Experienced pharmacy owners dominate Welsh market as First-Time buyers' share declines

New market report highlights a reduced supply of pharmacies following a surge in corporate disposals in 2023 to be the driving force for experienced owners to further expand their portfolios

A notable shift has marked the Welsh community pharmacy sector highlighting pharmacy acquisition trends for 2024.

According to a market report published by Hutchings Consultants, a leading pharmacy sales agency in the UK, there is a rise in the number of pharmacy ownership among the exisiting pharmacy owners so far in 2024.

A total of 67 per cent of the new pharmacy acquisitions or sales made in Wales are by existing pharmacy owners.

This marks a notable change from 2023, where first-time buyers had a strong presence in the market, acquiring the majority of pharmacies sold through Hutchings Consultants.

The decline in market share for first-time buyers, now down to 33 per cent, highlights the growing dominance of experienced operators.

These seasoned pharmacy owners are capitalising on opportunities to expand their businesses, reflecting a calculated approach to growth.

The trend indicates that existing players, with their deeper financial resources and industry knowledge, are better positioned to navigate the current market conditions.

Market Dynamics Favouring Established Owners

Several factors contribute to this shift including rising interest rates.

According to the consultation agency, first-time buyers are facing a challenge due to rising interest rates and tighter lending conditions.

This means that securing financing has become difficult, too, leading many to step back from the market.

In contrast, existing owners, often with established financial stability and access to capital, are finding it easier to pursue acquisitions.

The average turnover of pharmacies sold was £814,224, a reduction on the previous year’s figure of £961,696, owing to lower turnover pharmacies dominating both independent and corporate disposals.

Despite this, the current market dynamics, including a reduced supply of pharmacies following a surge in corporate disposals in 2023, have created a more favourable environment for experienced owners to further expand their portfolios.

Challenges for New Entrants

The report highlighted a grim reality of pharmacies including "pressures caused by factors such as medicine supply shortages leading to rising drug costs, inadequate drug tariff reimbursement and other NHS pharmacy contract changes" that continue to affect a high proportion of contractors across the country, especially first-time buyers in 2024.

"Many business owners are reporting sizeable reductions in their gross profit margin, when compared to recent years, impacting the profitability of their business and increasing concerns," the report stated.

However, some improvement in the average profit margin has been observed so far this year as some deals involves pharmacy sales agreement in the geographically remote part of Wales.

These, the report explains, frequently benefit from reduced competiton and higher profit margins in comparison to pharmacies located in high street or more populous areas.

The large number of corporate pharmacy sales in 2023 flooded the market, increasing buyer choice and reducing the urgency to bid aggressively on independent pharmacies.

This oversupply, coupled with rising loan repayment costs, has made it difficult for new entrants to compete with established players who have more flexibility and financial backing.

The report concluded that there is the "possibility of a reduction in the Bank of England Base Rate later in the year" leading to ease in borrowing costs and potentially re-energizing interest from first-time buyers.

However, for now, the market is squarely in the hands of those with experience and financial muscle, as they continue to dominate the acquisition landscape in Wales' community pharmacy sector.