Increasing consolidation and digitalization within the Czech pharmacy sector is forcing consumer healthcare firms to rethink their strategies.
Within the Central and Eastern European (CEE) region, the pharmaceutical supply chain is relatively fragmented. However, compared to its neighbours, the Czech Republic has undergone a rapid consolidation and vertical integration of its medicine wholesale and retail markets. The domestic wholesale market is controlled by three main players: Alliance Healthcare, part of the Walgreens Boots Alliance, German-based PHOENIX, and ViaPharma, owned by Central Europe investment group Penta.
Through the Česká Lékárna Holding (ČLH) owned by Penta, ViaPharma is affiliated with Dr.Max, the largest pharmacy retail network in the Czech Republic, controlling about 15 percent of the domestic market and operating more than 445 pharmacies throughout the country. Similarly, PHOENIX owns BENU, the second largest pharmacy chain which operates more than 220 pharmacies in the country.
The dominance of the pharmacy chains is especially felt in the over-the-counter (OTC) market. As Sławek Ludwiczuk, country head of Bayer Consumer Health in the Czech Republic & Slovakia, observes, “while half of all OTC sales already happen in two pharmacy chains, the consolidation keeps on progressing, and the question is: “where it will end?”.”
Consumer health companies, therefore need to adapt their operations and go-to-market strategies to the consolidated nature of the market in order to stay competitive and profitable. As Ludwiczuk stresses, “trade terms, systems, capabilities, and ways of working need to be set up to reflect the realities of the market.” Large sales forces, for instance, are no longer relevant in this environment. Instead, “a lot of attention goes to key account management and trade marketing: we need to spend a lot of time analyzing and planning for each stock-keeping unit (SKU) in the chain in order to determine how to activate it,” he explains.
As category managers at large retail chains manage hundreds of SKUs, they simply do not have the capacity to analyse such a large assortment. “As experts in our niche categories, we can bring insights to those partners in order for them to squeeze out more growth,” he continues. “Moreover, while the activation of healthcare professionals (HCPs) is extremely relevant in markets where independent pharmacies are ubiquitous, it is less so in consolidated markets because pharmacy assistants have targets on what to sell.”
In addition to consolidation, the market is seeing major advances in e-commerce. Martin Slegl, general manager Czech Republic & Slovakia at IQVIA, relates, “in consumer health, nine percent is being sold online, whereas it was only 2.4 percent two years ago.” In 2018, Dr.Max outpaced Pilulka, the digital pure player, as the leader in the e-pharmacy market. Its e-shop saw a record 60 percent year-on-year increase in sales in 2018, with online sales jumping from 3.3 percent to 10 percent of total revenue.
Fierce competition in the digital space is pushing companies to innovate for speed and convenience. “I am really impressed with the ingenuity and the pace at which e-commerce players implement new initiatives in the Czech market. For instance, BENU and Rohlik, an online grocery store, started a collaboration in order to deliver OTC medicines faster to urban consumers,” comments Ludwiczuk. “In Prague, you can get drugs delivered to your home in 60 minutes,” notes Slegl.
Customers can also buy online and physically pick up their order at pharmacies; most prefer this option. According to Daniel Horák, CEO of ČLH, which operates Dr.Max pharmacies, 86 percent of e-shop clients pick up the drug at a brick-and-mortar pharmacy as the time between sending an order through the e-shop and picking it up only takes about a quarter of an hour. Retailers are now preparing to introduce this system for the online dispensing of prescription drugs as the State Institute for Drug Control (SUKL) is drawing up a quality decree to make it possible. In fact, some pharmacies already allow customers to book Rx drugs via text message. According to Slegl, the Czech Republic is “a step closer to a full e-commerce journey for Rx medicines too.”
In this brave new digital world, companies are trying to find the winning formula, some more successfully than others. Bayer Consumer Health, for instance, is one of the players that has successfully jumped on the digital bandwagon. “In our relevant categories, we are the number one player on e-pharmacy websites. After one and a half years, e-commerce is already bigger than the mass market and growing fast,” rejoices Ludwiczuk. Bayer is positioning itself as a partner of choice to e-pharmacies by helping them build their retailer equity. “One way to build the equity of our trusted partners is to provide rich e-content which consumers will not find on less reputable websites. On our partners’ website, consumers can view videos explaining how the product is used, made and how it works. If they need more information, they will find links to our website where they can access studies.”
We should never underestimate smaller markets because they can serve as a testbed for new ideas
However, smaller companies like URGO Healthcare are struggling to adapt. “As of today, we do not have a strategy that is fully successful for us. Something holding us back to invest more into our e-commerce activities is the lack of measurement tools to analyze what really works and what does not from the e-commerce platforms. Additionally, the price for partners’ e-shops sales activation tools, whether you sell plasters or painkillers, is the same according to standardized price lists. We lack a more specific win-win approach from partners in this sense as today the majority of these campaigns are not effective for us due to somehow higher investment costs,” laments Kateřina Klancová, business unit manager of URGO Healthcare Czech Republic.
While it brings both opportunities and challenges for companies, there is no denying that the Czech Republic is, as Bayer’s Ludwiczuk puts it, at “the avant-garde of the channel shift”. “What is happening now in the Czech Republic will happen in larger Western European markets in the future. This is the reason why we should never underestimate smaller markets because they can serve as a testbed for new ideas, which can then be introduced in larger markets,” Ludwiczuk concludes.