With the opening of the first rebranded Lloyds Pharmacy this Friday, parent Gehe, the German drugs giant, is revealing its battle plan for the UK pharmacy market.
But with the abolition of resale price maintenance (rpm) in non-prescription drugs high on the Government’s agenda, the newly- revamped Lloyds Pharmacy may require more than a 70m shop refit to secure its future.
The abolition of rpm will allow free competition in the pricing of over-the-counter (OTC) drugs. But it will give supermarkets the ability to undercut independents, threatening many of the UK’s 12,500 chemists. Verdict Research says there are too many UK chemists and 2,000 “need to be culled”.
Last Thursday, the Lords supported an amendment to the Competition Bill, which would force the Office of Fair Trading to abandon its challenge to rpm until 2004. The issue is due to come before the Commons in April.
Delaying the abolition of rpm will give pharmacies time to adapt to a changing market. That is essential for the enlarged Lloyds chain which is positioning itself as a local community group. The Government is pushing for pharmacies to perform a wider service in primary healthcare, freeing up time for doctors. The opponents of rpm see it as a tax on the sick to maintain an inefficient community pharmacy sector.
Gehe, Europe’s largest drugs wholesaler, bought the Lloyds Chemist chain in January 1997 for 680m. The wisdom of the deal will be judged by the success of the rebranding programme, and whether Gehe can reverse Lloyds’ declining profits.
Gehe has pinned its future on Lloyds, which accounts for about one third of Gehe’s total turnover. But Lloyds has seen its profits plummeting. At the end of 1995, the company announced a rise in turnover of 15.1 per cent, but a pre-tax profits decline of 27 per cent. No figures for the period since the acquisition have been released.
The rebranding of the 1,400 former Hills, Lloyds and Savory & Moore stores as Lloyds Pharmacy includes a new logo and new store design. It is through the store layout that the company hopes to push its community pharmacy positioning – which will be its strongest weapon when the axe falls on rpm.
The new format abandons counters, placing nothing between its P medicines (medicines which must be given out by a pharmacist) and the customer except a sheet of glass and an enquiring pharmacist. These pharmacists are recruited from the local area to strengthen the relationship with local customers.
Nick Stokes, Lloyds Pharmacy marketing director, says: “Most multiple pharmacies provide a service. Community pharmacists provide a relationship.”
Lloyds pharmacists will have a greater advisory role, according to Stokes.
Medicines will be placed alongside products which help prevent illness, such as vitamins and aromatherapy merchandise. Pharmacists will offer advice in both areas.
Richard Hyman, chairman of Verdict Research, approves: “It sounds like a very sensible move. It is an attempt to create a new breed of community pharmacies.”
However, the relationship the chain must build with customers will have to be strong to prevent shoppers going to supermarkets to buy cheaper medicines when rpm is finally abolished.
David Sharpe, chairman of the Community Pharmacy Action Group, thinks this will be tough for Lloyds: “Lloyds pharmacies don’t have the personal touch that an owner-manager has,” he says. He estimates that 60 per cent of Britain’s pharmacies are run by owner-managers.
The chain is spending 20m to have 400 of the new stores rebranded by October, and the remaining 1,000 outlets will be refitted over the following two years.
There are plans for an above-the-line advertising campaign beginning in 1999, and an agency will be hired. Lloyds may launch a privilege card which the company will use to accrue data on its customers.
The chain’s own-label range will be relaunched. It will be positioned as “a quality competitor to mainstream products at a better price”, according to Stokes. It will launch a tertiary brand, not branded Lloyds Pharmacy, for its branches in low income areas. The chain takes around a tenth of the prescription medicines market, just behind Boots, but only about three per cent of the high-margin areas of toiletries, cosmetics and OTC medicines – a long way behind Boots, Superdrug and the supermarkets.
The company’s plans are big – they have to be. The abandonment of rpm will put a squeeze on the local pharmacy sector. Whether the new Lloyds will have the wherewithal to exploit this remains to be seen.