Based on the results of the first half of 2017, about 61,000 pharmacies were active in Russia, according to the analytical company AlphaRM. In a year or two, 15 to 20 pharmacy chains will account for 50 to 60% of the total market. Within them, a dominant position will be shared by three or four companies that will be able to competently manage various technological tools. This is the forecast concerning the largest players. However, according to RNC Pharma analysts, Russia has about 10,000 pharmacies, which are neither part of large networks, nor members of marketing associations. Choosing the principle “I am on my own,” these companies risk becoming bankrupts tomorrow, according to some experts.
SOME BREAD OR NEW SHOes?
No one is surprised anymore at a situation when two pharmacies belonging to different owners share the same premises, while a third pharmacy is just around the corner. The experts call this model “door to door.” It is fairly easy to identify the winner in this fight. If a federal pharmacy opens next to an independent one, it almost always means bankruptcy for the latter.
According to the analysts of RNC Pharma, there are about 10,800 independent pharmacies in Russia, of which nearly 7 thousand are super-independent, not participating in any associations. According to AlphaRM, their largest number is concentrated in the Moscow region, Moscow, and the Krasnodar Territory. Thus, the share of individual pharmacies and small local pharmacy chains is declining, AlphaRM observes. It amounted to 39% of the total number at the end of 2016, and to 37% in the second quarter of 2017.
“Among non-network pharmacies, there are many companies that are managed by strong business executives. In fact, they run their business to support their families, not to buy new cars color-matched with their new shoes,” says RNC Pharma’s Development Director, Nikolai Bespalov.
Such companies are very interesting as potential partners, but they are extremely reluctant to participate in associations: 65% of single pharmacies are not members of any unions.
“Whether small pharmacy chains will remain afloat, is a rhetorical question. Their business is getting more difficult every year, because of active consolidation processes in this field,” the analyst adds.
WHICH WAY TO GO?
Based the results of the first quarter of 2017, Medico-Pharmaceutical Association of Small Businesses, ProApteka, and Vesna are ranking first among pharmacy associations. Logically, the Association of Independent Pharmacies (ASNA) was to occupy the first position in the rating, but analysts classified it as a pharmacy chain, due to a deeper level of integration of business processes. At the moment, ASNA unites 6,000 pharmacies, claiming that it creates a unique management model that makes it possible to successfully compete with federal-owned pharmacies.
“Our partners are pharmacy chains, led by active and highly educated owners and managers realistically assessing the market’s prospects. While one can argue about ASNA being good or evil, the association increases the budget of any regional network at least by 1.5 or twofold,” says the managing partner of the association, Alexander Kondratiev.
The association ProApteka founded by the distributor CV Protek includes about 2.5 thousand pharmacies. ProApteka gives independent pharmacies all the advantages of large pharmacy chains, which increases profitability, sustainability and competitiveness,” says Evgeny Korotkov, general director of the association.
The project Vesna includes 700 participants. In the current year, it plans to connect 1.2 thousand participants using its proprietary software product. “First of all, we communicate with the pharmacies in which no one else has any interest. There are few companies who want to work with non-network retail. We give pharmacies the opportunity to try earning money on marketing. It should be noted that a significant number of pharmacies still do not understand what marketing is. We offer them an educational program first, and begin to talk about work later,” explains the general director of the association Alexander Friedman.
STEADFASTTOTHELAST
However, let’s return to those 7,000 super-independent pharmacies who fear losing their freedom most of all. As a manager of one pharmacy chain who did not want to publish its name explained to PhV, the main reason for conducting business independently is the fear of becoming dependent on the decisions of an association, although he acknowledged that the aggressive expansion of federal networks in his region could wipe out small and medium retailers like a tsunami. All the same, small companies are not in a hurry to make any decision.
“The problem of the “federals’” expansion is so serious that it will become an inevitable reality much earlier than one might expect,” warns Alexander Kondratiev. According to Evgeny Korotkov, only 5% of all the independent pharmacies will be able to maintain their positions. “For the pharmacies with large turnover and stable qualified personnel, this is not a matter of life and death,” he adds.
The problem of losing independence is relative. As Alexander Friedman says, a company can be part of a large network or association and still remain independent. So why are individual pharmacies so reluctant to join associations? The secret is simple, says Alexander Kondratiev: “Sometimes we meet a violent resistance at the office level. What makes hired professionals so determined not to allow ASNA negotiations with business owners? I think it makes one wonder whose interests the pharmacy staff pursues: their own ones or the owner’s.”
Returning to the situation of opening pharmacies in the door-to-door model, Alexander Kondratyev notes that the moment when a pharmacy chain has to declare bankruptcy is often unexpected for its owner.
According to Nikolai Bespalov, some absolutely independent pharmacies will remain afloat, mainly due to “emotional marketing.” “Unfortunately, independent business people are usually very poorly protected both with respect to property rights and with regard to credit opportunities,” he adds.
Network business has its advantages. Among them, risks diversification, direct agreements with manufacturers, and modern pricing models. The scale effect begins to work, allowing the owners to think about buying new cars color-matched with their new shoes. Which is not bad.
