Christie & Co’s latest pharmacy market review – published earlier this month (October 13) – identified “several headwinds” facing the sector “that may create a more challenging trading environment for contractors.
Speaking to C+D at the Pharmacy Show in Birmingham last week (October 17), Tony Evans described how “the drain of pharmacists and pharmacy technicians” into general practice and primary care and rising locum rates have coalesced to create “a real problem to contractors at the moment”.
“The cost of putting a locum in for a day has increased dramatically and that impacts the bottom line to a pharmacy,” he explained.
“It's not sustainable to keep locum rates going up like that” under the current funding levels, Mr Evans said.
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These labour challenges are compounded by the rising cost of living, which is set to hit contractors' the bottom lines “probably in the next three to six months”, he added.
He estimated that all these issues “are set to continue to affect pharmacy”.
Ultimately, “something must give” on England's five-year funding deal, he said. Spiking inflation and added costs such as the national living wage have transformed the deal into a “real-term reduction” for contractors.
The Department of Health and Social Care has “got to support pharmacy, because pharmacy...was the only primary care sector that kept its doors open throughout the pandemic”, he said.
“We've got to make sure that's not a short-lived memory.”
Buying appetite strong despite pressures
“The Pharmacy Show is a real barometer of what's happening in the marketplace,” Mr Evans said.
Over the conference's first day on October 16, brokers at Christie & Co spoke to a mix of long-time contractors wishing to let go of their businesses and first-time buyers “keen to acquire opportunities”.
This indicated an “appetite on both sides” of the market, Mr Evans said. “As long as…that cycle continues, I think the market's there,” he added.
The number of offers Christie & Co received for pharmacies increased by 20% over the last ten months. The number of offers stayed “consistent” amid “press reports about concessionary fears” over the summer, he continued.
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But he conceded that the impact of ex-chancellor Kwasi Kwarteng’s short-lived mini budget and the political reshuffles of the last few weeks are “obviously making the banks slightly nervous”.
As a result, “anybody looking to buy has got to have a very solid business plan,” Mr Evans recommended.
Prospective buyers will also have to factor in potential increases in interest rates – which will add to the cost of borrowing – into any deals they enter, he added.
This may affect certain buyer groups in their decision about whether or not to enter into a deal, Mr Evans said.
“There's a still good appetite,” he said. “But appetite will be affected by the factors that we're seeing in the market at the moment.”
Fall in first-time buyer acquisitions
Christie & Co’s pharmacy market review indicated that the number of sales completed by first-time buyers fell by 30% in the first six months of 2022.
“I don't think it's down to the lack of appetite,” Mr Evans commented.
“But from a contractor's point of view, if they're looking to sell their business, they get effectively one chance,” he explained.
Contractors wanting to make “a straightforward sale” will “seven times out of ten” gravitate towards more experienced contractors. This is because this group will have an easier time borrowing the money to acquire a pharmacy, as opposed to first-time buyers who have to “go through all the hurdles of actually getting get that finance first”.
Whether this trend continues will depend “on the stock that comes to market”, Mr Evans said.
Smaller pharmacies, for example, “will be more attractive to first time buyers”.