Adapt to survive as grocery threat looms

woman shopping in pharmacy products beauty retail personal care

Demand from supermarkets and grocery stores is expected to rise this year, threatening industry revenue as pharmacies adapt to survive in a more competitive operating environment

Operators in the supermarket and grocery store industry are anticipated to continue expanding their range of unscheduled medicines and health and wellbeing products over the next few years, according to a new report released by IBISWorld this week.

Competition also exists from niche health and beauty retailers, discount department stores, general merchandise retailers, mail order and internet suppliers of retail goods, which are all curbing demand for pharmacy products, says IBISWorld senior industry analyst Arna Richardson.

Pharmacies compete directly with supermarkets and convenience stores over general retail products including baby products, bandaids, bandages, body- and hair-care products, sun-care products, vitamins, herbal products, aromatherapy and homeopathic products, optical products, film development services, cosmetics and beauty products.

IBISWorld industry analysts say this will heighten competitive pressure for pharmacies’ front-of-store sales, constraining profit within the industry.

However while supermarket demand for general retail products will grow over the next year, demand for cosmetic and toiletry items from department stores is expected to fall.

And while they also compete with supermarkets for some unscheduled medicines, pharmacies are “cushioned from competition” on S2 and S3 products.

Due to the imminent impact of these conditions, pharmacy industry revenue is anticipated to decline by 1.0% in the current year to reach $16.1 billion.

However this decline should not be long term, as revenue is forecast to grow at an annualised 1.1% over the five years through 2022-2023, to $17.0 billion.

Responding to intensified competition, industry operators now are moving towards new service-based models, offering remunerated professional services related to preventative and primary health care.

“These developments will prompt further moves away from the traditional pharmacy business model, as the industry adapts to survive in a dramatically different operating environment,” says Mr Richardson.

A growing number of pharmacies are also increasingly stocking cosmetics and beauty products as they attempt to increase front-of-store sales.

IBISWorld says some pharmacies have made inroads in this product category in the past five years.

Priceline Pharmacy, for example, has created a competitive brand that focuses on beauty and health services for women.

“We’re very focused on new and exclusive products and making sure we bring the best brands to market, and that we’re first to market also,” Priceline Pharmacy General Manager Tamalin Morton told AJP this month.

Who is your target market?

Consumers aged 45 to 64 are the largest market for the pharmacy industry, and this group is expected to account for 45% of revenue in 2017-18.

“With high disposable income, consumers in this segment are more likely to purchase front-of-store discretionary items such as cosmetics, fragrances and personal-care items,” the report says.

“Due to rising health consciousness within this age group, consumers in this segment are key consumers of vitamins and other health and wellbeing products.

“This age group is also more likely to purchase anti-ageing and over-the-counter products, particularly those designed to slow the visible effects of ageing.”

An ageing population will lead to a boost in retail sales for the pharmacy industry, the report heralds.

Key success factors for the pharmacy industry according to IBISWorld include:

  • Association or affiliation with a buying group or chain;
  • Stocking appealing products that are currently favoured by the market;
  • Employing knowledgeable and skilled staff to provide healthcare services;
  • An attractive store layout and stock display, to encourage customers to purchase front-of-store products in addition to prescription products;
  • Proximity to key markets, having a location with a high volume of passing traffic, and preferably near a medical centre; and
  • Adequate stock controls in place to reduce inventory costs and increase stock turns.

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