This $8.8 billion union may affect pharmacy retailing, ACCC reports

Affordable medicine and healthcare are essential aspects of everyday life, impacting individuals and communities alike.

However, recent trends of companies merging or acquiring smaller firms in the healthcare sector have raised concerns.

These consolidations can sometimes lead to monopolies, reducing competition and potentially driving up prices for medications and medical services.


The Australian Competition and Consumer Commission (ACCC) waved a cautionary flag regarding the proposed $8.8 billion merger between Sigma Healthcare and Chemist Warehouse.

This move could significantly reshape the landscape of Australia's pharmacy sector.

Combining Australia's largest pharmacy chain with a major wholesaler, this union sparked concerns about potential impacts on the overall consumer experience in pharmacies.


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The ACCC expressed merger concerns about Sigma Healthcare and Chemist Warehouse. Credit: Unsplash


After a three-month review, the ACCC's preliminary report suggests that the merger could hinder new entrants into the pharmacy market.

The watchdog was worried that the merger could have diluted the competitive tension between Chemist Warehouse and Sigma stores, potentially leading to higher customer prices.

‘This is a major structural change for the pharmacy sector, involving the largest pharmacy chain by revenue merging with a key wholesaler to thousands of independent pharmacies that in turn compete against Chemist Warehouse,’ Commissioner Stephen Ridgeway explained.

‘We have identified a range of preliminary competition concerns, including at the retail level and as a result of the proposed integration of the merged firm across the wholesale and retail level. We want to hear from interested parties, including rival pharmacies, as we continue this review.’


Sigma's stock price dropped nearly 10 per cent to $1.08 in the initial minutes of trading after the ACCC's announcement.

However, losses were mitigated later in the session, though the shares still closed down by 4.2 per cent at $1.15.

The company informed investors that the ACCC's ‘statement of issues’ did not come as a surprise, considering the complexities associated with integrating two large businesses.

Despite this, Sigma maintained that strong arguments supported the view that the merger would not impact competition.

‘We are co-operating closely with the ACCC and look forward to continuing to do so in the next phase of the merger review,’ Chief Executive Vikesh Ramsunder noted.

‘The proposed transaction will ensure that Sigma, consistent with its regulatory obligations, can continue to serve franchisee and independent pharmacies alike with a competitive offering whilst delivering a transformational change for all Sigma stakeholders.’


According to the ACCC, approving the deal would establish a company that is ‘uniquely vertically integrated across multiple levels of the pharmacy supply chain’, potentially reducing competition.

Chemist Warehouse's business model focuses heavily on 'front-of-store' sales, including cosmetics, vitamins, and other non-prescription items, which account for a significant portion of its revenue.

With over 600 stores across Australia, Chemist Warehouse has become a dominant player in the market.

On the other hand, Sigma Healthcare provides brand and support services to around 400 community pharmacies operating under various brands, including Amcal, Discount Drug Stores, PharmaSave, and Guardian.

If the merger proceeds, these franchises could face new challenges, as they would be directly competing with Chemist Warehouse.


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Sigma insisted that the merger won't affect competition. Credit: Sigma Healthcare / Facebook


‘In particular, we are focused on how the newly merged company may have the ability and incentive to favour Chemist Warehouse stores or worsen terms to non-Chemist Warehouse banner stores, raising their costs and rendering them less competitive,’ Mr Ridgeway said.

The ACCC has also raised the issue of how the newly merged entity might manage commercially sensitive data relating to the pharmacies supplied by Sigma.

There's a fear that the merger could reduce some pharmacies' effective wholesale supply options, affecting the choices and prices available to consumers.

‘The key issue is whether or not the proposed acquisition weakens competition in the supply of pharmaceutical products,’ Mr Ridgeway explained.


It's important to note that while the ACCC has not yet reached a final decision on the merger, it has called for further submissions by 27 June and is expected to make a ruling by early September.

Sigma's leadership, led by Michael Sammells, remained optimistic about the merger. However, they also acknowledged the need to retain key skills and expertise to drive Sigma forward should the merger not proceed.

Sigma had previously projected a cost of $60 million annually following the merged entity's initial four years.


In related news, Chemist Warehouse partnered with Cathie Reid and Stuart Giles, founders of the veteran cancer care service Icon Group.

Together, they formed Chemist Warehouse Hospital Pharmacy, initially targeting the Australian market with plans for international expansion. More details can be found here.
Key Takeaways
  • The Australian Competition and Consumer Commission (ACCC) has expressed concerns regarding Sigma Healthcare’s $8.8 billion merger with Chemist Warehouse.
  • The merger would combine Australia's largest pharmacy chain with a major wholesaler, which may lead to higher customer prices.
  • Sigma Healthcare’s share price fell following the ACCC announcement, although the company cooperated with the review and maintained that the merger would not negatively affect competition.
  • The ACCC has not reached a final view on the merger and is calling for submissions, with a final ruling anticipated in early September.
How do you feel about this potential merger? Are you concerned about how it might affect your access to pharmacy services and products? We’d love to hear your thoughts in the comments below.
 