Based on the results of the first half of 2017, about 61,000 pharmacies were active in Russia, according to the analytical company AlphaRM. In a year or two, 15 to 20 pharmacy chains will account for 50 to 60% of the total market. Within them, a dominant position will be shared by three or four companies that will be able to competently manage various technological tools. This is the forecast concerning the largest players. However, according to RNC Pharma analysts, Russia has about 10,000 pharmacies, which are neither part of large networks, nor members of marketing associations. Choosing the principle “I am on my own,” these companies risk becoming bankrupts tomorrow, according to some experts.
SOME BREAD OR NEW SHOes?
No one is surprised anymore at a situation when two pharmacies belonging to different owners share the same premises, while a third pharmacy is just around the corner. The experts call this model “door to door.” It is fairly easy to identify the winner in this fight. If a federal pharmacy opens next to an independent one, it almost always means bankruptcy for the latter.
According to the analysts of RNC Pharma, there are about 10,800 independent pharmacies in Russia, of which nearly 7 thousand are super-independent, not participating in any associations. According to AlphaRM, their largest number is concentrated in the Moscow region, Moscow, and the Krasnodar Territory. Thus, the share of individual pharmacies and small local pharmacy chains is declining, AlphaRM observes. It amounted to 39% of the total number at the end of 2016, and to 37% in the second quarter of 2017.
“Among non-network pharmacies, there are many companies that are managed by strong business executives. In fact, they run their business to support their families, not to buy new cars color-matched with their new shoes,” says RNC Pharma’s Development Director, Nikolai Bespalov.
Such companies are very interesting as potential partners, but they are extremely reluctant to participate in associations: 65% of single pharmacies are not members of any unions.
“Whether small pharmacy chains will remain afloat, is a rhetorical question. Their business is getting more difficult every year, because of active consolidation processes in this field,” the analyst adds.
WHICH WAY TO GO?
Based the results of the first quarter of 2017, Medico-Pharmaceutical Association of Small Businesses, ProApteka, and Vesna are ranking first among pharmacy associations. Logically, the Association of Independent Pharmacies (ASNA) was to occupy the first position in the rating, but analysts classified it as a pharmacy chain, due to a deeper level of integration of business processes. At the moment, ASNA unites 6,000 pharmacies, claiming that it creates a unique management model that makes it possible to successfully compete with federal-owned pharmacies.
“Our partners are pharmacy chains, led by active and highly educated owners and managers realistically assessing the market’s prospects. While one can argue about ASNA being good or evil, the association increases the budget of any regional network at least by 1.5 or twofold,” says the managing partner of the association, Alexander Kondratiev.
The association ProApteka founded by the distributor CV Protek includes about 2.5 thousand pharmacies. ProApteka gives independent pharmacies all the advantages of large pharmacy chains, which increases profitability, sustainability and competitiveness,” says Evgeny Korotkov, general director of the association.
The project Vesna includes 700 participants. In the current year, it plans to connect 1.2 thousand participants using its proprietary software product. “First of all, we communicate with the pharmacies in which no one else has any interest. There are few companies who want to work with non-network retail. We give pharmacies the opportunity to try earning money on marketing. It should be noted that a significant number of pharmacies still do not understand what marketing is. We offer them an educational program first, and begin to talk about work later,” explains the general director of the association Alexander Friedman.
STEADFASTTOTHELAST
However, let’s return to those 7,000 super-independent pharmacies who fear losing their freedom most of all. As a manager of one pharmacy chain who did not want to publish its name explained to PhV, the main reason for conducting business independently is the fear of becoming dependent on the decisions of an association, although he acknowledged that the aggressive expansion of federal networks in his region could wipe out small and medium retailers like a tsunami. All the same, small companies are not in a hurry to make any decision.
“The problem of the “federals’” expansion is so serious that it will become an inevitable reality much earlier than one might expect,” warns Alexander Kondratiev. According to Evgeny Korotkov, only 5% of all the independent pharmacies will be able to maintain their positions. “For the pharmacies with large turnover and stable qualified personnel, this is not a matter of life and death,” he adds.
The problem of losing independence is relative. As Alexander Friedman says, a company can be part of a large network or association and still remain independent. So why are individual pharmacies so reluctant to join associations? The secret is simple, says Alexander Kondratiev: “Sometimes we meet a violent resistance at the office level. What makes hired professionals so determined not to allow ASNA negotiations with business owners? I think it makes one wonder whose interests the pharmacy staff pursues: their own ones or the owner’s.”
Returning to the situation of opening pharmacies in the door-to-door model, Alexander Kondratyev notes that the moment when a pharmacy chain has to declare bankruptcy is often unexpected for its owner.
According to Nikolai Bespalov, some absolutely independent pharmacies will remain afloat, mainly due to “emotional marketing.” “Unfortunately, independent business people are usually very poorly protected both with respect to property rights and with regard to credit opportunities,” he adds.
Network business has its advantages. Among them, risks diversification, direct agreements with manufacturers, and modern pricing models. The scale effect begins to work, allowing the owners to think about buying new cars color-matched with their new shoes. Which is not bad.
Read more: https://www.pharmvestnik.ru/publs/lenta/v-rossii/lovisj-boljshaja-i-malenjkaja-prnt-17-m8-895.html