Community pharmacy, also known as retail pharmacy, is the most common type of pharmacy and gives the public access to medication and advice regarding their health. Indah Roesyanto, associate, Paul Fegan, senior engagement manager, and Henry Elphick, chair of Mansfield Advisors analyse the different approaches taken in Europe to a segment of the market that plays a critical role in the delivery of primary care.
Most community pharmacies have a commercial store offering a combination of medicinal goods only available with a prescription (Rx) and those that can be purchased over the counter (OTC). Community pharmacists are considered to be some of the most accessible healthcare professionals because they are available to provide services on a walk-in basis. In 2019, the number of community pharmacies per 100,000 people ranged from nine in Denmark to 88 in Greece, with an average of 28 across OECD countries (see Figure One).
Large addressable market with no clear pan-European winner
In 2021, the pharmacy market in Europe was worth €240‒300bn, of which Rx represented a share of around 80%. The rest of the market consists of OTC drugs and personal care (PC), making up roughly €40‒50bn. Germany has the largest pharmacy market in Europe by value (see Figure Two).
Europe’s retail pharmacy markets are highly fragmented, but in recent years the sector has been steadily consolidating, with the development of pharmacy chains possessing extensive portfolios.
Every country is very different. Great Britain, for example, has roughly 13,000 community pharmacies of which 8,000 belong to chains of various sizes. In Switzerland, around 86% of pharmacies belong to groups or corporations, with the remainder standalone operations. In contrast, German law requires that a pharmacy be owned and operated by a pharmacist, with an individual pharmacist only allowed to own up to three locations. Consequently, there are 20,000 pharmacies in Germany and no large chains.
Evolving role of pharmacies with technology
As innovations in life sciences and new technology disrupt the healthcare value chain, consumers increasingly focus on well-being and demand greater healthcare access/convenience. Exciting opportunities for pharmacists to evolve and expand their roles are emerging.
Traditionally, the community pharmacist’s role was to dispense patient medications on receipt of a prescription from their doctor. However, the pharmacist’s role has more recently evolved to encompass other health initiatives, such as vaccinations and clinical consultation. Moreover, the integration of new technology has been transformative in optimising pharmacy workflows, especially in online delivery, which currently represents 1% of Rx and 7% of OTC/PC sales. Online sales are expected to continue rapid growth.
The ePharmacy market in Europe is forecast to grow at a CAGR of 17.6% over the next five years (2022‒2027). This will be driven by shifting consumer preferences: an increased desire for convenience; increasing usage of smartphones and tablets; and rising demand for doorstep deliveries ‒ often due to the lack of product availability in pharmacy stores. Growth will be propelled by large online pharmacies such as Zur Rose Group, Shop Apotheke, and Atida Europe which offer a seamless online customer experience and fast deliveries throughout Europe.
Value-adds beyond dispensing
Doc Morris, the brand owned by Zur Rose Group, is a Swiss pan-European ePharmacy company that generated CHF1.5bn in revenue during 2021. It serves more than 12 million active customers across Europe, with Germany and Switzerland its core markets. Zur Rose Group has grown through a series of acquisitions, such as Vitalsana in the Netherlands, PromoFarma in Spain, and Medpex and Apotal in Germany. Strong e-commerce expertise has enabled Doc Morris to provide a best-in-class digital health ecosystem experience and has resulted in the company achieving the strongest brand awareness in Germany at 68% (see Figure Three). Doc Morris is exploring strategic options including a possible sale, with Bloomberg reporting that talks with potential buyers are already taking place.
Founded in Germany in 2001, online pharmacy Shop Apotheke Europe is one of the fastest growing ePharmacies with 8.6 million active customers across Europe. Shop Apotheke operates in key EU markets, including Germany, Austria, France, Belgium, Italy, the Netherlands, and Switzerland. It is growing at an impressive rate, reaching 11% CAGR (H1 2021‒H1 2022) and returning €592m in revenue through H1 2022. In April 2022, Shop Apotheke continued to shape the future of online pharmacies with the acquisition of ePharmacy start-up, FIRST A, a pioneering quick-commerce player in the German pharmacy market. The start-up promises to deliver pharmacy-only drugs and OTC products to customers’ homes on order in under 30 minutes.
Furthermore, German-based digital pharmacy, Atida (previously Aponeo) is transforming the pharmacy landscape by providing a trusted and personalised health ecosystem that caters to both proactive and curative needs. Atida not only offers an online pharmacy to dispense prescriptions, but also holistic preventative solutions through a range of personalised vitamins and supplements. Just like Zur Rose and Shop Apotheke, Atida has been growing via a series of acquisitions across countries and currently serves over 4 million active customers (see Figure Four).
In the UK, Aurelius Equity Opportunities, an asset management group, completed a £477m deal to acquire McKesson UK, the parent company of LloydsPharmacy’s 1,300 pharmacies, which gives Aurelius access to the ePharmacy market through LloydsDirect, an app that caters to the whole family and enables individuals to manage prescription medicine for older family members, and even friends.
