Wholesalers Global Trends

Marketing Highlight

21.4

Traditionally, pharmaceutical wholesalers are local operators, with no single company operating worldwide, in marked contrast to the pharmaceutical company, which tends to be global. Generally, drug wholesalers tend to be fragmented, with few firms serving an entire national territory. The majority are family-owned firms and most of the large ones grew from small operations. Globally, there arc no standard channel structures and systems differ from country to country. However, many arc affected by common operational and regulator)' conditions. In countries where the wholesalers plays a dominant role in supply, the traditional channel system bears the following features and trends:

• Wholesalers tend to consolidate goods from all manufacturers and deliver them to a specific group of clients (primarily pharmacies, hospitals and other bulk buyers of medicines). In the principal developed economies, the majority of pharmaceutical products reach patients through the wholesaler-pharmacy route. On average, about 80 per cent of pharmaceutical products flow to retailers through wholesalers; however, the figures for individual countries vary, as shown in Table 1.

Manufacturers continue to use wholesalers because of the high 'value added' they contribute to the manufacturer's product, their provision of customer sen'ice, and their sophisticated level of operation and potential efficiencies. The number of drug wholesalers varies from country to country: for example, there is one, the state-owned distributor, operating in Norway; two in Sweden; three in Finland; between 5 and 280 in the other European countries; 180 in the United States; and over 7,000 in Japan.

• In most countries, the Pharmaceuticals industry, as part of the healthcare industry,

faces strong pressure to lower prices. Wholesalers in this industry are invariably affected by these conditions, and margins {at lower than 5 per cent) are already being squeezed due to pressure for cost containment by governments, private healthcare insurance programmes and increased competition in many markets.

• Increased automation of logistics systems, as in the use of electronic data processing, invoicing and inventory control, has helped wholesalers to streamline operations and reduce costs, with most of the savings being passed to customers. They are placing more emphasis on market information and intelligence. Those, like the big US distrihutors, that have lots of timely data are able to service key customers more effectively than others. And they use this valuable asset to tie up manufacturers that supply them with the merchandise.

More consolidation is expected to occur in the drug wholesaling industry, resulting in fewer, but financially stronger, companies. An Economist Intelligence Unit (EIU) study reports that, with the exception of Italy, Japan and Spain, the drug wholesalers sector in most countries is dominated by just two operators (e.g. the top two wholesalers have 45 per cent share of the market in Germany, 55 per cent in France, 65 per cent in Canada, 67 per cent in the I.'niled Kingdom, 41 per cent in the United States and 80 per eent in the Netherlands).

Increasingly, wholesalers are trying to diversify and to expand into new geographic markets. Recently, many national wholesalers have attempted to 'Europeanize' their operations through acquisitions or alliances: (IERP Rouen (France) acquired SA Defraene (Belgium) and three other Spanish wholesalers; ERP (France) and the Italian Alleanza took stakes in the Portuguese SIF; CERP Lorraine (France) bought Leige Pharma and Promephar of Belgium, while

TABLE 1 PERCENTAGE OF DRUGS OOIKG THROUGH WHOLESALERS (1992)

COUNTRY

PERCENTAGE

United States

60

Japan

80

United Kingdom

72

Germany

80

France

82

Belgium

90

Netherlands

91

Spain

85

Italy

79

Scandinavia

100

the German Sehulz acquired France's Chafer and Broeaceph of the Netherlands, Tredimed was formed as a result of the alliance between OCR (France), AAH (UK) and GEIIE (Germany); the PAG alliance includes Unichem (UK), OPG (Netherlands), Anzag and Egwa-Wiweda (both from Germany); FPN is formed by companies from 13 countries, while Alliance Sante was formed by Italy's Alleanza FCA and France's IFP and ERPI. By the turn of the century, drag wholesaling in Europe may well be dominated by five or six large European organizations.

• Vertical integration is another trend. Some wholesalers have started manufacturing or retailing operations. For example, the Dutch OPG runs Pharmauhemie, which produces ethical drugs, SAN makes OTC (over-the-counter) medicines and operates the retail outlet Apoteck Extra. Unichem, in the United Kingdom, manufacturers own-label OTC medicines as well as running the Moss retail outlets.

The pharmaceutical industry worldwide is affected by the general trend towards higher cost, increasing competition and the pressures of internationalization. Wholesalers play a critical role in dictating the flow of products from producer to end-user in this sector. To sustain their channel position, they must adapt to the current state of continuous flux that has created new competition and fresh challenges for all in the industry.

ScmJrc?M 'Wholesale changes',SGiUPMagazine (June 1992), pp. 38-40; Barrie James, The global pharmaceutical industry in the 1990s: the challenge of changes', The Economist Intelligence Unit (November 1990); Richard Platford, 'Changing distribution channel strategy'. Coopers & Ly brand (1992); William Goests, 'Wholesalers', Internationa! Federation of Pharmaceutical Wholesalers (1990); Peter O'DouncIl, Pharmaceutical Wholesaling World-Wide: A study of present practice and future issues (London: PJO Publications, 1986).

largest supermarkets are contemplating moving back into the high streets. Sainsbury's and Tesco have recently rcintrodueed .small town-centre formats, Metro and Central respectively, which they are able to trade more profitably now than they could ten years ago because they have already secured increased buying power and efficiency,34

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