Pharmaceutical Retailing Industry Report

INSIGHTS Presented by

for BUSINESS

Pharmaceutical

Pharmaceutical Retailing Industry Report Industry Division

Industry Groups

Retail

Other Personal and Household Good Retailing

Industry Subdivision

Industry Groups

Personal and Household Good Retailing

Pharmaceutical, Cosmetic and Toiletry Retailing

The ANZSIC is a hierarchical classification with four levels, namely Divisions (the broadest level), Subdivisions, Groups and Classes (the finest level). At the Divisional level, the main purpose is to provide a limited number of categories which provide a broad overall picture of the economy and are suitable for the publication of summary tables in official statistics. The Subdivision, Group and Class levels provide increasingly detailed dissections of these categories for the compilation of more specific and detailed statistics.

Data referenced in report All data referenced in this report has been updated with the latest available figures when prepared as at October 2015. Data sources used include: ››

ABS: 8165.0 – Counts of Australian Businesses, including Entries and Exits, Jun 2010 to Jun 2014 – released 02/03/2015

››

ABS: 8155.0 – Australian Industry, 2013-14 – released on 29/06/15

››

ABS: 6291.0.55.003 – Labour Force, Australia, Detailed, Quarterly, Aug 2015 - released on 17/09/15

››

ABS: 8752.0 – Building Activity, Australia, Mar 2015 – released on 15/07/15

››

ABS:5671.0 Lending Finance, Australia, Jul 2015 – released on 11/09/2015  

››

RBA Interest rates and yields – money market, September 2015 – released on 01/10/2015

IBISWorld Reports: ››

G4271A Pharmacies in Australia

Pharmaceutical

Pharmaceutical Industry Overview The Pharmaceutical Retail industry group consists of businesses that engage in retailing prescription drugs or patent medicines, cosmetics or toiletries, with primary activities including cosmetic, drug, patent medicine, perfume and toiletry retailing; pharmacy retail operation; and prescription medicine dispensing. It sits within the larger industry of Retail Trade. While household consumption levels have recovered since the global financial crisis (GFC), retail consumption remains subdued compared to the strong growth recorded in the five years to 2007. As a whole, the retail sector has suffered as households try to manage their finances following the GFC. Additionally, the industry has had to deal with competition from online sales – which has been accentuated by prolonged strength in the Australian dollar. It has also been affected by the (normal) tendency for goods’ share of household consumption to fall relative to consumption of services as societies become wealthier. The Retail industry is a significant contributor to the larger economy in its own right, employing more than 1.2 million Australians, and generating $384.0 billion in revenue annually. Geographically, the industry group is closely aligned to the Australian population, with the largest number of employees and businesses based in NSW, closely followed by Victoria.

Industry Revenue (2013 – 2014) $384.0 billion

Number of Retail Workers (2013 – 2014) 1.2 million

Number of Retail Businesses (June 2014) 338,313

Average profit margin 5.3%

Proportion of businesses exiting market in 2014 14.0%

Number of Pharmaceutical businesses with more than $2 million in turnover in 2014 8,021

Retail Industry Division ››

Retail trade employs more than 1.2 million Australians (1,313,000), or roughly 11.3% of the total workforce.

››

Employment has fallen by 3.8% in the past years for the total Retail industry.

››

The industry division’s total income represents 12.5% of all industries (excluding financial services), indicating that its role in the economy is akin to the number of workers employed by the industry.

››

Total income has been increasing steadily since 2006-07, including 2009-2010, despite the GFC.

››

Profit margins for the industry are considerably lower than the all industry average, with operating profit before tax only 5.3% of total income, compared to 10.9% for all industries.

