Reforms force pharmacies to boost retail revenue

Falling prescription prices, due to reforms to the Pharmaceutical Benefits Scheme (PBS), are forcing pharmacy operators to boost retail revenue.

Pharmacies are expected to generate revenue of $15.8 billion in 2016-2017 and post sluggish annualised growth of 0.3 per cent in the five years through 2016-2017. 

Commenting on the industry’s performance, IBISWorld senior industry analyst Arna Richardson said, “IBISWorld anticipates the Australian pharmacies industry to grow by an annualised 0.8 per cent in the five years through 2021-2022 to reach revenue of more than $16 billion.

“Price deflation has occurred due to ongoing PBS reforms as PBS medicine costs have been progressively cut, including prices for a growing number of commonly used drugs,” added Richardson.

Changes to price disclosure arrangements will come into effect October 1, 2016. These are expected to cause the price of generic drugs to fall further, following originator brand drug versions being removed from weighted average disclosed price calculations.

As a result of ongoing PBS reforms causing price deflation, IBISWorld expects industry operators to focus on growing non-PBS and other retail revenue as they seek to reduce reliance on prescription revenue. Alternative revenue sources include scheduled non-prescription medicines, cosmetics, beauty products, baby products, body- and hair-care products, sun-care products and other general health items. Pharmacies will also focus on preventative and primary health care programs as they seek to cement their role in community primary health care.

“While an ageing population and increasingly health-conscious consumers provide substantial demand for pharmaceutical and medicinal products, this is unlikely to result in robust revenue growth,” said Richardson.

“Over the past decade, traditional community pharmacies have undergone significant changes. Intensifying retail competition from new internal and external operators, such as discount pharmacies and supermarkets, have altered the industry’s operating landscape, particularly as a growing number of operators rely on promotional discounting.”

IBISWorld expects external competitive pressure from supermarkets to continue in 2016-2017, as consumers’ desire for convenience drives sales growth for general medicines from supermarkets.

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