Inside Australia's $27 billion pharmacy industry

Pharmacist Brendan O'Loughlin had a robotic picking and packing system installed in his pharmacy to weigh and record incoming stock, discard damaged boxes, scan expiry dates and pack products away neatly. The investment had little to do with technology, he says. Instead, it had everything to do with people.

“That machine saves us two hours each day in stock-management time,” says O’Loughlin, owner of O’Loughlin’s Medical Pharmacy in Sydney’s St Ives. “It’s easier for the pharmacists to do their job now.

“That means we’ll attract more great pharmacists who want to spend their time developing relationships with patients, as opposed to doing factory work.”

Relationships is what the community side of retail pharmacy is all about, O’Loughlin says. While the big-box discount chains such as Chemist Warehouse and Priceline Pharmacy compete primarily on price, successful community pharmacies focus instead on service.

“One of the beautiful things a pharmacy provides to its local community is a long-term relationship with a very accessible healthcare professional,” O’Loughlin says.

“I think it’s very hard in a franchise or corporate model to get that length of tenure, where you have seen children grow into adults and they remember you for the care you showed them.”

New Zealand pharmacies are ailing

Relationships provide the feel-good side of retail pharmacy. On the flipside, it is a fiercely competitive sector.

In 2023, according to an IBISWorld report, pharmacies in Australia went head-to-head for a piece of the A$27 billion revenue pie. This represented annual growth of almost 3 per cent since 2019.

The industry is split into community pharmacies, community pharmacy chains and franchises, and large discount retailers.

In New Zealand, the market has been more challenging for smaller businesses, partly because they have been hit harder by the evolution of price-crunching corporates.

“With the introduction of big players like Chemist Warehouse, it changes the dynamics of the market and what businesses need to do to continue to be relevant,” says Carolyn Young, chief executive of Retail NZ.

 

"In our pharmacy, we describe ourselves as chronic care specialists. We know the people who come to see us. If a particular person says something is not right, we know to pay serious attention because we have seen them week after week, year after year."

 

“Price is one of the main drivers for Chemist Warehouse; however, local pharmacies need to differentiate by focusing on customer service and other product offers that will bring customers into their store.”

Consumer spending across the New Zealand retail space is down. Pharmacies, like most other retailers, are not meeting sales targets.

“Our recent Retail Radar report told us that 71 per cent of retailers did not meet sales targets in the second quarter this year [2024], and 42 per cent are uncertain if they will survive through the next 12 months,” Young says.

A July 2024 report in Pharmacy Today said New Zealand pharmacies were currently experiencing the biggest retail slump since COVID-19 lockdowns.

However, according to Statista, the outlook is more positive across Asia, with significant growth expected. In 2024, the value of the Asian pharmacy sector was US$513.2 billion (A$768.3 billion). That is expected to grow more than 5 per cent annually to US$657.6 billion (A$984.7 billion) by the end of 2029.

A role for community pharmacies

In the competitive and highly regulated Australian pharmacy space, a community pharmacy’s point of difference from corporate brands is vital, says Norman Thurecht, managing partner of Pitcher Partners in Brisbane.

“Chemist Warehouse has been around since about 2003,” says Thurecht, whose firm has specialised in the pharmacy sector for several decades.

“In Australia, the big players still have an impact on some pharmacies, but a level playing field seems to have been created where the big brands and community pharmacies each have their own customers.”

Pitcher Partners brings decades of benchmark data to its clients, helping improve outcomes by pointing out how and where they could be boosting efficiency and productivity.

Location is obviously a key driver of customer traffic, Thurecht says. In the Australian pharmacy game, there are strict location rules.

A new pharmacy can only be opened, or an existing pharmacy relocated, if it meets the many requirements of the National Health Act 1953 Pharmacy Location Rules, made under the National Health (Australian Community Pharmacy Authority Rules) Determination 2018.

This Determination outlines various rules such as distance from other pharmacies, as well as the number of pharmacies allowed within specific types and sizes of shopping centres, hospitals and medical centres.

The regulations are not designed so much as a protection mechanism, the Pharmacy Guild of Australia states. They instead ensure new pharmacies go where they are most needed, with the aim of giving all Australians equal access to Pharmaceutical Benefits Scheme (PBS) medicines.

Andrew Topp, pharmacist and CEO of Capital Chemist, says 60 to 80 per cent of the revenue of most community pharmacies comes from the PBS.

