WhitePaperScalingforSuccessSoutheastAsia’sRetailPharmacySectoronPathTowardsConsolidation,withChainPharmaciesSettoGrowinImportanceAKRIMJANTARAPRAPA,AssociatePrincipal,StrategyConsultingANTONKIM,AssociatePrincipal,StrategyConsultingTableofcontentsIntroduction23SEAretailpharmacymarket:AnupdateIndicatorsforconsolidationConclusion5101111AbouttheauthorsAboutIQVIAIntroductionThepharmaceuticalmarketinSoutheastAsiahasgonethroughfundamentalshifts,underpinnedbyongoingdemographictrends,economicuncertainties,andglobalgeopoliticaldevelopments.Retailpharmaciesareincreasinglypivotalstakeholderswithinthislandscape,withgreateraccessibilitytothegeneralpopulationthanevenbefore.Inthisreport,wewillexploreemergingintegrationstrategieswithinSoutheastAsia’sretailpharmacysector,highlightingtheongoingtrendtowardsconsolidation.Thepaperwillshedlightonkeyimplicationsforindustrystakeholdersacrossthevaluechainandoutlinestepsthatmustbetakentosucceedinthecompetitiveenvironment.|2SEAretailpharmacymarket:Anupdatefactorsaredrivingupratesofchronicailmentssuchasdiabetes,cardiovasculardisease,andchronickidneydisease,leadingpatientstomanagetheirconditions.TheretailpharmacymarketinSoutheastAsia(SEA)hasseenarobust9.2%compoundannualgrowthrate(CAGR)intheyears2021–2023(Figure1).ThisgrowthisbeingledbythePhilippines,thelargestmarketintheregion,whichgrewatasolid9.8%overthesameperiod.Meanwhile,substantialexpansioninbothMalaysia(18%CAGR)andThailand(13.4%CAGR)isfurtherpropellingthismarketforward.?OTCsub-segment:ThekeydriversintheOTCcategoryarecoughandcoldtreatments,aswellaspainreliefanddigestivehealthproducts.Additionalfast-growingsub-segmentsincludesupplements,infantnutrition,andcontraceptives.Growthhasbeenseenacrossboththeprescriptionandover-the-counter(OTC)sub-segmentswithintheretailpharmacychannel,eachdrivenbyadistinctsetoffactors:?Prescription(Rx)sub-segment:Treatmentforchronicillnessisaprimarygrowthdriverintheprescriptionsub-segment.AgeingpopulationsandlifestyleriskFigure1:Retailpharmacygrowthbycountry(SEA)(MATQ32021-2023,USDBn)+9%111094(38%)4(38%)4(38%)1(16%)2(17%)2(17%)1(12%)1(12%)1(11%)1(10%)1(13%)1(11%)1(10%)1(10%)1(12%)1(12%)1(11%)1(10%)202120222023Indonesia-2%Philippines+10%Thailand+13%Vietnam+4%Malaysia+18%Singapore+10%RetailpharmacymarketincludesRxandOTCproductssoldinindependentpharmacy,largechains,conveniencestoresandsupermarketsSource:IQVIAMIDAS,IQVIAAnalysis3|ScalingforSuccessGrowthintheretailpharmacymarketcontinuestobedrivenbythefactorsoutlinedin2023’sIQVIASEAPharmacyRetailPlaybook(Figure2),viz.2.Pharmaciesareenhancingtheiro?eringstoexpandcapabilitiesandvalue-addedservices.3.Consumersincreasinglypreferpharmaciesformedicationanddrugpurchasesoverhospitalsandclinics.1.Governmentinitiativesarepushingdispensingtowardsthecommunityandincentivisingcollaborationsbetweenhospitalsandpharmacies.Figure2:DriversoftheshifttoretailpharmaciesGovernmentinitiativesencouragingpharmacydispendingExpandingvalue-addedservicesatpharmacyGrowingconsumerpreferenceforpharmacies?Increasedcollaborationbetweenpublichospitalsandlocalspharmaciesformedicinepickupsatthenearestpharmacies?Pharmacynetwork’sgrowingcapabilityandprovidingvalue-addedservices(patienteducation,chronicdiseasemanagementservices)?Increasingawarenessofservicesbypharmaciesamongconsumers?Growingpatientfootfallatpharmaciesduetothereluctanceonthepartofmanypatientstovisithospitalsandclinicsforminorailments?Dispensingoflong-termprescriptionsforchornicpatients?AccomodatingdoctorconsultationcounterwithinpharmacypremisesforminorailmentsFlagsindicaterelevantdriversforthemarkets.Source:IQVIAWellTrackReport(2020to2023)Thesefactorsaresettocontinueplayingapivotalroleintheyearstocome.Withincreasingopportunitiesforkeyplayersinthemarket,wealsoobservealong-termtrendtowardsintegrationandconsolidationasmostSoutheastAsianeconomiesmature.InthisWhitePaper,wewillexaminethistrendtobetterunderstanditsimplications.|4IndicatorsforconsolidationGrowingeconomiesandcorrelationwithchainretailersFigure3:ModernTrade(Chainedretailers)shareas%oftotalretailsales100%90%USAKoreaJapanGermany80%70%60%50%40%30%20%10%0%SingaporeFranceAustraliaMalaysiaThailandIndevelopedmarketsmostoftheretailvalueattributedtochainsstoresIntransitionmarketslikeMYandTHconsolidationishigherrelativetoemergingChinaPhilippinesIndonesiaVietnamIndia010,00020,00030,00040,00050,00060,00070,00080,00090,000GDPpercapita—USD(2022)Source:WorldBank,IQVIAanalysisThepenetrationofretailchainsisheavilycorrelatedwiththeeconomicmaturityofacountry(Figure3).Aseconomiesgrow,weexpectchainretailers(includingchainpharmacies)toexpandpenetrationandreacharound~80%oftotalvalueatmaturity.Vietnamhasseenretailpharmacychainsexpandedfromjust3%to15%ofthetotalpharmacyretailchannel,atrendthatissettopersistaseconomicandhealthcarefactorsfurtherdevelopthepharmacyindustryinthecountry.EmergingSEAmarketssuchasthePhilippines,Indonesia,andVietnamareripeforrapidpenetrationbychainretailers,whileMalaysiaandThailandarefurtheralongthecurve.Forexample,since2021,Meanwhile,developedeconomiessuchasSingapore,theUnitedStates,andAustraliaseemostsalesoccurringthroughchainsascomparedtoindependentplayers.5|ScalingforSuccessCostpressures—AburdenforindependentpharmaciesFigure4:PercentagechangeinAverage‘Sell-in’price(ASP),from2020to2023(%changefrom2020to2023)OTCRx+16%+13%+13%+8%+8%+7%+6%+4%Note:Averagesell-inpricecalculatedthroughweightedaverageof2020salesvolumeandchangeinpricebetween2020and2023Source:IQVIAMIDAS,QVIAAnalysisPharmasupplychaindisruptionsduetoCOVIDandgeopoliticaltensionsinrecentyearshaveledtorisingcostsforRxandOTCproductsthathavebeenpassedontoretailersand,subsequently,end-consumers(Figure4).Theincreasedcostburdenwasfeltthemostbyindependentpharmacies,whichlackthebene?tofscale.InVietnam,forexample,over12,000independentpharmaciesclosedbetween2016and2021,representingamorethan20%contraction.Duringthesametimeframe,thenumberofchainpharmacyoutletsgrewbymorethan5x.Inrecentyears,theaveragesell-pricechargedtoretailpharmacieshasincreasedbyupto16%intheOTCsegmentandbyupto13%intheRxcategory.|6Consumerpreference—ShifttowardschainstorescontinuesFigure5:PreferredconsumerchannelsforSEAconsumers(%shareofrespondents)46%34%26%26%21%21%8%6%5%5%1%1%ChainDrugstoresePharmacy/e-CommerceIndependentDrugstoresConvenienceStoresGroceryStoresSpecialtyHealthstoreJan-June2023Jan-June2022Source:IQVIAWellTrackQ12d.Overall,wheredoyoumostprefertopurchaseyourhealthcareproductsand/ormedicines,particularlyfortheupcomingmonthsof2023?Wecontinuetoobserveagreatershiftinconsumerpreferencetowardschainpharmaciesin2