INSIGHTS Presented by

for BUSINESS

Thousand Employed

600.0 1200.0

1154.2

1151.7

2005

2006

1195.2

1202.1

1151.8

1172.1

1192.1

1179.3

1183.5

2007

2008

2009

2010

2011

2012

2013

1246.8

1233.5

2014

2015

400.0 1000.0 200.0 800.0 0.0 600.0

400.0 $500.0 200.0 $400.0

0.0 2005 $304.9

$319.0 2006

2007

$345.9

2008

$380.4

$373.0

$357.1

2009

2010

2011

$384.0

$380.6

2012

2013

2014

2015

Source: ABS $300.0

Retail – Total Income

$200.0 $500.0 $100.0 $400.0

$304.9 $0.0 $300.0 2006-07 $500.0

$ Billion

Pharmaceutical

600.0 1400.0 1246.8 400.0 1233.5 1195.2 1202.1 1192.1 1172.1 1179.3 1183.5 1154.2 1151.8 1151.7 1200.0 200.0 1000.0 0.0 Retail – Employment 800.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1400.0

$319.0

2007-08

$200.0 $400.0 $100.0 $300.0

$0.0 $200.0 Source: ABS

$304.9

2006-07

$319.0

2007-08

$345.9

2008-09

$357.1

2009-10

$380.4

$373.0

2010-11

2011-12

$384.0

$380.6

2012-13

2013-14

$357.1

$373.0

$380.4

$380.6

$384.0

$345.9

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

10.6%

10.9%

5.1%

5.3%

$100.0

Pharmaceutical – Profit Margin 20.0% $0.0 2006-07 15.0%

12.0%

2007-08 11.3%

10.4%

11.5%

12.4%

12.1%

10.0% 20.0% 5.0%

5.4%

4.9%

5.1%

Retail

15.0% 0.0%

12.0% 2006-07 Source: ABS 10.0% 20.0% 5.4% 5.0% 15.0% 0.0% 10.0%

5.0%

5.3%

12.0%

5.1%

All Industry

11.3% 2007-08

2008-09 10.4%

11.5% 2009-10

12.4% 2010-11

12.1% 2011-12

2012-13 10.6%

2013-14 10.9%

4.9%

5.1%

5.3%

5.3%

5.1%

5.1%

5.3%

10.4%

11.5% Retail

12.4% 12.1% All Industry

10.6%

10.9%

11.3%

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

5.4%

4.9%

5.1%

5.3%

5.3%

5.1%

5.1%

5.3%

Retail 0.0%

5.3%

All Industry

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

What’s driving the industry? ››

Increased competition – Traditional service-based pharmacies and discount pharmacies will continue to diverge as competitive business models in the pharmacy retail industry. Supermarkets, niche health and beauty retailers, discount department stores and general merchandise retailers, such as Target and Kmart, will also continue to compete with the pharmacy retail industry.

››

Industry reform and falling profits – PBS reforms into split formularies (F1 single-brand medicines and F2 multiple-brand medicines) will foster greater transparency in pricing, however put downward pressure on pharmacy retail revenue. Additionally, the government has targeted the prices of commonly prescribed medications, leading to significant price cuts between April 2012 and April 2014, and lower revenues.

››

110.0 population – Consumers aged over 50 represent a key market sector, as pharmaceutical consumption generally Ageing increases with age. This demographic represents an opportunity for pharmacy retailers. In 2014-15, an estimated 7.9 105.0 Australians will be aged 50 and older, up 2.2 per cent on the previous year. million

››

Real 100.0household disposable income – During 2014-15, household disposable income is forecast to increase, which is expected to boost front-of-store sales.

