Supermarket price cuts to put 600 pharmacies out of business

More than 600 local chemists' shops will shut over the next five years as the major supermarkets muscle into the health and beauty market, analysts warn today.

Verdict, a firm of retail analysts, said grocery giants such as Asda and Tesco will have cornered 60 per cent of the UK market by 2006, compared with less than a third for traditional specialists. This is a marked change from just 10 years ago when specialist stores took 68 per cent of market share compared with 29 per cent for the supermarkets.

Verdict warned that 5 per cent of the current network of 12,200 independent outlets – or 610 shops – would shut over the next five years.

Richard Hyman, Verdict's director, said the only way small shops could survive would be to offer new services such as dentistry, introduce exclusive ranges, provide advice and exploit opportunities by National Health Service reforms. "Many independent specialists lack the financial resources and management skills to carry through these strategies and will lose out to larger operators," he said.

Verdict said health and beauty retailers, such as Boots and Superdrug, would see their combined sales grow by just 3.5 per cent over the five years to 2006. He highlighted Boots as a company likely to thrive in this environment, citing its plans to trial electronic prescriptions and offer flu vaccinations.

Verdict warned that the abolition of resale price maintenance (RPM) on over-the-counter medicines would lead to a 25 per cent fall in prices this year.

"The abolition of RPM has heralded a new, low inflation era for health and beauty," Mr Hyman said. "This has put a strain on the finances of many independent pharmacies which have to adapt or die."

He said the outlook for grocers could "hardly be more different". They are forecast to grow health and beauty sales by 54 per cent over the five-year period, adding almost £3bn to their existing annual revenue of £5bn.

Verdict said leading grocers had mounted a large effort over the last few years to establish a foothold in this sector, which was now paying off.