As Lloyds reviews all stores, where do pharmacies go from here?
Lloyds Pharmacy is Britain’s second-biggest pharmacy, and a pillar of the community. So news of a strategic review of its entire retail footprint, with the potential closure or sale of all its 1,300 stores at stake, is potentially devastating.
The review also comes just weeks after announcing that its 237 outlets operating in Sainsbury’s stores would close by the end of 2023, due to “changing market conditions”, according to the pharmacy. So, what’s gone wrong for Lloyds? And are others affected?
It was only last April that PE firm Aurelius acquired Lloyds as part of a £477m deal to acquire Admenta UK, which also included Lloyds Pharmacy Clinical Homecare and wholesaler AAH, from US healthcare giant McKesson Corporation.
But trouble has been brewing for a while. The impact of Covid-19, Brexit, drugs and staff shortages, and inflationary pressures means that funding for community pharmacies in England – set in 2019 at £2.5bn until 2024 – is short by as much as £500m according to the Pharmaceutical Services Negotiating Committee (PSNC). “Add to that a crippling rate of inflation which pharmacies can’t pass on to their customers – as around 90% of their income comes from their NHS funding – and community pharmacy as we know it is at breaking point,” says PSNC CEO Janet Morrison.
This means pharmacies of “all shapes and sizes are having to cut back”, says Morrison.
Christie & Co’s latest pharmacy market review revealed a 2% fall in the number of pharmacy contracts owned by corporate or supermarket operators in the 12 months to March 2022.
It would be a mistake, though, to draw a direct link between Lloyds’ store sell-off and Walgreens Boots Alliance’s bid to sell market leader Boots UK last year, on which it gave up after failing to find a buyer at its £7bn asking price. Walgreens pointed at the time to soaring interest rates making debt-fuelled takeovers harder.
Pharmacy reliant
In contrast, Lloyds is simply much more reliant on its pharmacy business – the source of about 87% of sales, compared with just under 40% from pharmacy sales at Boots, according to latest comparable accounts.
“Lloyds don’t have a strong enough health & beauty business and online business to balance a strong P&L,” says Sentinel Management Consultants CEO David Sables. “They are trying hard but struggling to get penetration online.”
Lloyds latest available accounts, for the year to March 2022, also posted its sixth consecutive annual loss, at £66m, from a £100.7m loss the previous year. Revenue was down 3.4% to £1.7bn as stores closed.
Against figures like that, it should not surprise if Aurelius has decided the retail pharmacy footprint isn’t salvageable, says one industry source.
But given the sector’s current pressures, Aurelius is unlikely to find a single buyer to scoop a large swathe of Lloyds branches, say industry insiders, making it more likely the estate will be carved up between a number of independent or regional operators.
Whatever the outcome, it leaves questions about the long-term role of the community pharmacy on British high streets, says Paul Day, director of the Pharmacists Defence Association, which represents workers affected by the closure of the Sainsbury’s branches.
“One view is that you bring health services to where the patients are and pharmacies become more like health hubs,” says Day. “In that case, you can’t turn them into shops.”
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