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Pharmacies continue to face cost pressures despite increased activity – Christie & Co report

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Employment cost pressures continue to be a significant challenge for pharmacy businesses and are expected to persist throughout this financial year

Pharmacy businesses continue to face rising cost pressures despite increased services and dispensing activity, according to Christie & Co’s Pharmacy Market Review 2024 report.

The report revealed that in the 12 months leading up to March 2024, dispensing activity across England increased by 8%. This contributed to a rise in the average number of items dispensed by community pharmacies, reaching 8,565 items per month.

In addition to this year’s rollout of the Pharmacy First Scheme, 9,261 pharmacies in England undertook an average of 336,525 New Medicines Services per month, equating to an annual total of 4,038,300.

However, the report found that, despite seeing increased turnover through additional activities, remuneration under the 5-year deal was “unable to offset the increased cost pressures the sector has experienced.”

Analysis of the broker’s transactional and valuation data for the last 12 months showed the average combined gross margins fell by 1.7% to 31.9%.

The report noted that, without the increased service offerings they generated, overall margins would have declined further.

Jonathan Board, Director – Pharmacy at Christie & Co, said: “With any operational efficiencies that can be delivered having now been delivered, the continued cost pressures are unsustainable, a situation which, without an urgent funding boost, will lead to further distress in the sector.”

“With the recent news that clarity will not be seen until after the Chancellor’s Autumn Statement, contractors in England will have to wait to see whether any proposed increase will offer respite for the remainder of the financial year and how much this will offset further National Living Wage increases anticipated in April 2025.”

Employment cost pressures remain one of the key issues impacting pharmacy businesses. With the 9.8% increase in the National Living Wage in April 2024, these pressures are expected to persist throughout the remainder of the financial year.

The report also highlighted that price concessions continue to challenge the sector.

In April 2024, the Department for Health and Social Care imposed changes to its approach to concession pricing without prior testing or consultation. Community Pharmacy England has strongly opposed these changes, warning that putting further pressure on pharmacies to dispense at a loss will have profound consequences for the sector, patients, and the primary care system.

Jonathan stated that while cost pressures are likely to persist in the foreseeable future, there remains a strong market appetite for “those businesses that can weather the storm.”

“Following the glut of corporate disposals over recent years, we anticipate that the market will return to some sense of normality as potential purchasers eye up more traditional independent pharmacy opportunities. Market appetite in England will be tempered by the outcome of the much-needed funding settlement negotiations,” he added.

The report indicated that in the year ending 31 March 2024, the UK pharmacy market experienced a decline of 3.5%, with 505 pharmacies removed from the register. This brought the total number of pharmacies in England, Scotland, Wales, and Northern Ireland down to 13,822.

Most closures occurred within corporate estates, with Rowlands reporting a 15.8% decrease in its network and Boots experiencing a 13.2% reduction.

Supermarket chains such as Tesco, Asda, and Morrisons also saw minor reductions in the number of pharmacies they operated.

In contrast, Well Pharmacy expanded its branch network by 3.8%, increasing its total to 761 pharmacies, largely due to the acquisition of 42 pharmacies from the Norchem Group.

The corporate market share was significantly affected by the complete removal of the LloydsPharmacy brand from the high street, as its owner, AURELIUS, completed its national divestment programme and exited the sector.

During its two-year ownership of LloydsPharmacy, AURELIUS oversaw the closure of 1,349 corporate pharmacy branches.

In the first half of 2024, the broker successfully completed 95 transactions, with 22% sold to first-time buyers, 13% to independent contractors, 22% to small independents, 13% to regional multiples, and 30% to large group operators.

Over the past 12 months, online pharmacies have gained significant attention, particularly due to the merger of LloydsDirect and Pharmacy2U announced in autumn 2023.

The report revealed an 11% increase in dispensing volumes among the top seven online pharmacies, totaling 36,108,103 dispensed items by the end of March 2024.

 

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