Pharmacy sales could resolve merger concerns
Celesio may have to sell pharmacies in 13 areas of England and Wales for its takeover of Sainsbury’s pharmacies business to get the go-ahead.
Celesio AG (Celesio), through its subsidiary Lloyds Pharmacy Limited (Lloyds), operates around 1,540 pharmacies across the UK. It intends to acquire 277 Sainsbury’s pharmacy stores, which are generally within or next to Sainsbury’s supermarkets.
The Competition and Markets Authority (CMA) referred the case for a phase 2 investigation in December 2015. In a summary of their provisional findings, the inquiry group of independent panel members investigating the merger has identified 13 areas in England and Wales where the 2 companies’ pharmacies are such close competitors that the merger would be expected to lead to a substantial lessening of competition (SLC).
As well as the summary of provisional findings, a notice of possible remedies has also been published which outlines ways to address the competition concerns, including the sale of pharmacies in the affected areas.
Simon Polito, Inquiry Chair, said:
This is a market in which the scope for competition is reduced compared with many retail mergers. The price of prescription medicines is fixed and there are a number of quality specifications which cannot be reduced below a minimum level because of regulation. However, we found that since pharmacies’ total revenue is largely dependent on the number of prescriptions issued, pharmacies have an incentive to compete to try to attract additional customers.
Consumers value various aspects of service quality and are likely to take these into account when choosing between pharmacies. This gives pharmacies the incentive to compete on these aspects in order to attract customers. We found evidence that there were some differences in the characteristics of Sainsbury’s and Lloyds pharmacy customers but we also found that customers would be willing to switch between Lloyds and Sainsbury’s pharmacies, particularly where the number of convenient competitor pharmacies was low.
We have provisionally found that after the merger Lloyds will no longer face sufficient competition in 13 areas and expect that in these areas customers will lose out. We are now inviting responses to these provisional findings and will discuss ways in which we can address our concerns.
Anyone wishing to respond to the provisional findings should do so in writing, by no later than 23 May 2016. Please email firstname.lastname@example.org or write to:
Celesio/Sainsbury’s merger inquiry
Competition and Markets Authority
Notes for editors
- 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. 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 merger cases.
- 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.
- 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.
- The 13 areas are in which the CMA provisionally found an SLC are Beaconsfield, Bracknell, Cardiff, Christchurch, Kempston, Kidlington, Leeds, Liverpool, Luton, Reading (Calcot)/Theale, Sandy/Potton/Biggleswade area, Sutton Coldfield and Warlingham.
- 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.
- The members of the inquiry group are: Simon Polito (Inquiry Chair), Sarah Chambers, Stephen Oram, and Tim Tutton.
- Enquiries should be directed to Simon Belgard (email@example.com, 020 3738 6472).