As we look back over the past year, it’s clear that the pharmacy sector in England faces both formidable challenges and promising opportunities.
The Darzi report called for a shift of certain healthcare services from hospitals back into community settings, including a much-needed expansion of the role of community pharmacies, with Pharmacy First—a new initiative launched in January—paving the way with a £645 million fund to support increased service provision.
However, accessing these funds has been complicated by stringent qualifying criteria, a challenge for some contractors who are eager to step up their contributions to patient care.
Building our Hutchings report on the market for 2024, I spoke to Olivier Picard, owner of Newdays Pharmacy Group and a CPE representative, who sees the scheme as a floor, not a ceiling, for what community pharmacies can achieve. I agree. With the NHS under significant pressure, there’s a real opportunity here for pharmacies to support overstretched GP and hospital services - if they’re given the proper support.
Pressure
Despite increased patient demand, the financial pressures on the sector have intensified. Large chains like Cohens Chemists and Day Lewis report year-on-year sales growth, but high inflation and rising operational costs continue to erode profits.
Cohens saw a £5.7 million loss last financial year, and while Day Lewis enjoyed a 5.9% increase in sales, they also reported a 32% drop in pre-tax profits due to rising administration costs, especially in staffing, utilities, and rent.
Read more: Pharmacist scores six-figure funding to ‘transform’ Liverpool pharmacy
Some operators have responded by closing underperforming branches; Boots, for instance, has closed over 500 stores as part of a cost reduction strategy. However, there’s a growing sense that consolidation and strategic closures alone won’t solve these profitability challenges. For many, it’s about finding a balance between trimming costs and continuing to offer a high level of patient care.
Stability
Following last year’s high-profile LloydsPharmacy mass disposals, stability is gradually returning to the pharmacy market. We’ve seen an 18.3% rise in the number of independent sellers this year—a sign that some owners are ready to exit while market interest remains strong.
Buyer demand has stayed resilient, with an especially high interest from first-time buyers keen to acquire their own pharmacies, though many are proceeding cautiously.
One significant trend is the increased presence of investors in the market, though acquisition completions among this group remain low.
Read more: Kinnock: ‘Pharmacies are private businesses’ and closures ‘reflect many factors’
First-time buyers, often partnering with experienced contractors, are leading acquisition activity. These joint ventures offer a compelling strategy for growth: first-time buyers can rely on the financial backing and experience of their senior partners while establishing their own businesses. This model is a smart, mutually beneficial approach that we expect to see more of in the future.
Goodwill
The goodwill prices for independent pharmacies are generally holding strong, especially in high-demand areas like London and the South East. In regions outside London, average goodwill prices are slightly lower, but the demand remains consistent, with buyers focusing on profitability to justify these investments.
Last year’s corporate sell-offs had initially diluted the interest in independent pharmacies, but the market’s renewed focus on independent acquisition is creating a positive ripple effect, with buyers increasingly competing with each other to secure valuable opportunities.
Profits
One persistent concern is the pressure on gross profit margins. Drug costs are rising, reimbursement rates are lower, and medicine shortages persist.
Olivier Picard captured the volatility perfectly when he said, “You can’t predict one month to the next, and a few drugs can make the difference in making a profit.”
This sentiment resonates across the industry, as pharmacies work hard to manage unpredictable supply chains.
The NPA recently reported that Serious Shortage Protocols issued in the last two years are 3.5 x higher than in the previous two years, reflecting the extent of the issue. Contractors are doing commendable work in navigating these conditions, using smart purchasing strategies to mitigate some of the impacts on their bottom lines.
Dynamics
Bank funding remains a linchpin for most acquisitions, with over 95% of transactions this year involving bank support.
Although inflation pressures are easing, banks are scrutinising loan applications closely, with a particular focus on profitability.
Buyers are required to fund 20-30% of the purchase price as a deposit, which can be challenging, but is crucial to secure favourable loan terms.
The recent Bank of England base rate reduction to 5% and the expected further drops could provide welcome relief, improving the lending landscape and helping buyers more confidently enter the market.
Looking Ahead
The outlook for the sector is cautiously optimistic.
The government’s emphasis on community pharmacy, particularly with schemes like Pharmacy First, indicates a future in which pharmacies play a larger role in healthcare delivery.
Read more: The decline of the 100-hour pharmacy: Numbers plummet 90% in two years
The market is likely to see a steady supply of new opportunities for prospective buyers, with existing owners pursuing exit strategies to allow for new management and service models.
As we move forward, we expect further streamlining among group owners, with some opting to sell smaller branches. Confidence remains positive but tempered, and any future government policies supporting community pharmacy will be instrumental in reinforcing buyer optimism.
It’s true that there’s often no “perfect” time to buy or sell, but rather a time that’s right for each individual’s circumstances.
The current climate may be challenging, but it’s also ripe with opportunity—pharmacies that are willing and able to adapt to an evolving healthcare landscape have the potential to not only survive, but thrive.
Paul Steet is associate director, Hutchings Consultants