Also in the UK, G Square Capital invested in Pharmacy2U, UK’s largest NHS online pharmacy, to support the rapid growth of its online NHS repeat prescription service. Pharmacy2U was founded in 1999 and has become the largest digital pharmacy in the UK after its 2016 merger with ChemistDirect. A €40m capital increase will see Pharmacy2U further invest in technology to ensure its infrastructure keeps pace with customer demand. Pharmacy2U is capable of dispensing 1 million prescription items each month. In 2018, Pharmacy2U experienced an exceptional 212% growth in customer numbers, which saw it win the ‘Amazon Growing Business of the Year’ award.
New digital solutions emerging
Even though the German Association of Pharmacists is collecting signatures to a nationwide petition demanding a stop to the sale of medicine over the internet, new digital entrants continue to appear.
Berlin-based MAYD (Meds At Your Doorstep) has identified an opportunity to build out a medicine delivery platform in Europe that partners with small-scale pharmacies to capitalize on the accelerated demand for on-demand delivery. The startup, which was only founded at the beginning of 2021, has bagged €43m in seed funding to build out its vision of delivering meds to the doors of European customers ‒ within 30 minutes. With regulatory restrictions and market fragmentation in Germany, it is expected that MAYD will gain traction as the ‘white label’ digital solution for independent pharmacies.
Similarly, Phoenix UK bought the digital prescription service Co-op Health to compete with Pharmacy2U in 2021. Phoenix plans to roll out through Numark and Rowlands pharmacies, offering the convenience of online access for patients with personal face-to-face professional advice. Additionally, several brick-and-mortar pharmacy chains in the UK are also looking to launch online delivery services. Like LloydsDirect, Avicenna’s ‘Manage My Meds’ app allows customers to easily order and track their NHS prescriptions. This app is geared towards older patients on repeat prescriptions to ensure they receive their medication on time.
Finally, Amazon registered its ‘Amazon Pharmacy’ trademark in the UK at the end of 2020. It is set to launch in the UK after its planned pharmacy launch in the US. Almost 50% of current UK Amazon Prime users have said they would purchase drugs from Amazon Pharmacy, which amounts to 20 million potential customers. It will force existing pharmacies to come up with new ways to retain customers.
Germany: Primed for ePharmacy disruption
The UK ePharmacy market saw a rapid increase (48%) in items dispensed during the first year of Covid (March-August 2020) with Pharmacy2U outpacing the average rise (65%). This is partly due to patients choosing to ‘nominate’ Pharmacy2U through the NHS e-prescription service.
UK’s ePharmacy growth slowed in 2022, but it is still projected to strongly increase thanks to three major factors:
- High e-prescription penetration at 91%, allowing patients to ‘nominate’ or switch to an online pharmacy easily
- New entrants raising awareness of online deliveries, making it easier for more established players to acquire new customers
- Strong investment in digital capabilities by traditional players, actively expanding the online pharmacy market
The UK market, however, will also experience headwinds that could slow ePharmacy growth. Pharmacy chains have invested in new technologies, like remote fulfilment of prescriptions from centralised hubs, which frees up pharmacists to spend more time with patients. With the workforce crisis in GP practices, more patients are turning to pharmacists for advice and the NHS is incentivizing pharmacies to deliver. Investing in telemedicine would enable ePharmacies to offer consultations, but brick-and-mortar pharmacies will continue to play a significant role, even if most repeat prescription volume moves online.
In contrast, Germany’s ePharmacies are uniquely placed to exploit the regulation of OTC drug sales. In the UK, OTC drugs are cheap and widely available in supermarkets, while in Germany, most can only be sold by pharmacies, either in stores or online. Online pharmacies can offer OTC products at lower prices than a traditional pharmacy, alongside other personal care products. According to Zur Rose: ‘Non-prescription drugs and health products are up to 40% cheaper.’
As a result, German ePharmacies have been developing an OTC customer base that could be easily transformed into a prescription medicine customer base.
Germany also shows additional potential for several key reasons (see Table One): it is the largest market in Europe and is highly underpenetrated ‒ with online-only accounting for 2‒4% of total pharmacy sales versus the UK’s 10-12%; favourable demographics, such as an aging population, increasing prevalence of chronic disease, more demanding consumers, and increasing mobile penetration will drive demand for online pharmacies; and strict regulation has created a highly fragmented brick-and-mortar market, effectively forcing pharmacies to run on very thin margins.
By contrast, online pharmacies can operate as national players to drive scale and improve margins.
Finally, the most important reason: after several false dawns, electronic prescriptions are likely to become mandatory. Pilots are currently rolling out in two states before a nationwide push is expected in 2023.
German e-pharmacy growth will be boosted by plans for patients to get a digital prescription from their doctor that can be sent to a pharmacy to fulfil, with reimbursement of the associated health insurance claim tied in. With a strong OTC customer base already in place, it’s just a matter of time before online pharmacy players seize the e-prescription opportunity to inject new momentum into the e-pharmacy market and improve profitability.
Conclusion
While the internet has transformed traditional retail (for good and bad), the impact of online or ePharmacy on ‘bricks and mortar’ pharmacies is still emerging. Technological changes, like e-prescriptions, remote fulfilment and dispensing from centralised hubs, and fast delivery can help traditional community pharmacies thrive just as much as they can propel growth in online pharmacies. Examples of businesses in Germany and the UK show how the unique circumstances of each country, from regulation to patient behaviours, will shape the future of ePharmacy. Germany has the greatest potential.
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