If it proceeds — and there are still many hurdles to clear — the merging of two large pharmaceutical wholesalers, Sigma and the recently troubled Australian Pharmaceutical Industries (API), would be a key chapter in the evolving story of a retail sector that is heading for inevitable change.

The bid is subject to several conditions and would require ACCC approval. The merged entity would become the dominant supplier of medicines to retail pharmacies, with around two thirds of the market. The other wholesalers, Symbion (nee Mayne nee Faulding) and new entrant DHL Exel, would live in its shadow.

The pharmaceutical wholesalers supplying retail pharmacies are a key component of the delivery of medicines under the Pharmaceutical Benefits Scheme. It is the inability to dispense PBS prescriptions that keeps grocers out of pharmacy.

Last year, the grocers, and Woolworths in particular, battled hard for deregulation that would have to allowed dispensaries in supermarkets. They were unsuccessful and a new five year agreement was reached between the Pharmacy Guild and the government. It may well be the last which excludes the supermarkets.

Since the signing of the agreement, the grocers have been looking for a way into the sector through the back door. Coles has purchased Pharmacy Direct and Woolworths has been rumoured to be interested in API. Once the grocers become significant players in the sector, it would be all but impossible for the government to exclude them when the next agreement is negotiated.

Retail pharmacy is a troubled sector. Although it has its defenders, it is seen by many as an outdated and inefficient delivery system and business model.

Owning a retail pharmacy was once seen as a path to fortune. Market share is now continually being eroded by supermarkets and other retailers ranging lines that were once the exclusive domain of the chemists. Cost pressures, associated with lowered prices the government was willing to pay for PBS items, have eaten into profitability. Less traditional models such as the online epharmacy and Chemist Warehouse advertise discounted prescription drugs.

While most apothecaries still seem to drive nice cars, the sector seems in turmoil and the impending entry of the grocers is the stuff of pharmacists’ nightmares.

While the current bid is for Sigma to take over API, few in the industry will be surprised if we hear of a rival bid by Woolworths or Coles in the next few days.

Peter Fray

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