquisition of DocMorris (Germany, Switzerland,
Netherlands & Austria)
Three pure play operators (4 brands) take 63% share of

ource: Mail Order and Internet Pharmacy in Europe - the 2015 edition
the mail order and Internet pharmacy market in Germany
Importance of alignments with Druggist chains in Germany

and Austria e.g. DM and Rewe
In Germany Pureplay and Bricks and mortar

pharmacies are seen as separate and
competing channels
Linking mail order Internet technology with traditional
bricks and mortar pharmacies into a multi-channel
shopping experience New trends in the USA and
progressive European States
22
Pharmacy Shopper Appetite for Multi-Channel Retail Access in Europe
More than 33% of pharmacy users in Germany

and 30% in the United Kingdom are multi-
channel shoppers.
Source: Semporah 2014
Order online pick up in store option is

popular in Spain, United Kingdom and Nordic
markets
Pure-play Mail Order and Internet Pharmacies compared to Multi-channel
Pharmacies in Europe
Competition tends to be Pure Play Internet driven mail order in the absence of retail pharmacy
chains (e.g. Germany)
Where retail chains or pharmacy groups dominate they develop multi-channel i.e. bricks and
mortar and online options as a strategic response to pure play competitors
Pharmacy chains can compete with pure play Internet pharmacies on price and online
convenience but can outclass digital rivals with personal service and delivery/collection options
The slow down in development of pure play Internet pharmacies in USA, Australia and United
Kingdom is due, at least in part, to the development of multi-channel strategies among major
pharmacy and drugstore chains
Walgreens Boots Alliance Multi-channel Case Study
Philosophy - Walgreens multi-channel shoppers are estimated to be three

times more valuable than a single-channel shopper
In order to capture the multi-channel target

audience Walgreens has developed and
expanded a multi-channel strategy through heavy
investment in e-commerce and mobile
technology
The new model has enabled the company to

leverage its brick-and-mortar locations with
convenient, sophisticated online options.
Walgreens has also developed mobile phone

applications into another channel which allows
customers to refill prescriptions, order photos,
browse the weekly ads and other applications
Walgreens stated objective is to become the Acquisition of Drugstore.com and integration

multi-channel retailer for consumer health and life into the multi-channel offer
needs in America. Source: Mail Order and Internet Pharmacy in Europe - the 2015 edition
James Dudley International Ltd
2015
Boots Leading Pharmacy Chain in the UK - Multi-channel Strategy
E Commerce - Channel
Order online
pickup in-store
Online
promotions
E Pharmacy
E Clinics
Mobile apps
In-store Channel
Loyalty schemes
and rewards
Source: Mail Order and Internet Pharmacy in Europe On-shelf
the 2015 edition promotions
In-store based
Boots, Britains number one pharmacy clinics including
chain is the largest online pharmacy in smoking
the United Kingdom cessation, flu jabs
etc
Internet pharmacy shoppers 4 times Front end
more likely to purchase online from pharmacy
development
Boots than pure play leader
(cosmetics
Chemistdirect advisors)
60% of Boots online business is order www.james-dudley.co.uk

online pick up in store
Agenda

Channels
Channels
James Dudley - OTC Distribution in Europe - 2014 edition.
A small number of distributors control well over half the intermediary

pharmaceutical market in Europe
These companies invest in retail pharmacy as wholly owned chains or as

affiliated marketing groups (voluntary groups)
Alliance Boots(Walgreens Boots Alliance), Celesio (McKesson) and Phoenix are

driving the future of retail pharmacy in Europe
28 19 February 2016
Pharmacy membership of Groupings in Europe
42%of Europes Pharmacies are in

groups wholly owned, state owned or
voluntary affiliated groups of
independents
4% are branches of independent
pharmacies
54% are unaffiliated independents
James Dudley OTC Distribution in Europe 2014 edition.
29
19 February 2016
Number of Pharmacies in Wholly Owned Groups in Europe
Main international distributors forming

pharmacy chains in selected markets - Celesio,
Alliance Boots, Phoenix, and Doz SA
Limited sized wholly owned groups reducing

economic inefficiencies - e.g. Germany
Reductions in State owned pharmacies

Italy, CEE and Sweden
New entrants - Major International retail

groups participating in the pharmacy sector
Walgreens, McKesson, Leclerc, Carrefour,
Auchan, Penta, Tesco, Sainsbury, Jeronimo
James Dudley OTC Distribution in Europe 2014 edition
Martins, Wal-Mart. A.S Watson etc.
24% of Pharmacies in Europe Restrictions on wholly owned groupings in
are owned by Retail Chains Europes largest markets: France, Italy,
Germany and Spain
Pharmacies in Voluntary Groupings (Virtual Chains)
63% of pharmacies in virtual chains are

located in France and Germany where they
do not have to compete with large wholly
owned chains
Largely driven by main international

pharmacy distributors e.g.:- Celesio
(McKesson), Phoenix, Walgreens Boots
Alliance & Sanastera
Local players include Doz S, Poland, Galenica

