EXCLUSIVE: Woolworths bold move to buy Priceline could potentially be the biggest shake-up in Australia’s pharmacy industry
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EXCLUSIVE: Woolworths bold move to buy Priceline could potentially be the biggest shake-up in Australia’s pharmacy industry
Supermarkets are outlets for your daily needs — whether you need fruit, veggies or laundry liquid, supermarkets have them in-store for you.
However, in Australia, a notable absence of medicine outlets in supermarkets means Aussies aren’t able to pop prescription medicines in their trolleys.
If you are one of those people who get frustrated by the inaccessibility of medicine in supermarkets, then this news is for you!
Woolworths' bid of almost $1 billion to take over the Australian Pharmaceutical Industries (API) could radically alter Australia's retail market.
Woolworths bid almost $1 billion to take over Priceline’s parent company Australian Pharmaceutical Industries and its other pharmacy stores. Credit: NCA NewsWire/Brenton Edwards.
Companies under API include Priceline and Soul Pattison — two household names when it comes to pharmaceutical needs.
Currently, Woolies is in a battle with Bunnings and Wesfarmers — Kmart's parent company — to acquire the pharmacy chains.
The supermarket giant said that they have no plans to open in-store pharmacies, insisting that it will operate API's stores just as they are now instead.
Although no Australian supermarkets are allowed to open in-store pharmacies, a retail expert said that Woolworths' move could be a "pre-emptive strike" with rules barring competition from supermarkets up for review.
Wesfarmers bid $1.55 per share for API in July. However, Woolworths bid a far juicier offer of $1.75 per share, which would value the pharmaceutical company at $872 million.
Woolworths CEO Brad Banducci said: “Health and wellness is a large, fast-growing category and API would be a fantastic addition to our food and everyday needs ecosystem.”
The race between Woolworths and Wesfarmers to get a hold of pharmacies could potentially trigger other grocery players, like Coles, to snap up its own chemist chain.
However, big retailers will have a fight on their hands as Pharmacy Guild expressed their scepticism towards the intrusion of supermarkets into the pharmaceutical industry.
The group said that there are "questions" around Woolworths' bid, questioning how a company that sells cigarettes could dole out prescription medicines.
Woolworths is on a race with Bunnings and Wesfarmers to acquire API. Credit: NCA NewsWire / Andrew Henshaw,
Strict rules about pharmacy retailing in Australia
Australia has a lucrative and tightly regulated pharmacy industry.
The regulations include limits on how many pharmacies can open in any one area, restrictions on chemists being within supermarkets, and forbidding pharmacies to operate if there is a door from them directly into the supermarket.
These regulations can be found in the Community Pharmacy Agreement (CPA) and are renegotiated every five years between pharmacists and governments.
Kmart’s parent company, Wesfarmers, also has its eyes to acquire the API. Credit: NCA NewsWire / Dean Martin.
Pharmacy market worth $22 billion
With no nearby competition, the Australian pharmacy is worth a whopping $22 billion annually and employs more than 75,000 people, according to a study published by research firm IBISWorld.
The biggest player in the market is Chemist Warehouse, followed by Amcal owner Sigma Healthcare, EBOS Group which includes Terry White, and then API.
Additionally, the government agreed to subsidise $16 billion worth of medicines to be distributed through pharmacies across the country and to provide another $1.1 billion for other medical services and diabetes support, according to the most recent CPA which came into effect in July 2020.
The COVID-19 pandemic has also caused pharmacies to score more cash as they help with the vaccine rollouts.
It must also be noted that one of the restrictions in the pharmaceutical industry is that there is a limit to the number of stores one company can own. With that in mind, popular pharmacies such as Priceline and Chemist Warehouse resort to franchising, partnering with larger firms to access the familiar brand and back end systems.
Priceline ‘rubbing hands in glee’
University of Canberra Associate Professor of Law Dr Bruce Baer Arnold said that API shareholders might be celebrating Christmas early.
“API are probably rubbing their hands in glee about competing bids and maybe even hoping that one of the big private equity funds will step in with a better offer,” he told news.com.au.
