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Analysis

Pharmacy Chain Expansion

Wed, 09/09/2015 - 11:02

Many large chains are emerging to dominate the pharmacy market, acquiring larger market shares through lucrative franchise schemes. As a result, independent pharmacies are being forced out of business, or are creating strategic alliances within the industry, as a lack of purchasing power hinders their ability to compete.

New chains are emerging and growing within the market. Fármacos Especializados was founded in 1978 with an initial range of 14 products. Now, the chain has national coverage and provides a wide range of medications and patient centered programs. Through franchising, Farmacias del Ahorro has a country-wide network of over 1,000 stores and Farmacias Similares, part of the Grupo Por Un Pais Mejor conglomerate, has more than 5,000 stores across Mexico, Chile, and Guatemala.

Retailers in other fields are also capitalizing on the business potential. In 2013, Coca-Cola FEMSA, acquired more than 100 drug stores and pharmacies from Farmacias FM Modernas to add to the portfolio of its retail subsidiary FEMSA Commercio. The company had already acquired a 75% share of over 400 drug stores in 2012 from Farmacias YZA. By replicating the business model used to establish its network of OXXO convenience stores, FEMSA has further expanded its reach into the growing pharmaceutical industry.

Sanborns, part of the Grupo Carso conglomerate, has also included pharmacies within their 125 stores. In 2009, the department store began the manufacture and sale of its own brand of generic medication. In 2015 supermarket chain Walgreens had more than 8,000 drugstores worldwide, with over 600 stores in Mexico. Walgreens Boots Alliance acquired 1,030 stores from Farmacias Benavides in 2015, an empire spread across 183 cities and 22 states. The company already has global experience in the pharmacy market with its UK high street chain Boots and worldwide subsidiaries. The increase in the number of chains and decrease in the amount of independent stores can be largely explained by the growing generics market in Mexico, according to a 2013 OECD report. In addition to the prevalence of franchising, this sub-sector of pharmaceuticals has largely benefitted larger companies due to the significance of purchasing power. “The interest of supermarkets,” states the report, “is explained not only by their ability to negotiate favorable price terms but by the gains from economies of scope.” In this way, creating significant franchises supplying largely generic medication has proven to be an effective strategy in creating and expanding the market presence of multi-national companies.