As a result, competition is getting fiercer and companies are fighting a price war, which leads to a decline in sales in the areas considered as good locations for business.
“86% of the patients of a pharmacy come from a 500-meter radius around that pharmacy. The traditionally good locations of this city are well known (the major intersections i.e.). Whereas two or three pharmacies used to operate there before (2010 i.e.) suddenly two or three more popped up,” Wencz told ZF in an interview.
“And then patients became divided. To be able to cope with the newcomers and protect their business, the old pharmacies started a price and promotion war with the new ones looking to gain customers.”
This led to a situation where none of them is making any profit despite being in a very good location in Bucharest, Wencz added.
Dona is one of the largest pharmacy chains in Romania, operating about 230 pharmacies. It expects turnover to exceed 800 million lei (EUR178 million) this year.
The operation of pharmacies and their number are regulated by the law, which allows one per no more than 3,000 people in Bucharest. County seats may have one pharmacy per 3,500 people, while other cities one per 4,000 people. There are no limitations in rural areas.
However, an exception to the demographic rule between 2005 and 2010 allowed for the opening of pharmacies in shopping centers. At the time, no pharmacy in a shopping center was allowed to move in a street front location, but the rule changed and the pharmacies that wanted to relocate became free to do it.
Ovidiu Wencz says about 1,000 pharmacies created by the exception to the demographic rule are currently in business in Romania. National Statistics Institute data show 5,347 pharmacies were in business in 2006 and the number had gone up to 6,969 by 2011.
Bucharest has 960 operational pharmacies, although the number should be lower, 667, based on the demographic rule, Ovidiu Wencz says.
The pharmacies created by the exception to the demographic rule and allowed by the Health Ministry to relocate became competition for the old pharmacies in their good locations, which drove turnover and margins down 30% to 35% right away, Farmaciile Dona’s boss says.
Wencz says this has created a situation where no one is making any money any more.
The fierce competition is only part of the problem retail pharmacies are facing, considering the deregulation of the market is drawing near. The demographic criterion now regulating the number of pharmacies should be dropped as of 2015, unless the government does something to postpone it as it has in the past few years.
Most European countries do have a demographic rule in place, except for Greece, where Wencz says deregulation led to a decline in the number of pharmacies.
The deregulation will make a strong impact on the pharmaceutical retail and also affect wholesalers and producers and maybe even lenders.
“The whole merchandise-money-merchandise process will be disrupted. What wholesaler will have the confidence to give products to an indebted pharmacy without any guarantees? Banks will lose, too, because they will request more guarantees. This can be expected to be the straw that will break the camel’s back for those pharmacies teetering on the verge of bankruptcy.”
Pharmacies are now pledging their licenses as collateral to get merchandise delivered, Wencz says, but the deregulation will render such licenses worthless.
“The license is the last resort for a pharmacy to get its products. If you don’t give a wholesaler a guarantee, it doesn’t give you any more merchandise.”
A license is now worth EUR100,000 and if multiplying that by 7,000 pharmacies means EUR700 million, which will go away. EUR700 million worth of guarantees will disappear from the pharmaceutical chain after deregulation and adjustments will have to be made, which will lower the rating of wholesalers when dealing with producers, Wencz says.
“On a completely deregulated market, when there are no real guarantees left, many pharmacies will prefer to go bankrupt and open up shop across the street. The risk of very high losses for wholesalers and banks will surge.”
Total retail pharmacies sales amount to EUR3 billion, of which drugs account for about EUR2.6 billion. (EUR1=RON4.4926)
(English version by Loredana Fratila-Cristescu)