Supremarket groups bank on pharmacy deregulation as OFT inquiry concludes
The Office of Fair Trading investigation into pharmacy licences has been delayed amid rising expectations that the inquiry will call for significant deregulation of the industry.
The OFT is not now expected to report its findings until mid-December. This is two months later than originally forecast and more than 16 months since the investigation was announced in October of last year.
The investigation is expected to have significant ramifications for Britain's 10,500 pharmacists as well as the biggest corporations in the £18.7bn a year market which includes Boots the Chemists and supermarkets. Full deregulation would lead to a rapid expansion by the big grocers while smaller independent pharmacists claim their livelihoods would be threatened.
One supermarket group said: "We find it hard to believe, after the reaction we've had from the OFT to the evidence we've presented, that they'll act in any way other than to deregulate."
The OFT is examining whether the market works efficiently or whether the current restrictions lead to higher prices for consumers and reduced choice.
The key to its research is whether the statutory "control of entry" system for dispensing NHS prescriptions is in the best interests of consumers. Since 1987 all pharmacies have been required to apply to their local health authorities for dispensing licences. The OFT is investigating whether this slow, expensive system reduces competition, affects supply and keeps prices artificially high.
The restrictions on securing permission to open pharmacies have led to a lucrative market in licences in the UK with companies paying an average of £250,000 to secure them. Meanwhile the number of pharmacies in the UK has remained virtually unchanged for 10 years.The number of pharmacies per head of population is also far lower in the UK than in countries such as France and Germany.
About half the UK's 10,500 pharmacists are small, independent operators that rely on relatively low-margin prescription income to bring in customers.
The biggest single player in the market is Boots, which has pharmacy licences in all but 100 of its 1,429 outlets. Boots has said deregulation would be "neutral" for the company as it could add licences to all its stores. The company also says it has benefited before from deregulation in healthcare. "All the evidence from previous incidences of this kind – in the case of over-the-counter medicines for example – is that we tend to win through, a spokesman said.
But Nathan Cockrell, a retail analyst at CSFB, disagreed: "While the greater availability of pharmacy licences would benefit Boots the Chemists in the 90 stores which currently do not have pharmacy licences, we suspect that increased competition in the 1,340 locations with licences would more than cancel out the advantage."
As a defensive move Boots has been testing a joint venture with J Sainsbury where it has taken over the health and beauty offer in nine Sainsbury's stores. The two have sought OFT clearance for the venture though they have not yet decided whether it has worked well enough to be extended.
The supermarkets are keen on deregulation. Asda says it would add pharmacies to all its 246 stores at the rate of 50 a year.
Lucy Neville-Rolfe at Tesco says it would be in consumers' interests to see the market liberalised: "Customers tell us they want easy access to pharmacies that offer opening hours in tune with people's lives, convenient parking and a wide range of products and services. Consumers would benefit from all these things and more if the rules were relaxed and we believe the case for this to happen is overwhelming."
Smaller, independent pharmacies have lobbied against the changes, fearing their businesses will be damaged. But others believe that deregulation will lead to an increase in the number of pharmacies, leading in turn to higher pay.
Pharmacies in key locations such as rural areas would be protected under the Essential Small Pharmacies Scheme.
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