95.0

Producer Price Index – Selected Industry Groups (2004 to 2014)

Clothing, footwear and textiles

110.0 90.0

Selected foods and alcohol Motor vehicles, parts and tyres

105.0 85.0

Retail Industry Division

100.0 80.0 2008 95.0

2009

2010

2011

2012

2013

2014

2015

Clothing, footwear and textiles 90.0

Selected foods and alcohol Motor vehicles, parts and tyres

85.0

Retail Industry Division

80.0 2008 Source: ABS

2009

2010

2011

2012

2013

2014

2015

Wholesale Trade – Total Income $450.0 $400.0 $350.0 $300.0

$ Billion

Pharmaceutical

2006-07

$304.9

$319.0

$345.9

$357.1

$380.4

$373.0

$380.6

$384.0

$250.0

$200.0 $450.0 $150.0 $384.0 $380.4 $380.6 $400.0 $373.0 $357.1 $100.0 $345.9 $350.0 $319.0 $50.0 $304.9 $300.0 $0.0 $250.0 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Source: ABS $200.0 $150.0 $100.0 $50.0 $0.0 2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

INSIGHTS Presented by

for BUSINESS

70,000 60,000 50,000

$ Million

Pharmaceutical

Total Trade: Imports and Exports (2005 – 2015)

40,000 30,000 20,000 10,000

0 2005 Source: ABS

2006

2007

2008

2009

2010

2011

2012

2013

2014

Pharmaceutical Retail Industry Performance ››

The industry currently employs 175,000 workers, representing 15.1% of those employed in the Retail Trade industry, or 1.5% of all workers in Australia.

››

Employment has grown modestly in the past 12 months, increasing by 2.4%. The Northern Territory and Western Australia have seen the strongest growth, with workers increasing by 130.0% and 15.2% respectively. In contrast, the number of workers in Queensland, South Australia, Tasmania and the ACT has fallen.

››

By state, the largest proportion of the workforce is in NSW, where 54,500 pharmaceutical retail workers are based. This is followed by Victoria, Queensland and South Australia.

››

The growing number of discount pharmacies, which tend to employ fewer people than their traditional full-service rivals, is expected to negatively impact employment rates in the pharmaceutical industry in the future.

››

In total, 60 wages and salaries (including the proprietor’s) will account for an estimated 17.7% of revenue in 2014-15, reflecting 54.1 54.5 the high skill-base of the industry’s labour force. 49.5 50 2014 2015 43.6

Businesses 40 in Operation (State, Turnover) 34.4

30

32.5

Operating at the end of FY 2013-14

20

Zero to less than $50k

$50k to less than $200k 13.2

10

no.

no.

New South Wales 0 Victoria NSW Queensland

322

VIC 233 163

QLD

11.2

17.1

$200k 19.7 to less than $2m no.

326

1,115

181 SA 168

720

WA

4.7

$2m or more 3.5

no.

2.3 1 1,030

586

762 NT 614

TAS

Total

2.8

no. 1.8

2,793

ACT 1,896 1,531

South Australia

68

58

194

248

568

Western Australia

89

78

376

371

914

Tasmania

23

17

66

82

188

Northern Territory

6

1

10

18

35

Australian Capital Territory Total Source: ABS

200 150 100 50

9

9

37

41

96

913

838

3,104

3,166

8,021

60

54.1 54.5 49.5

2014

43.6

40

34.4

2015

32.5

30

‘000 Workers

19.7 Number 17.1 Retailing (2014 vs. 2015, by State) 20 of Workers – Pharmaceutical and Other Store-Based

60 10 50 0 40

13.2

54.1 54.5

11.2

49.5

4.7

3.5

NSW

VIC

34.4 QLD 32.5

SA

WA

TAS

2.8 2015 1.8

2.3 2014

1

43.6

NT

ACT

30 20

17.1

13.2

19.7

11.2

10

4.7

3.5

0 NSW

VIC

QLD

SA

WA

TAS

2.8

2.3

1

NT

1.8

ACT

Source: ABS

Pharmaceutical Services Industry Subdivision Businesses in Operation (State, Turnover) 200

‘000 Workers

Pharmaceutical

50

150 100

20050 150 0 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: 100 ABS

Pharmaceutical Services Industry Subdivision Businesses in Operation (State, Number of Employees) 50

0 2005

Operating at the end of FY 2013-14 2006

Zero to less $50k 2007 than2008

$50k to less 2009than $200k 2010

no.

no.