“There is a real lack of visibility in, and understanding around, how payments are calculated and how the money flows in pharmacy,” says Topp, whose member pharmacy Capital Chemist Southlands in the ACT won the Pharmacy Guild of Australia’s Pharmacy of the Year 2024 award.

Very roughly, pharmacies are paid weekly for the prescriptions they dispensed the previous week. For most prescriptions, until recently at least, the pharmacy is paid a dispensing fee and a handling fee.

For an affordable product, the customer might pay the full cost of the medicine, plus the pharmacist fee. For more expensive products, the customer pays a patient contribution, while the pharmacist fee is paid and the rest of the cost is absorbed by the PBS.

 

"Our relationships with our patients are timeless. People want connection, and community pharmacy is essential to providing that connection."

 

When 60-day prescriptions were introduced by government in 2023, that was a demonstration of the lack of understanding of the system by policy makers, many pharmacists argued.

A typical prescription might cover 30 days of medication. The government’s new 60-day prescription policy said patients could receive two boxes of medication while the pharmacy was paid just once.

Overnight, pharmacy revenues were seriously threatened. It was the equivalent of a fast-food restaurant being told to give two burgers to every customer who paid for one.

“Essentially, it halved our income,” says Curtis Ruhnau, co-owner of Emerton Amcal+ Pharmacy, winner of the Pharmacy Guild of Australia’s Excellence in Community Engagement and Excellence in Harm Minimisation awards in 2024.

“Eventually, the Pharmacy Guild and the government came to an agreement, known as the Eighth Community Pharmacy Agreement or 8CPA, for a midway point.

For two boxes, we are now paid one dispensing fee and two handling fees.”

The impact of COVID-19

The COVID-19 period was good and bad for the pharmacy sector.

Many pharmacists suffered burnout because of the demands of frontline work, O’Loughlin says. At the same time, the sector was revolutionised in terms of scope of work and perception of purpose.

During the pandemic years, pharmacies became vital places in the community not just for dispensing of the medicine, but also for vaccinations.

“The pandemic brought massive change in how we operated physically and electronically,” Topp says.

“Our delivery businesses took off – some of that through new apps that were developed. 

Electronic prescriptions were dragged, kicking and screaming, into the modern age. Now, around 40 per cent of our prescriptions arrive electronically.”

Members of the public realised pharmacists were the most accessible medical professionals in the community, Topp says.

At the same time, pharmacists developed a new appreciation of their own role, Ruhnau says.

“In our pharmacy, we describe ourselves as chronic care specialists,” he says. “We know the people who come to see us. If a particular person says something is not right, we know to pay serious attention because we have seen them week after week, year after year.”

The private consultation rooms that were designed in pharmacy spaces for the administration of COVID-19 vaccinations were recognised for their ongoing value in direct health care. As a result, trials are currently being carried out in pharmacies for consultation and therapeutic advice around urinary tract infections and dermatology issues.

“The urinary tract infection trial has been run through Queensland, New South Wales and ACT pharmacies,” Topp says.

“One of the most common reasons a woman might present to a doctor is for a urinary tract infection. Uncomplicated urinary tract infections are eminently treatable, after a review of symptoms and patient history, with a short course of antibiotics. If those antibiotics don’t work, they can be sent to a doctor for further tests.

“For 97 per cent of healthy women under the age of 65, a urinary tract infection is something pharmacists can fix,” Topp adds.

“That frees up tens of thousands of appointments with doctors for more serious stuff.”

A good prognosis

As big-box corporates focus on winning the price war and stocking a range of beauty products, community retail pharmacies in Australia are eschewing fast-moving consumer goods to focus instead on medical products and services.

“Our offer is based on professional services and products that align with a professional model of pharmacy, rather than a retailing/perfumes model,” Ruhnau says.

“It is that idea of never seeing a need without trying to do something about it.

In the low socio-economic area in which this pharmacy operates, some of the main needs people have are simply for health literacy.

One of our main roles is to be coaches and concierges for the health system.”

This stance is a dramatic change from a decade or two ago, when pharmacies were often considered simply “another retailer” in the shopping centre.

“My mother was a pharmacist back when the top-selling pharmacy items were baby formula, nappies and Kodak film,” O’Loughlin says.

“Supermarkets took away the baby formula and nappies, and Kodak suffered from technology change. Change is constant in our sector, and we’ve just had to keep evolving and innovating around it.”

“In saying that, there is also some real permanence in human nature.

Our relationships with our patients are timeless. People want connection, and community pharmacy is essential to providing that connection.”