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This is not a good thing As it obviously reduce competition. That is a reality for other retail/wholesale industries that give Australian consumers higher prices because of low competition partly attributed to our relatively small population and the weak state of manufacturing and ownership that exists. Australia prefers to just import significant elements of its needs rather than make them here.
 
This merger should not happen. It will end up being the same as the supermarket duopoly, and we know what is happening there. Also, the wholesaler should stay away from all retailers and just supply them with their goods.
 
If this occurs it will be like the 'Bunnings' take over pushing the little guys (hardware shops) out of the market because they can not compete with the size and power of Bunnings. The take overs take away our choice. It has happened with the two large supermarket companies too. Look at where we are now with them in control. A bad move!
 
I have no idea about how the potential merger will affect the prices to consumers. I do have a warning about Cemist Warehouse prices.

Just before last Christmas, I was diagnosed with a new condition which needs a very specific medication. My GP warned me that it would be expensive. On my way home, I was tired, and just assumed Chemist Warehouse would be at least amongst the cheapest. Fortunately for me, they didn’t have my new medication in stock, so I asked the price, and took my script with me.

They are *still* the most expensive I have found. Discount Pharmacy is the cheapest. My doctor was right - phone around and see which pharmacy has the best price for what you need!
 
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Monopoly capitalism is the death of free enterprise. That sounds like Marxist drivel, but, oddly enough it is also true. It is also the same argument that is applied to Government capitalism by those who support monopoloy capitalism, sorry, free enterprise. Which is why the board game Monopoly is really rather nasty. Just buy the properties coloured orange between the Gaol and Free Parking and build on those whilst extending your empire to the red , yellow and green properties, and you shall win, reducing your small kids to tears.

And that, Dear Reader, is why I gave up playing Monopoly.
 
Monopoly capitalism is the death of free enterprise. That sounds like Marxist drivel, but, oddly enough it is also true. It is also the same argument that is applied to Government capitalism by those who support monopoloy capitalism, sorry, free enterprise. Which is why the board game Monopoly is really rather nasty. Just buy the properties coloured orange between the Gaol and Free Parking and build on those whilst extending your empire to the red , yellow and green properties, and you shall win, reducing your small kids to tears.

And that, Dear Reader, is why I gave up playing Monopoly.
That's why I play Monopoly against my laptop.

Real laptops don't cry....
 
Love Chemist Warehouse. Have to drive a long way to access and then there are two located close to each other. I save at least $60 each time for non script medication. In NSW it seems it’s alright to merger Councils -😡 but heaven help businesses.
 
I use a smaller pharmacy chain that provides excellent service and good prices. I am an aged pensioner living off the pension which is my only income therefore cost is important. Other than buying groceries from Woolworths who deliver them to me, I try to buy other stuff from smaller retailers because it is generally found that their pricing is either similar to or less than the big monsters. That is my thoughts on this. I think major monopolies are price ghosting.
 
You are paying too much for delivery. I pay $2 to have my groceries delivered by Coles
 
You are paying too much for delivery. I pay $2 to have my groceries delivered by Coles
With Woollies I pay a monthly fee of $13.95 which gives me as many deliveries per month as I wish with no delivery charge. My pharmacy delivers free of charge.
 
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A dominant wholesaler merges with a dominant retailer. So for those smaller businesses who buy from the wholesaler how much do they pay in comparison with the prices charged by the merged dominant retailer?

That is a conflict of public interest.
 
With Woollies I pay a monthly fee of $13.95 which gives me as many deliveries per month as I wish with no delivery charge. My pharmacy delivers free of charge.
Indeed, a very good price. I pay Coles $19 per month for the same level of service. Even the rapid 2 hour turn around is included with no extra charge.

All of a sudden though I feel an urge to try out the Woollies service and put the $5 difference in my own pocket. Offsetting the energy bill comes to mind as well.

Sum total of all the little things that make a massive difference over a lifetime.

Cheers Mr Chips for that tidbit of information. 👏;)

In part, it was the expectation of that type of information swapping was why I joined SDC.
 
A dominant wholesaler merges with a dominant retailer. So for those smaller businesses who buy from the wholesaler how much do they pay in comparison with the prices charged by the merged dominant retailer?

That is a conflict of public interest.
Yes, let's hope those decision makers don't see it as part of the way 'free enterprise' operates in their way of thinking.
 
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