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Scaling for Success: Southeast Asia's Retail Pharmacy Sector on Path Towards Consolidation

Core Content

This white paper explores the ongoing consolidation trend in Southeast Asia's retail pharmacy sector, highlighting the key drivers and implications for industry stakeholders. The report emphasizes the increasing importance of chain pharmacies in the region, driven by economic growth, cost pressures, and shifting consumer preferences.

Key Trends and Drivers

Market Growth

• The Southeast Asia (SEA) retail pharmacy market has grown at a 9.2% CAGR from 2021 to 2023.
• Philippines led the growth with 9.8% CAGR, while Malaysia and Thailand showed 18% and 13.4% CAGR respectively.
• The market is split into two main sub-segments: Prescription (Rx) and Over-the-Counter (OTC), both showing growth.

Growth Drivers

1. Government initiatives are pushing healthcare services to the community and promoting collaborations between hospitals and pharmacies.
2. Pharmacies are expanding their service offerings to include value-added services.
3. Consumer preference is shifting towards pharmacies for medication and healthcare products, due to trust in product quality, competitive pricing, and differentiated service.

Chain Retailer Penetration

• Chain retailers are becoming more dominant as economies mature.
• At maturity, chain retailers are expected to capture ~80% of the total retail pharmacy market.
• Vietnam has seen chain pharmacies grow from 3% to 15% of the market since 2021.
• Singapore, US, and Australia already have a high share of retail pharmacy sales through chains.

Cost Pressures

• Rising costs due to supply chain disruptions (post-COVID and geopolitical tensions) have increased the average sell-in price for Rx and OTC products by 13% and 16% respectively from 2020 to 2023.
• Independent pharmacies are most affected due to lack of scale, leading to closures and reduced market share in countries like Vietnam.

Consolidation Activities

Key Mergers & Acquisitions

• Ayala Health acquired a stake in St. Joseph Drug and announced expansion plans for Generika Drugstore from 750 to 1,000 stores by 2025.
• Creator, the owner of BIG Pharmacy, completed the acquisition of Caring Pharmacy in July 2023 for RM 900M.
• Robinson Retail acquired Rose Pharmacy in 2020, which sparked a regulatory probe in the Philippines and was approved in November 2023.
• Thailand is expected to see over 2,300 chain pharmacy outlets by early 2024, a 15% increase from the previous year.

New Foreign Entrants

• Alibaba (a Chinese tech giant) acquired a stake in Hasaki, a Vietnamese pharmacy and beauty chain with 140 stores.
• This partnership is expected to enhance synergies between Alibaba's e-commerce capabilities and Hasaki's local presence.

Implications and Challenges

For Established Chains

• They can leverage scale to optimise costs, offer competitive pricing, and expand service offerings.
• However, they must maintain agility and adapt to changing consumer preferences, which may favor niche specialisations or personalised experiences.

For Independent Pharmacies

• Face increased competition and rising costs, making survival challenging.
• Need to adapt through innovative business models, such as specialisation in compounding medications or targeting specific demographics.
• Strategic partnerships with other pharmacies or healthcare providers can enhance bargaining power and service scope.

Conclusion

The retail pharmacy sector in Southeast Asia is moving towards consolidation, with chain pharmacies gaining more prominence. This trend is driven by economic development, cost pressures, and changing consumer behavior. While chain pharmacies benefit from scale and efficiency, independent pharmacies must find ways to differentiate and adapt to remain competitive.

About the Authors

• Akrim Jantaraprapa is an Associate Principal at IQVIA based in Bangkok, Thailand, with over 10 years of experience in healthcare and strategy consulting.
• Anton Kim is an Associate Principal at IQVIA based in Singapore, with 8 years of experience in medical devices and corporate strategy.

About IQVIA

• IQVIA is a global leader in healthcare analytics, technology solutions, and clinical research.
• With ~70,000 employees and operations in over 100 countries, IQVIA provides technology-enabled services to meet the evolving needs of clients in the Asia-Pacific region.