UniPhar builds market share by fostering client shop ownership

Jim Canavan emphasises the irony he believes characterises the investigation by the Competition Authority of his group's purchase of the T.P. Whelehan wholesale business.

The wholesale pharmaceutical business is hugely competitive, he says. There are three main players and they all sell the same goods at the same price, and it is because of this that competition between them is so intense.

Because they can't compete in terms of price, they have to compete in terms of the service they provide to their customers. It is for this reason that pharmacies can have supplies delivered to them more than once a day by the same wholesaler.

If, on any particular day, your firm is not the easiest to source a delivery from, then the pharmacist will switch to a rival wholesaler. Most pharmacists use more than one wholesaler.

Competition between wholesalers for market share is intense because the Irish market has been displaying double-digit growth for the past number of years. There is much to play for.

As chief executive of UniPhar, Mr Canavan believes he has the right to feel pleased about the performance of his group in terms of maintaining and increasing its share of the wholesale market. Profits were up 21 per cent in 2003, to €9.3 million from €7.7 million. Sales rose by 17 per cent to €407.8 million.

"Annualised turnover is getting to €500 million, excluding the T.P. Whelehan deal." The Whelehan deal will bring in just under €100 million more in terms of turnover.

The deal, believed to be worth between €45 million and €50 million, is being investigated by the Competition Authority.

While he remains confident that the deal will be approved by the authority, "I expected it to be approved before now. It is the first case under the new act where a case has been referred to the assessment phase."

The UniPhar group has 28 to 29 per cent of the wholesale market in the Republic.

The T.P. Whelehan deal, provided it goes ahead, will add another 4 to 5 per cent.

A key element in UniPhar's strategy for maintaining and growing its position has been its Independent Pharmacy Ownership Scheme (IPOS), a scheme whereby UniPhar helps individual pharmacists buy their first pharmacy.

By assisting pharamacists in this way, Mr Canavan hopes to create loyal UniPhar customers, something he believes will occur as long as the service being provided is as good as that being offered by competitors.

UniPhar's growth in recent years has been greater than that of the market overall, so it is increasing its market share. The same holds true for United Drug. The entity losing market share would seem to be Cahill May Roberts (CMR).

While UniPhar has a scheme assisting individual pharmacists in buying their first pharmacy ("it is a first-time buyers' service", he says), United Drug has a scheme which tends to be more used by pharmacists buying a second or third retail outlet.

CMR has been involved in the direct purchase of outlets, something that has not been well-received in some quarters and which may not have been pursued to sufficient scale.

Mr Canavan is keen to make the point that the pharmacies purchased under the IPOS scheme do not form a group. He says the recent purchase of the Walsh Pharmacy Group, which has 14 outlets in Cork and Tipperary, is a good example.

"They are a group now. When we have finished, they will be 14 individual pharmacies."

The purchase involved a reported price of €50 million to €55 million. While he will not comment on the deal, he says that generally pharmacies are being bought for multiples of between one and two times turnover.

The average is approximately 1.4 times turnover. IPOS has been around for three years.

The scheme usually involves a 10- to 15-year buyout for the purchasing pharmacist. The Walsh-group purchase brings the total number of outlets bought under the scheme to 105, of which approximately 60 have been sold on to purchasing pharmacists.

The others have not yet been sold on because it can take time to disentangle groups and prepare the individual outlets for sale. "We don't want to be managing these pharmacies but it takes time," he says.

"With a group, it can take up to a year, but we are determined to get purchasing pharmacists for them as quickly as possible.

"Our motivation is in securing the wholesaling business into these shops."

There is no vertical integration involved, he insists.

Mr Canavan says he does not believe there is any competition issue involved as there is no contractual relationship between the pharmacists and UniPhar.

"It is not a contractual relationship, though obviously we do expect that they will do business with us.

"It is about relationship. We like to think that if we give them our support, then the least we can expect is their custom."

The IPOS scheme also involves various backup services being offered to participating pharmacists, such human resources and payroll.

The Walsh group did not use UniPhar as its primary wholesale supplier prior to the purchase, an additional perk arising from the purchase of the group, but such matters are not key issues when making a purchasing decision, he says. The UniPhar group was formed in 1994, from two groups formed in the 1970s along co-operative lines.

The group's shares are held by 450 community pharmacists and no shareholder owns more than 2 per cent.

As well as the UniPhar wholesale business, a subsidiary, Allphar, operates an agency or distribution business.

Agencies are the entities that import pharmaceutical products for sale on to wholesalers, who then have the task of distributing the products to individual pharmacists.

Agencies also sell to hospitals. Approximately 60 per cent of UniPhar's turnover comes from its wholesale business.

Mr Canavan puts the double-digit growth in the pharmacy sector in recent years down to a number of factors. These are: the economy; the rise in disposable income; the ageing population; the increasing population; and some government initiatives.

The price of pharmaceutical goods is determined in negotiations between the State and producers' representatives. There have been no price increases sanctioned since 1993.

However, new products to the market can set their price. Also, many products of recent years treat chronic ailments that were previously untreatable and do so by way of continuing dosages.

Mr Canavan believes the pharmacy sector is looking good for future years.

He believes the Government, by way of the new healthcare executive, will be looking to cut pharmaceutical costs, but counters that Irish per capita spend on pharmaceutical products is one of the lowest in Europe.