Switzerland, Hungaropharma Hungary
Strengths of a chain, benefits of independent

management - Branding, buyer power and
patient/consumer services
Nearly a quarter of Europes

pharmacies in voluntary groupings
Source: OTC Distribution in Europe - 2014 edition
31
19 February 2016
Types of Retail Pharmacy Voluntary Group in Europe
Loose unbranded Group of independent pharmacies aligned to a wholesaler usually low cost
wholesaler group membership, range of services members can choose from the main
purpose is to promote loyalty to the sponsoring wholesaler
Group of independent pharmacies aligned to a wholesaler members sign

Tight branded up to a brand concept and services and participate in promotions,
wholesaler group advertising campaigns and share consumer loyalty programmes including
store cards
Branded Group of independent pharmacies formed into a cooperative sharing a

cooperative common brand, or speciality members buy shares in the cooperative,
(independents) usually appoint a management team - participate in promotions, advertising
campaigns and share services
Group of independent pharmacies acting as a buying collective

Unbranded buying
group
Franchise Concept Independent pharmacies invest in a retail brand umbrella whose marketing,
procurement operations and formats are controlled by the brand owner

Problems with Voluntary Pharmacy Chains
There are few mechanisms to maintain the discipline of the chain
The failure on the part of their managements to understand the importance of differentiating their retail
offer, positioning and branding
Wholesalers have concentrated on retaining pharmacy loyalty through the leadership of groups
Members cherry pick intermediary offers rather than building a retail brand
Lack of full hearted support for organized brand promotions by group members is frustrating for
manufacturers and undermines the groups buying strength
Consumers trust in retail brands reflect their experiences, expectations and quality and cost
perceptions, so chains which fail to provide a consistent consumer offer undermine this trust
.....Members are realising that as well as good buying, innovation such as loyalty cards, branding,
formatting and promotions are important elements for competing in a competitive retail sector.....
Major Multi-country Retail Pharmacy Chains in Europe
OTC Distribution in Europe 2014 edition
Expanding the size and geography of retail pharmacy

multiples through the creation of hybrid groupings
made up of mixed estates of wholly owned, franchise
concept chains and affiliated voluntary members
34 19 February 2016
New Model for Retail Pharmacy Groupings A Strategic Response to Global
Challenges
Mergers between large US pharmacy channel players and European majors offer global economies and
procurement strengths endow such players with considerable competitive advantages that would force a
structural response from the rest of the market
New Europe-wide healthcare retailers strategies which combine wholly owned pharmacies, franchise
concepts and cooperation partner independents into competitive retail pharmacy brands rather than
retail estates are changing the landscape for marketing healthcare.
Investment into end-to-end customer service models meeting the complex needs of patients and
healthcare consumers in a rapidly developing digital age
Development of front end and consumer healthcare business through in store branding, private label
and multi-channel marketing
35
New - European Multi-format Pharmacy Brands
Multi Channel Technologies Big data Consumer focus

End to end logistics
Vision Differentiation and positioning
Economies of scale Leadership Omni-channel shopping experience
Brand
Core of Wholly owned

Pharmacies
Franchise Partners Co-operation Partners

Europe-wide and Affiliated Independent
format Pharmacies
Integration of partners into brand Integrated Modular in-plants

Training Multi-channel Selective brand inputs
Motivation/loyalty Strategy across Additional economies of scale
brand

Agenda

Channels
Channels
Walgreens Boots Alliance AmericansourceBergen
Global Footprint
12,800 wholly owned stores in 11 countries
340 Distribution centres serving 180,000 customers in 19 Walgreens Boots Alliance
countries
+ 9,000 affiliate partner pharmacies
Aggregation of Purchasing Power
Estimated global sales
Global pharmaceutical pipeline as a result of ABC tie up 2014 - $115 billion
Buying leverage for generics lowest cost advantage
Cross organizational and global buying power Sales target
Leading Innovation in Pharmacy Retailing 2016 - $130 billion
Leadership in multi-channel retailing in USA and UK
Global synergies in customer loyalty programmes
Development of front-end pharmacy and consumer
healthcare value
McKesson Corporation acquisition of Celesio
Global Footprint
+12,000 wholly owned and banner stores in 10 countries
120,000 customers in 20 countries
Aggregation of Purchasing Power McKesson
Global sourcing expertise and scale to create value in the
pharmaceutical supply chain
Buying leverage for generics Estimated global
Cross organizational and global buying power
Leading Expertise in Pharmacy Distribution sales 2014
Leadership in managing affiliate partners (banner $170 billion
management) in North America and Europe
Top wholesaler positions in USA and Europe (10 major
markets)
Top 3 drugstore positions in USA and Europe
Agenda

