Press release

Pharmacy merger gets conditional go-ahead

Celesio will have to sell pharmacies in 12 areas of England and Wales as part of its takeover of Sainsbury’s pharmacies.

Pharmacist and customer

Celesio AG (Celesio), through its subsidiary Lloyds Pharmacy Limited (Lloyds), operates around 1,540 pharmacies across the UK. It intends to acquire Sainsbury’s 277 pharmacies, which are usually located inside Sainsbury’s supermarkets.

In a summary of its final report published today, the inquiry group of independent panel members investigating the merger has identified 12 areas in England and Wales where the 2 companies’ pharmacies are such close competitors that the merger may be expected to lead to a substantial lessening of competition (SLC).

The group published its provisional findings in April.

Celesio will now have to sell a Lloyds pharmacy in each of the 12 areas to a new owner, approved by the Competition and Markets Authority (CMA), to maintain the current level of competition for local customers. Celesio will not be permitted to close these pharmacies.

Simon Polito, Inquiry Chair, said:

Although the price of prescription medicines is fixed and some features of quality, range and service are specified by regulation, pharmacies still compete on various aspects of their offer which are important to customers. Since pharmacies’ total revenue is largely dependent on the number of prescriptions issued, they have an incentive to attract additional customers - who we’ve found are prepared to switch between the 2 companies’ pharmacies, particularly when they are near to each other in a local area.

In those areas where a Sainsbury’s pharmacy is currently a strong competitor, under common ownership Lloyds might be able to reduce service quality to increase profits without being concerned about losing customers to a rival.

By selling the Lloyds pharmacy in those areas to a new owner with the relevant expertise and the incentive to attract customers through its service quality, we can ensure that customers do not lose out from this deal.

The summary and all other information relating to the investigation are available on the case page. The full report will also be published there shortly.

Notes for editors

  1. The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law.
  2. The CMA referred the case for a phase 2 investigation in December 2015.
  3. The UK pharmacy market was estimated to be worth around £14.5 billion in 2014. NHS receipts account for the majority of the market and have been estimated at £10 billion.
  4. In its provisional findings the CMA provisionally found SLCs in 13 areas. Following provisional findings the CMA has reversed its SLC finding in one area, Sutton Coldfield, but continued to find SLCs in the other 12 areas. These areas are Beaconsfield, Bracknell, Cardiff, Christchurch, Kempston, Kidlington, Leeds, Liverpool, Luton, Reading/Theale, Sandy/Potton/Biggleswade area and Warlingham. The CMA has determined that these SLCs should be remedied by the sale of one Lloyds pharmacy in each of the following: Beaconsfield, Bracknell, Cardiff, Christchurch, Kempston, Kidlington, Leeds, Liverpool, Luton, Reading/Theale, Sandy and Warlingham. In Christchurch and Sandy Celesio will be able to sell either of the Lloyds pharmacies in the area. In all other areas the specific Lloyds pharmacy to be sold has been identified.
  5. The members of the inquiry group are: Simon Polito (Inquiry Chair), Sarah Chambers, Stephen Oram, and Tim Tutton.
  6. All the CMA’s functions in phase 2 merger inquiries are performed by inquiry groups chosen from the CMA’s panel members. The appointed inquiry group are the decision-makers on phase 2 inquiries.
  7. The CMA’s panel members come from a variety of backgrounds, including economics, law, accountancy and/or business; the membership of an inquiry group usually reflects a mix of expertise and experience.
  8. For more information on the CMA see our homepage or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on mergers cases.
  9. Enquiries should be directed to Rory Taylor (rory.taylor@cma.gsi.gov.uk, 020 3738 6798).
Published 29 July 2016