023comparedwith2022(Figure5).optionforconsumptionofhealthcareproducts.Physicalshopvisitsareanticipatedtocontinuetobemorecommonthanonlinepurchasesintheregionfortheforeseeablefuture,giventhehighvaluethatSEAconsumersplaceonin-personconsultationswithpharmacists.Otherkeybarrierstoincreaseddigitaladoptionincludeconcernsoverproductquality,longdeliverytimes,andtheaddedcostsofshipping.Thegrowingpreferenceforchainscanbeattributedtotrustinproductquality,competitiveprices,andadi?erentiatedserviceexperiencecentredaroundtheconsumer.Whilethepreferencefore-channelshascorrectedpost-pandemic,itremainsthesecondmostpreferred7|ScalingforSuccessLargedomesticchainsexpandingcoverageFigure6AyalaHealthBIGPharmacyexecutesgrowth-through-acquisitionplaninMalaysiaFilipinoregulatoryprobeintoacquisitionsbyRobinsonRetailpharmacyexpansionscementleadershipacrossHCvaluechainActivity:AcquiredstakeandActivity:FullacquisitionActivity:RegulatorapprovesexpansionplanacquisitionDate:December2023Date:July2023Date:November2023RetailPharmacyPlayersRetailPharmacyPlayersRetailPharmacyPlayersGenerikaDrugstoreSt.josephDrug112StoresCARINGPHARMACY199StoresSouthstardrugRosePHARMACY400StoresBigPHARMACY750Stores282Stores112StoresDetailsDetailsDetailsAyalaHealthacquiredastakeinStJosephDrug,alsoannouncesrapidexpansionplansforGenerikaDrugstorefrom750to1,000storesby2025BIGPharmacybackerCreator,aThePhilippinesCompetitionCommission(PCC)initiatedananticompetitivereviewofRosePharmacy’sacquisitionbyRobinsonRetail,theoperatorofSouthStarDrugbeforeokayingthedealinNovemberMalaysianbasedprivateequity?rm,announcedacquisitionofCaringforpurchasepriceofRM900M(190MUSD)WhyitMattersWhyitMattersWhyitMattersAlongsideaconsumerpharmacyo?ering,Ayalahasaportfolioofpharmaceuticalimporters,distributors,hospitalsandclinics.ExpansionplanscementpositionasaleaderacrossthevaluechainForeignprivateequity?rmsCarlyleGroupandCVCCapitalPartnerswerebothin“advancedstagesofnegotiation,”signalinginterestofforeigncapitaltoentertheMalaysianretailpharmacyspaceRobinsonRetailcontinuespursuitofa“multi-formatretailing”giventheiradjacentownershipofsupermarketsbrands.ThePCCreviewindicatesthatregulatorsmaybetakingnoteoftheconsolidationtrendSource:ManilaStandard,InsideRetailAsia,BusinessWorldOnline,IQVIAAnalysisInrecentyears,consolidationactivitieshavebeenobservedacrossSEAmarkets(Figure6).InthePhilippinesthe2020acquisitionofRosePharmacyandits400storesbyRobinsonRetailsparkedaregulatoryprobethatwas?nallyapprovedinNovember2023,aclearindicatorthatthisindustryconsolidationiscontinuingapaceandevensparkingtheattentionofthegovernment.InthePhilippines,AyalaHealthcareHolding’s(ACHealth)acquiredastakeinStJosephDrugandits112outletsinDecember2023.ACHealthalreadyownsthefast-growingGenerikapharmacychain,consistingof750stores,ontopoftheirpharmaceuticalimport–exportbusinessesandarangeofhospitalsandclinicsacrossthecountry.MeanwhileinThailand,thetotalnumberofchainpharmacyoutletswasexpectedtoexceed2,300byearly2024representingamorethana15%increasefromthe12monthsprior.Creator,theownerofMalaysianBIGPharmacy,completeditsacquisitionofCaringPharmacyandits199outletsinJuly2023.ThisstrategicmovewillallowCreatortosigni?cantlyincreaseitsmarketpresenceinthecountry.