How the Chemist Warehouse-Sigma merger could disrupt Australian pharmacy retail

The Australian Competition and Consumer Commission’s (ACCC) approval of the Chemist Warehouse and Sigma merger could prove to be a landmark moment in the history of Australia’s $20 billion pharmacy industry.

The merger still needs to be approved by each company’s shareholders and the Federal Court, but if that occurs, Chemist Warehouse and Sigma will become the biggest pharmacy retailer in Australia. They will also introduce a new vertical integration model, presenting a major structural change to the pharmacy market.

While the ACCC concluded that the Chemist Warehouse and Sigma merger isn’t likely to lessen competition in the pharmacy industry in any substantial way, there are industry insiders who say the deal represents the corporatisation of Australia’s pharmacy industry.

There are two key areas of healthcare that the merger has the potential to disrupt; prescriptions and allied health services, such as optometry and audiology.   

Prescriptions on demand 

Sigma Healthcare owns 400 pharmacy retail stores across its Amcal, Guardian, PharmaSave and Discount Drug Stores brands. Meanwhile, Chemist Warehouse owns 550. 

Together they will account for an estimated 16 per cent of the 6000 pharmacy stores in Australia, an estimated 40 per cent of which are independently owned.

But Chemist Wharehouse-Sigma’s reach goes beyond its retail presence, Sigma Healthcare’s wholesale and distribution business of prescription pharmaceuticals has the ability to impact independent pharmacies.

According to Brian Walker, founder and CEO of Retail Doctor Group, every business ultimately aims to gain unfair market share, but Chemist Warehouse and Sigma Healthcare could disrupt the pharmacy industry for good.

“The combined business will still be in business to serve all pharmacies if they can genuinely offer products at a competitive rate to other pharmacists, and they can genuinely support the overall supplier products into the market on a fair basis, then I think that’s probably a pro for the industry,” explained Walker. 

For Walker, the merger has the potential to benefit pharmacies and consumers if Chemist Warehouse and Sigma live up to their word.

“From a consumer’s point of view, if it means more access to pharmacies, if it means more access to products, if it means a competitive pricing model where consumers benefit, then they’re all pros,” Walker elaborated.

“The cons are [if] none of those three things happen, or they only happen on occasion,” he added.

Allied health goes commercial 

Australia’s pharmacy industry and allied health services have remained largely fragmented, made up of a combination of independent retailers except for a few banner groups.

“Then along comes this corporatising of the pharmacy market, building scale, replicability and so forth,” Walker said, referring to the merger of Chemist Warehouse and Sigma Healthcare.

Now, there is speculation that Chemist Warehouse and Sigma are gearing up to make a play beyond combining their physical retail footprint.

“Its replicable model has the ability to continue to scale up, not just scale up in pharmacy, but scale up in hearing, scale up in sight, audiology and optometry,” explained Walker.

“It represents a challenger brand, a disrupter, not just for the pharmacy sector, but for other allied sectors,” he added.

Walker also pointed out the potential for global expansion. 

“I also think Chemist Warehouse themselves and the Sigma business have much bigger ambitions, they’ve started to open Chemist Warehouse Dubai and they’re building a model where, clearly, they want to take it globally,” he concluded.

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