Bestway is buying The Co-operative Pharmacy for £620m, but it will be entering a competitive sector.
Bestway Group chief executive Zameer Choudrey has a nice problem on his hands. Bestway’s purchase of The Co-operative Pharmacy is a big deal, and acquisitions on such a scale are sometimes a sign of problems in company being bought.
But Choudrey may not have to worry about that. Last year The Co-operative Pharmacy recorded profits of £33m on sales of £760m, across a 770-strong group of well-located stores and a highly trusted fascia on the high street.
The problem he does have is that in a year’s time that fascia will disappear, because under the terms of the deal Bestway only has the right to use the Co-operative Pharmacy name for a transitional period of 12 months.
And, says Mintel director of retail research Richard Perks, some of the pharmacy’s trust is bound to go with the name.
“The Co-op is a strong brand,” he says. “It’s trusted and it is known for having solid ethical standards.”
Bestway is something of an enigma in UK retailing. A cash-and-carry giant with an annual turnover of £2.4bn in its latest results, it wholesales to 125,000 independent retailers and caterers in Britain alone, but in terms of the mainstream multiple sector it is a relative unknown.
Its £620m acquisition of the Co-operative Pharmacy has changed that. Not least because it has taken over a business that, despite the prominent problems in the wider Co-operative group, is trading pretty well. So with all eyes now on it, what impact can Bestway expect to make in an already crowded pharmacy market, and in what ways could it tweak its new acquisition?
Choudrey is keeping tight-lipped about the future, but he is very clear that he doesn’t intend to mess with the strong reputation the Co-operative has earned in local communities up and down the country.
Speaking to Retail Week he says: “We’re delighted to have acquired this business. It’s very robust, it has very high standards of service and it’s community based, which suits us very well.”
Bestway has the credentials to claim it is a champion of local communities. It is the UK’s second largest wholesaler to independent retailers and the seventh largest family business in the country and has its roots in local business.
But entering pharmacy retail is a big step, even for a company of Bestway’s size. Not least because it will be competing with some big hitters - Boots and LloydsPharmacy have just under 4,000 stores between them, followed by Superdrug with 880 stores. Choudrey says that despite this crowded market, there is space in the sector for a new player and a new type of competition.
“There is still room for growth in pharmacy,” he says. “There is room for more competition, and room for more choice and value for customers. We’ll be looking at all opportunities to increase the footprint, including working with independent pharmacy chains”.
Because of its intrinsic links with healthcare and the NHS pharmacy retailing is a unique sector in the industry, and one that needs to be treated with caution, says Perks.
He says: “Pharmacies are about providing healthcare rather than being retailers. Bestway has scope to improve the profitability of the Co-op, but it needs to be very careful about rebranding in the long term.”
So how might the arrival of Bestway impact the rest of the sector? With such strong incumbents in place in an industry based around trust, arguably very little, says Perks.
If Bestway doesn’t manage in the next 12 months to convince shoppers to put their faith in a rebranded chain, Boots and Lloyds could be “rubbing their hands with glee”, at least in the short term, Perks says.
“The risks are that you start putting customers off,” he says. “People want to know the name over the door.”
But if Bestway can make the leap from wholesaler to retailer, and put such trust in place, it will find itself with a ready-made network of stores to add to an already well-established supply chain infrastructure that includes the independent pharmacy sector.
It’s not a typical retail challenge, and it will take some doing, but with The Co-operative Pharmacy under its belt, Bestway might just be the group to take on the big guys.