Channels
Channels
mmary Conclusions - European Pharmacy Channels - Change Drivers Affecting Competiti
Success
Consumers
Changing demographics - retiring baby boomers - surge in older, richer and healthier
Pharmacy Channels over 65s
Globalization of Retail and Wholesaler
Emergence of want it now shopper expectations
channels
Further consolidation of wholesale channels Rapid growth in tech savvy multi-channel pharmacy shoppers (with female bias)
buying front end health related products and motivated by discounts and convenience
Retail consolidation into groupings
Massive uptake of social media and smart phone apps
Growing power over suppliers as buyers and
distributors
IT and Digital capabilities become core Politics/Regulation
competitive advantages New Entrants Re-regulation of pharmacy establishment and deregulation
Multi-channel and Omni-channel shopping Non-pharmacy competition of non-prescription products
strategies from mass market retailers Europe-wide Rx to OTC regulatory framework
Growing trend towards promoting profitable in developing rival pharmacy Recognition of Internet pharmacy and responsive
front end and OTC medicines chains and multi-channel regulation
alliances with online Downward pressures on price regulated services and
pharmacies pharmacy contracts (lower margins/higher costs)
Pure play mail order and
Suppliers Internet pharmacy
Diminishing power over channel buyers GSL and Free Sale OTC Technology
New channel focused trade marketing Medicines in mass market, Digitital revolution planning, logistics and marketing
structures convenience and gas stations Rapid growth of Internet access among key consumer
Movement to direct supply of in patent segments
products and branded services www.james-dudley.co.uk Adoption of digital applications as a competitive advantage
Commoditization of generics , private James Dudley International Technololy to create a seamless shopping experience
label and concentrated buyer power of Ltd 2015
omni-channel
major groups forcing supplier consolidation
Gloablization of consumer health brands
by main players with consequent spin off of
local and regional brands to niche players.
NEW 2016 edition of OTC Distribution in Europe is
now available from www.james-dudley.co.uk
OTC Distribution in Europe

New 2016 Edition
DOWNLOAD EXECUTIVE SUMMARY AND TABLE OF
CONTENTS
Jame6 Dudley International Ltd 2016
4
Retail pharmacies and their suppliers will need to find new strategies for
competitive success in a healthcare supply chain increasingly driven by the
needs of empowered consumers and impacted on by the challenges of new
global players with aggregated buying power, multi-channel retail strategies and
spreading multi-format European retail pharmacy brands
James Dudley author of OTC Distribution in Europe and Mail Order and Internet Pharmacy

Future of Pharmacy Factors For Success 2015

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The Future for Pharmacy

Exploring Strategies for Competitive

By James W. Dudley 2015

The European Pharmacy Market

The European Pharmacy Market

urce: James Dudley - OTC Distribution in Europe 2014 edition

European retail pharmacy is made up of

The European Pharmacy Market

DEMOGRAPHIC Ageing populations which are increasingly healthier, wealthier, better

Game changing medical advances which improve patient outcomes and

The European Pharmacy Market

Changing demographics - retiring baby boomers - surge

The number of people aged 65 years

Source: Based on OECD

18.4% of the population in leading

Ageing populations which are increasingly healthier, wealthier, better educated

The European Pharmacy Market

In Sweden Oriola-KD formed a partnership with KF (Kooperativa Frbundet) for a

Jeronimo Martins (JM), a Portuguese retailer, is developing a pharmacy chain in its

Deregulation of distribution of non-

Traditionally Druggist chains have

James Dudley - OTC Distribution in Europe - 2014 edition.

The European Pharmacy Market

From Mail Order and Internet Pharmacy - the 2015 edition

Covering 482 million Internet users in 17 European Countries

+7,000 authorised pharmacy e-commerce websites.

Majority are operating as small scale independent pharmacy

Clusters of large cross border pure play mail order

Significant number e-commerce pharmacy sites integrated

Distance marketing pharmacies are permitted to offer non-

Distance selling of prescription medicines is permitted in

Thus Digital pharmacies can be either Full pharmacy

More than 7,000 authorised online Pharmacies in Europe

Majority are micro businesses run by independent

The largest pure-playonline pharmacies operate in the

Zur Rose a Swiss pharmaceutical distributor owns

The majority of Europes pure play Internet pharmacies

Germany is the largest pure play Internet pharmacy

Growth in the absence of wholly owned pharmacy chains

Shake out and consolidation of the pure play sector i.e.

Three pure play operators (4 brands) take 63% share of

Importance of alignments with Druggist chains in Germany

In Germany Pureplay and Bricks and mortar

More than 33% of pharmacy users in Germany

Order online pick up in store option is

Philosophy - Walgreens multi-channel shoppers are estimated to be three

In order to capture the multi-channel target

The new model has enabled the company to

Walgreens has also developed mobile phone

Walgreens stated objective is to become the Acquisition of Drugstore.com and integration

60% of Boots online business is order www.james-dudley.co.uk

The European Pharmacy Market

James Dudley - OTC Distribution in Europe - 2014 edition.

A small number of distributors control well over half the intermediary

These companies invest in retail pharmacy as wholly owned chains or as

Alliance Boots(Walgreens Boots Alliance), Celesio (McKesson) and Phoenix are

42%of Europes Pharmacies are in

Main international distributors forming

Limited sized wholly owned groups reducing

Reductions in State owned pharmacies

New entrants - Major International retail

63% of pharmacies in virtual chains are

Largely driven by main international