|8NewforeignentrantsAprominentexampleofcross-industrypartnershipisinvolvesAlibaba,oneofChina’sleadingtech?rms,whichrecentlytookastakeinHasaki,afast-growingomnichannelpharmacyretailerwith140outletsinVietnamfocusedonbeautyproducts(Figure7).Thedealissettoenhancesynergiesbetweene-commercegiantAlibabaandHasaki’slocalfootprint.Therehasmeanwhilebeenanuptickinthenumberofhealthcaremergers&acquisitionsacrosstheAsia-Paci?cregionmorebroadlyfrom2019to2022,withacquirersincreasinglycomingfromnon-traditionalindustriessuchas?nanceandthetraditionalconsumersector.Newentrants,whobringwiththeminnovativebusinessmodels,rapidtechnologicaladvancements,anddi?erentiatedserviceo?erings,areinducingconsolidationinthesector.Figure7AlibabaacquiresstakeinHasaki,entersVietnamcosmetics&pharmacyraceActivityCross-sectorequitystake&partnershipNovember2023DatePlayersinvolvedAlibaba-~$130BRevs(2023)|Hasakiclinic-140storesChinesetechgiantAlibabahasacquiredastakeinVietnamesepharmacyandbeautychainHasakiforanundisclosedamountDetailsHasakihasseenrapidexpansion,growingfromjust14storesin2021to140storesand~750kshoppersmonthlyby2023.Theuniqueoperatingmodelofonline&offlinesalesmeanspartnershipmayprovevaluableWhyitMattersSource:DealStreetAsia,IQVIAanalysis9|ScalingforSuccessConclusionTheongoingconsolidationofSoutheastAsia’sretailpharmacymarketpresentsamultifacetedlandscapeforstakeholders.Establishedchainpharmaciescanleveragetheirgrowingscaletofurtheroptimisecoststhroughbulkpurchasingandstreamlinedoperations.Thisallowsthemtoo?ercompetitivepricingandpotentiallyexpandtheirserviceo?erings,includingspecialisedconsultations,wellnessprogrammes,andmoreconvenientdeliveryoptions.However,navigatingthisnewlandscapealsopresentschallengesforestablishedchains.Theymustmaintainagilityandadapttochangingconsumerpreferences,whichmightfavournichespecialisationsoramorepersonalisedexperience.Independentpharmaciesfaceamorepressingneedforadaptation.Risingcostsandcompetitionfromlargerchainsthreatentheirviability.Tosurvive,theycanexploreinnovativebusinessmodels,suchasnichespecialisationinareassuchascompoundingmedicationsorcateringtospeci?cdemographics.Strategicpartnershipswithotherindependentpharmaciesorhealthcareproviderscouldalsoenhancetheirbargainingpowerandservicescope.Ultimately,thesuccessofindependentpharmacieswillhingeontheirabilitytodi?erentiatethemselvesthroughpersonalisedcustomerservice,buildingstrongcommunityties,andleveragingtechnologytostreamlineoperations.|10AbouttheauthorsAKRIMJANTARAPRAPAANTONKIMAssociatePrincipal,StrategyConsultingAssociatePrincipal,StrategyConsultingAkrimJantaraprapaisAssociatePrincipalatIQVIAandisbasedAntonKimisAssociatePrincipalatIQVIAandisbasedinSingapore.inBangkok,Thailand.HeisresponsibleforleadingregionalconsultingprojectsatIQVIA,withafocusonpharmacyretailers.Akrimspecialisesingrowthstrategy,segmentationandtargeting,categorymanagement,andoperationalexcellenceforpharmaandpharmacyclients.Akrimbringsinover10yearsofhealthcareandstrategyconsultingexperiencefromleadingglobalconsulting?rms.HeisresponsibleforleadingregionalconsultingprojectsatIQVIA,withafocusonmedicaldevices.Antonspecialisesincorporateandgo-to-marketstrategyandbusinessandoperationaltransformationforpharmaandMedTechclients.Antonbringsover8yearsofmanagementconsultingexperiencefromaleadingglobalconsulting?rm.Akrimhold