Half of Britain’s pharmacies which have an annual turnover of less than
£500,000 could close if resale price maintenance on medicines is abolished,
the Restrictive Practices Court has been told.
Opening the case in favour of retaining RPM for the Proprietary Association
of Great Britain and the Proprietary Articles Trade Association on October 19,
Mr Mark Cran, QC, said that the Arthur Andersen management consultancy had shown
that the average pre-tax profit of small pharmacies was 2 per cent, derived
from a gross profit of 23 per cent. Four per cent of gross profit was from price
maintained goods. If pharmacies lost just half of their price maintained sales
to supermarkets, their 2 per cent pre-tax profit would be wiped out. The result
would be pharmacy closures in secondary shopping areas, where a high proportion
of elderly people shopped.
A further consequence of reduced profitability would be that pharmacist proprietors
would cut their costs by reducing staff and taking on their work personally.
This would leave them less able to offer free advice. The provision of advice
would cease or it would be charged for, Mr Cran said.
Manufacturers, too, would cut back on their services to pharmacies. These included
training programmes that went far beyond simple marketing exercises. An example
was the provision of stock control services, product training and business training
by Smithkline Beecham. These services would disappear or be charged for.
Mr Cran also put it to the court that supermarkets and others who produced own-label
medicines did not have to bear development or advertising costs because they
did not develop medicines. Instead they imitated already successful medicines.
Lastly, he explained that because supermarkets sold only market-leading branded
medicines, access to second and third line products would be restricted to pharmacies
that survived with reduced profitability. In order to reduce their costs, those
surviving pharmacies would need to reduce their stock ranges and there would
be a decrease in the range of medicinal goods available.
These detriments would be set against a net financial benefit to the population
from lower prices of 6.5p per week per household. That was the only benefit
the public would see from the abolition of RPM.
In 1970, the court had found that the public interest favoured RPM on medicines,
Mr Cran said. The position was the same today. In 1970, supermarkets had typically
been small and had high street locations. Now, they were large and many were
at one-stop out-of-town locations. They wanted to create an environment where
people did no town centre or neighbourhood centre shopping. They were now targeting
post offices, pharmacies and dry cleaners because these were the local small
businesses which people visited more or less weekly. It was no accident that
since 1970 five times as many grocers’ shops had closed as supermarkets
had opened.
The court is expected to continue hearing evidence until early December.