Affected market: Retail pharmacy
The OFT's decision on reference under section 33(1) given on 29
November 2005. Full text of decision published 7 December 2005.
Lloyds Pharmacy Limited (Lloyds) is a national retail pharmacy chain
operating 1,414 outlets in the UK. It is a wholly owned subsidiary of
Admenta UK Plc (Admenta) which is in turn wholly owned by Celesio AG
(Celesio). Its sister company, the pharmaceutical wholesaler AAH, is
also a wholly owned subsidiary of Admenta.
Primelight Limited and Levelcrown Limited and their respective
subsidiaries (trading under the names Scholes Chemist and Cohens
Chemist) is a regional pharmacy chain comprising retail pharmacies in
England and Wales, the majority of which are in Merseyside, Lancashire,
Greater Manchester and Yorkshire, 110 of which are subject to the
anticipated transaction. The UK turnover of the businesses to be
acquired for the year ended 31 August 2005 was around £80 million.
Lloyds intends to acquire 110 Scholes and Cohens stores with the
original owners retaining 30 pharmacies. This transaction was
pre-notified on 18 October 2005 and the statutory deadline is therefore
29 November 2005.
As a result of this transaction Lloyds and 110 Scholes and Cohens
pharmacy stores will cease to be distinct. The UK turnover of the target
exceeds £70 million, so the turnover test in section 23(1)(b) of the
Enterprise Act 2002 is satisfied. The OFT therefore believes that it is
or may be the case that arrangements are in progress or in contemplation
which, if carried into effect, will result in the creation of a relevant
The parties overlap in the operation of retail pharmacies. In
'Unichem/GEHE AG/Lloyds' (see [note 1]), the MMC considered as
distinct the supply of three different product categories offered by
pharmacies: ethicals, 'pharmacy only' medicines (P medicines) and
general sales list (GSL) medicines. In addition, pharmacies also stock
non-pharmaceutical products such as toiletries, baby food and health
Ethicals are prescription only medicines. In the significant majority of
cases, there is no demand side substitution either within ethicals or
between prescription and non-prescription (over the counter (OTC))
medicines. From the supply side, a pharmacist requires a pharmacy
contract with a primary care trust (PCT) in order to be able to dispense
P medicines do not require a prescription but can only be dispensed by a
pharmacist. While pharmacists supplying P medicines do not require a PCT
contract, in practice, however, only about one per cent of pharmacies
dispense without a PCT contract.
GSL medicines do not have to be sold in pharmacies and are therefore
also available in supermarkets, convenience stores, petrol stations etc.
Due to the many alternatives sources for these products they are not
considered further in the assessment of this transaction.
In addition to the PCT contract requirement a key distinction between
the provision of P medicines and ethicals is pricing. Prices for
ethicals are fixed and pharmacies are remunerated and reimbursed for the
costs of the drugs dispensed by the NHS. By contrast, pharmacists are
free to set their own prices for P medicines.
The lack of competition concerns outlined below in relation to the
provision of retail pharmacy services means that there is no requirement
to conclude on the appropriate product scope in this assessment.
While there may be an element of national competition between the
national pharmacy chains with regard to pricing, product choice and
service levels, demand for retail pharmacies appears to be predominantly
local. The OFT pharmacy report (at paragraph 5.13) (see [note
2]) found that 78 per cent of consumers travel less than one
mile to a chemist, and 96 per cent travel less than three miles. This is
in line with the MMC report in 'Unichem/ GEHE/ Lloyds', which
suggested that 'the geographic reference market is a small area with a
radius of at most one or two miles'.
A one mile radius from each pharmacy has been taken as the relevant
geographic frame of reference for the assessment of competition in P
medicines and ethicals in this case. However, within particular local
areas, and for particular types of service competition, the exact scope
of geographic competition may vary (see [note 3]). Due to the
absence of competition concerns on a local level as detailed below it
has not been necessary to conclude on this issue in this particular
National shares of supply
The parties have submitted that Lloyds pre-merger has 1,414 pharmacies
out of approximately 12,500 pharmacies in the UK, amounting to around
11.3 per cent of all outlets. The acquired pharmacies account for around
0.8 per cent of all outlets. The OFT therefore does not consider the
merger creates competition concerns at the national level.
Local shares of supply
There are 22 locations where there are a Lloyds and an acquired pharmacy
within one mile of each other. In each of these local areas there are at
least three other pharmacy fascias present. No third parties raised any
competition concerns in respect of the pharmacies to be acquired. This
lack of concern at the local level is consistent with the MMC's
analysis in 'Unichem/ GEHE/ Lloyds' which only examined two-to-one
overlaps. In relation to this case, the OFT therefore does not consider
that a reduction in pharmacy numbers (by fascia) from five to four
within a one mile radius creates competition concerns.
Lloyds is part of the Celesio AG group along with the pharmaceutical
wholesaler AAH. Post-merger, the expectation is that the target stores
would switch their full-line wholesaler from their current supplier to
AAH. However, given the relatively small number of pharmacies involved,
the OFT does not consider that the removal of the Cohens and Scholes
pharmacies from the contestable market would create competition concerns
stemming from this vertical integration.
THIRD PARTY VIEWS
No competition concerns were raised by third parties in respect of this
The parties are active in the pharmacy sector. At the national level the
parties' shares of supply are low and no competition concerns arise.
The transaction will create a limited number of local overlaps. In each
of these local areas the OFT considers that sufficient competition will
remain post merger. No substantial vertical issues arise. Consequently,
the OFT does not believe that it is or may be the case that the merger
may be expected to result in a substantial lessening of competition
within a market or markets in the United Kingdom.
This merger will therefore not be referred to the Competition Commission
under section 33(1) of the Act.
- Monopolies and Mergers Commission, Unichem PLC/Lloyds Chemists plc
and GEHE AG/Lloyds Chemists plc, A report on the proposed merger, July
1996, Cm 3344.
- The control of entry regulations and retail pharmacy services in the
UK – A report of an OFT market investigation (January 2003) –
- For example, in order to encapsulate entire villages or to take
account of delivery services from particular pharmacies.