The global pharmacy market has become a tempting target during the Covid-19 pandemic. Amazon, already a major beauty retailer, jumped into the US$312.5 billion US pharmacy market late last year with the launch of Amazon Pharmacy, following its US$750 million acquisition of digital pharmacy PillPack two years earlier.

Walgreens Boots Alliance, the global leader in retail pharmacy, announced a stronger-than-expected third quarter last week and revised its growth estimates for the fiscal year.

Wesfarmers, the parent company of Bunnings, Kmart, Target and Coles, is one of Australia’s largest companies with revenues of $30.75 billion in 2020. The highly diversified multinational, like Amazon, also has its eye on the $25 billion Australian pharmacy market.

In June, Wesfarmers raised $1 billion in cash through a sustainability bond issue. On Monday, the company used part of the war chest to make an unsolicited $687 million bid for Australian Pharmaceutical Industries (API), the parent company of Priceline pharmacies.

Analysts believe the offer is opportunistic because API shares have been trading at all-time lows. According to a report in the Australian Financial Review, Wesfarmers had considered a tilt at Chemist Warehouse but believes the API business model which franchises to pharmacists is a better bet.

Washington Soul Pattinson, which has a 19.3 per cent shareholding in API, is already onside with an option to buy its stake if Wesfarmers matches or exceeds any competing offer for API. But a decision on the bid is still in the balance because industry observers believe it undervalues the value of API by 20 to 30 per cent.

If the bid is successful, Wesfarmers will operate the business separately and retain its community pharmacy focus. Even though Wesfarmers has had an eye on the healthcare sector for some time, the API business, which includes Clear Skincare clinics and private label Priceline beauty and health products, will account for only 1.9 per cent of its overall revenues.

Any sale would impact the beauty and wellbeing industry because pharmacies have the highest share of the Australian beauty market at 19 per cent, followed by supermarkets at 12 per cent. Wesfarmers owns Coles, one of the big two chains alongside Woolworths, which has a significant beauty and well-being business.

Wesfarmers has world-class supply chain, digital and product development expertise and could make the pharmacy industry more competitive across the health, well-being and beauty sectors. Pharmacies worldwide have increased their profits by becoming vaccination hubs during the Covid-19 pandemic and Australian pharmacies have been cleared to perform a similar role here. Another sweetener for Wesfarmers.

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