Pharmacies are increasingly becoming an attractive retail segment, according to University of Queensland Professor of Marketing Gary Mortimer.
Prof Mortimer said: “Pharmacy is now more than just simply a dispensary. It’s becoming the hub of community health care. You can go and get a booster shot, a travel vaccination, get your blood pressure and diabetes checked and seek weight loss advice."
“There’s a strong reason to buy into that category.”
Pharmacies are increasingly becoming an attractive retail segment, according to University of Queensland Professor of Marketing Gary Mortimer. Credit: NCA NewsWire / Sarah Marshall.
‘Questions’ around Woolies’ proposal
Pharmacy Guild of Australia, which represents many pharmacists, expressed their doubts regarding Woolies’ bid, with a spokesman saying: “The Guild has a number of questions surrounding this bid.”
“Why is a company with interests in the alcohol, tobacco, gambling and nightclub industries wanting to move into health care?"
“How does it hope to convince Australians that it is serious about their health and welfare?”
It must be noted that although Woolworths sell a lot of tobacco, the supermarket retailer's pubs and liquor division are now owned by a separate company — albeit one that it continues to have a minority stake in.
Woolworths promises no pharmacies in supermarkets
Woolworths CEO Mr Banducci insisted that pharmacies will not operate in the retailer's stores and that it will continue to run Priceline and Soul Pattinson stores with their current model.
“The rules are very clear: you can’t move a pharmacy into a supermarket. We have no plans to do that, and we don’t think it would be the right thing from a customer perspective anyway,” he told Nine newspapers.
However, Countdown, Woolies' New Zealand brand, has 38 stores with pharmacies operating in them. The supermarket giant has also notably been murmuring about putting pharmacies in supermarkets for two decades, going as far as trademarking the phrase "Pharmacy-in-Supermarket".
The model for Countdown stores is not similar to those of what most people think where cashiers dole out scripts at the checkout, rather, an area in the store is dedicated to a Countdown pharmacy. Countdown pharmacies feature private consultation rooms and employ dedicated pharmacists.
Another pharmacy household name, Chemist Warehouse is Australia’s biggest pharmacy group. Credit: NCA NewsWire / Sarah Marshall.
‘Pre-emptive strike’
Restrictions on the location of pharmacies could potentially be the main topic for the next CPA negotiations in 2025, according to Prof Mortimer.
The marketing professor said: “It does look like maybe it’s a pre-emptive strike from Woolies and Wesfarmers thinking, well, this might be the time that there’ll be some relaxation, maybe now’s the time to sort of making some noise in the market.”
He also said that while Coles has made no moves to acquire any pharmacy business, if Woolies succeeded in buying Priceline, the supermarket retailer would definitely take notes.
“Coles might look at pharmacy more urgently if a major competitor was looking to add that to their suite of businesses.”
Meanwhile, Canberra Uni's Dr Arnold expressed his doubts about Woolies' promise to keep the current model of pharmacies operating separately from their stores, noting that it may not last.
“The ‘we’re not interested in in-store (message) might be genuine or might just be what you expect them to say to keep the Australian Consumer and Competition Commission (ACCC) away,” said Dr Arnold.
“If the rules did change it would make sense to emphasise in-store, irrespective of current intentions.”
Another issue that Dr Arnold raised was that he was "not persuaded" that medicine prices would come down if supermarkets takeover chemists.
The law professor said: “Will independent community pharmacies be a dying breed, especially in areas where there’s a lot of disadvantage and no big supermarkets?”
He also noted that although the supermarket giant is not selling prescription medicines, similar pharmaceutical products — such as shampoo, moisturiser, cosmetics and non-prescription drugs — that Priceline sells are already available on the shelves of Woolworths stores.
“This is one of those deals where the ACCC should be asking some hard questions about public benefit,” the law professor said.
Although Woolies' bid to acquire Priceline is heavily-questioned, the possibility of the supermarket giant owning one of Australia's most popular chemist brands will definitely be the biggest shake-up in the country's retail industry.
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