New South Wales

322

326

Victoria

233

181

Queensland

163

168

South Australia

68

Western Australia

89

Tasmania Northern Territory Australian Capital Territory Total

$200k to less $2m 2011 than2012 2013 no.

$2m or more 2014

Total 2015

no.

no.

1,115

1,030

2,793

720

762

1,896

586

614

1,531

58

194

248

568

78

376

371

914

23

17

66

82

188

6

1

10

18

35

9

9

37

41

96

913

838

3,104

3,166

8,021

Source: ABS

INSIGHTS Presented by

for BUSINESS

Pharmaceutical

Industry Outlook ››

Retail revenue is expected to grow at an average rate of 7.6% from 2014/15 to 2018/19 to $151.8 billion, from its current $141.2 billion.*

››

Over the next five years, competition in the Supermarket and Grocery Stores industry will remain intense, with new entrants including Costco and ALDI, affecting consumer shopping trends. Industry revenue is forecast to grow at an annualised 2.1% over the five years through to 2019-20, to reach $101.4 billion.

››

Over the five years through to 2018-19, clothing retail industry revenue is forecast to grow by an annualised 1.1% to reach $13.5 billion. Competition for the consumer dollar is expected to increase, compounded by the entrance of international players and the increased acceptance of online shopping

››

Over the next five years, the pharmacy sector will continue to face challenging conditions. These include intensifying competitive pressures and the continued loss of market share to external forces, falling prices due to price disclosure and ongoing discounting tactics, the passing patent cliff, tighter trading terms implemented by upstream wholesalers, and rising rents and occupancy costs. Despite this, pharmaceutical revenue is forecast to grow at an annualised 1.1% over the next five years, to reach $16.2 billion in 2019-20.

*Calculated using projected revenue figures for the following retail industries: supermarkets and grocery stores; clothing retail; pharmacies; motor vehicle parts; fast food services; bread and cake retailing.

Projected and Actual Industry Group Revenue ($billion) Financial Year

Supermarkets and grocery shopping

Clothing retailing

Pharmacies

Motor vehicle parts retailing

Fast food services

Bread and cake retailing

Total selected retail industries

$ Billion

$ Billion

$ Billion

$ Billion

$ Billion

$ Billion

$ Billion

2005-06

72.1

13.0

14.9

3.7

12.7

0.8

117.1

2006-07

73.3

12.8

15.0

3.9

12.7

0.8

118.4

2007-08

76.3

13.2

15.2

4.1

13.0

0.8

122.6

2008-09

78.6

13.2

16.0

4.1

13.3

0.8

126.0

2009-10

81.6

13.4

16.4

4.2

15.1

0.8

131.5

2010-11

79.7

13.4

15.9

4.3

14.7

0.8

128.8

2011-12

81.8

12.6

15.7

4.4

14.5

0.8

129.7

2012-13

85.8

12.2

15.8

4.5

14.9

0.8

133.9

2013-14

89.3

12.5

15.6

4.5

15.2

0.8

137.9

2014-15

91.6

12.8

15.3

4.6

15.6

0.8

140.7

2015-16

94.4

13.1

15.4

4.8

15.9

0.8

144.4

2016-17

97.0

13.5

15.5

4.9

16.1

0.8

147.8

2017-18

98.2

13.7

15.8

4.9

16.1

0.8

149.5

2018-19

99.7

13.5

16.0

5.1

16.8

0.8

151.8

2019-20

101.4

13.5

16.2

5.2

17.9

0.9

155.0

Based in part on Bankwest Economic Updates, Australian Bureau of Statistics data used pursuant to the Creative Commons Attribution 2.5 Australia license (available online at: http://creativecommons.org/licenses/by/2.5/au/) and the following Specialised Industry G4271A Pharmacies in Australia.

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