Australia / Analyst Insights
Bitter Pill: High Competition is Limiting Growth for Pharmacies

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by Derrick Wu
Mar 26 2020

The Pharmacies industry plays a critical role in Australia’s primary healthcare community. In particular, retail pharmacies are the primary distribution points for prescription and scheduled over-the-counter medicines. As Australians are becoming healthier and live longer, long-term economic and demographic trends are anticipated to support the Pharmacies industry over the next five years. However, the industry’s operating landscape will remain challenging, as consolidation pressure and competition from new internal and external competitors intensifies.

The COVID-19 outbreak has emphasized the important role of pharmacies. Demand for many supplies has extended from supermarkets to pharmacies, as fear and anxiety induce panic-buying behaviour. Pharmacies have recently reported a 130% increase in online orders. Panadol orders for pharmacy operator TerryWhite Chemmart doubled over recent weeks. While the Pharmacies industry is benefiting from higher demand for paracetamol, cold medications and prescription medicines as consumers stockpile, these actions may also cause local shortages in the near term.

Aside from the current outbreak, long-term economic, demographic and social trends are forecast to support the Pharmacies industry over the next five years. The population aged 50 and older is anticipated to increase in 2019-20, presenting an opportunity for industry expansion as pharmaceutical consumption tends to increase with age. Growth in this demographic therefore boosts industry revenue. Revenue for the Pharmacies industry is therefore projected to grow at annualized 1.9% over the five years through 2024-25, to $21.4 billion.

Competition is high across the Pharmacies industry. Internally, large warehouse-style pharmacies focus on low prices and are threatening the traditional community pharmacy business model. Furthermore, pharmacy operators face continued pressures from external competitors such as supermarkets, niche health and beauty retailers, discount department stores, online operators and other healthcare service providers. For example, Ramsay Health Care, one of Australia’s largest private hospital operators, recently entered the Pharmacies industry by building a nationwide franchise network under the name Ramsay Pharmacy. The group has diversified into Australian’s pharmacy sector as part of its growth strategy. The company currently operates 52 full-service community pharmacies and 35 pharmacy hospital dispensaries. Non-pharmacy operators have also been increasing their range of various unscheduled medicines and health-related products. This trend has heightened competitive pressure for pharmacies’ front of store sales.

Intensifying competitive pressures have driven industry consolidation and caused the number of independent pharmacies to decline over the past five years. EBOS Group Limited (EBOS) is involved in the Pharmacies industry through its ownership in the Terry White Group and HealthSAVE brands. EBOS entered the industry in 2013, when it purchased Australian pharmaceutical wholesaler Symbion. EBOS then acquired pharmaceutical companies such as Good Price Pharmacy Warehouse, Terry White Group and Ventura over the five years through 2018. This active consolidation has pushed the company to become the third-largest player in the Pharmacies industry. The company’s pharmacies-related revenue is expected to increase in an annualised 19.1% over the five years through 2019-20, to $2.2 billion.

Demand for pharmaceutical products is anticipated to remain strong over the next five years, due to the ageing population and growth in disposable incomes. Despite these factors, intense competition from both internal and external forces is forecast to increase consolidation in the Pharmacies industry, limiting the performance of smaller players.

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