The Frenetic Expansion of Pharmacy Chains in Latin America
The new pharmacies of Latin America are offering a range of services, including home delivery, supermarket-style shopping carts, online ordering, perfumes, cleaning products and photo development service.
These days, it is almost impossible to find the sort of old-fashioned shop with a counter where someone processes a prescription for each customer. Display cabinets that have glass bottles and the odor of medication have almost completely disappeared. Retail pharmaceutical marketing, imported from the United States, imposes a totally different concept in which consumers can touch and choose products, walk through aisles, and choose everything from a bar of soap to sunglasses. They pay taxes and purchase, in just one step, the drugs their doctor prescribed.
“Nowadays, consumers are taking a long look at the United States, unlike previous generations that followed the European model,” says Horacio Filgueira, director of MyS Publicity in Buenos Aires. “Consumers feel more comfortable with this business model, and that helps get a foothold, at first, and then grow. Here in Latin America, there is an abundance of fast-food restaurants, hypermarkets, multi-brand retailers, department stores, etc., following the mass market trends of developed countries. We always follow one of these trends.”
Meanwhile, traditional neighborhood shops have had to transform themselves so they can deal with the fierce competition. “Just like old-fashioned stores had to change with the arrival of supermarkets and hypermarkets, traditional pharmacies went through some difficult stages where revenues dropped significantly,” says Filgueira. “But those who learn how to identify opportunities and be creative will wind up moving forward.”
“If they specialize in providing more personalized attention and rapid delivery of merchandise, neighborhood pharmacies will be able to survive,” said Mario Ascher, a professor at the EENI graduate business school of the University of Belgrano. Ascher is also the director of the marketing company Ascher and Associates.
The Revolution in Pharmaceutical Services
Latin American executives have reacted to this trend in two different ways. One group has formed pharmacy chains that have their own retail outlets. Another offers totally-equipped franchises as in the case of Vantage, Zona Vital and Farmacity in Argentina, and FASA in Chile. A third group comprises pharmacies that sell only generic drugs, which have no brand names and cost a lot less.
Only a short while after they were created, these chains have revolutionized the market in pharmaceutical retailing, flooding Latin American cities with shops on the best corners and avenues.
There is a good reason for all this activity. The pharmaceutical sector generates billions of dollars a year. The largest market is in Mexico, which records annual sales of more than $8 billion. The second most important market is in Brazil, where annual sales are about $7.5 billion. Next is Argentina, which has annual revenues of $2.3 billion. Venezuela is in fourth position, with sales worth $1.77 billion. Finally, there is Chile, which has more than $1 billion in annual sales.
Not surprisingly, competition among the major chains is growing and has begun to move into other Latin American markets. Take, for example, Farmacity, the most important chain in Argentina. Farmacity, which was launched in 1997, now has 60 outlets in several different cities. Its main features include a service that allows customers to pay their public utility bills; 24-hour-a-day customer service; and photo development. Farmacity is still resisting the temptation to set up separate departments that provide food and coffee. It has already opened its first operation in Colombia, part of its modest plans for expansion.
In contrast, FASA, a Chilean company, has been more aggressive in its attempts to conquer foreign markets. Currently the leader in Latin America, FASA has a total of 1,000 shops in Peru, Brazil and Mexico.
In this market, a key to success is the promise of providing the largest range of services in one location. “The arrival of these chains in the domestic market was a logical evolution of this business format that, much like other markets, has moved toward a model more like a ‘convenience store,’” says Filgueira. “The consumers that are targeted by such chains as Farmacity and Vantage are already used to this business model. They know Walgreens, for example, and they know the advantages of having a nearby store that is always open and offers more variety, not just when it comes to pharmaceuticals. Ultimately, perhaps, they are even thinking about prices. However, that would not be their greatest advantage when facing Mexican competitors who recently entered the market by offering generic products.”
In any event, Ascher says, “Consumers are satisfied because they can find everything they are looking for under one roof. Plus, there is self-service, and it is open 24 hours a day, and there is always a pharmacist there.”
The Economic Formula
Companies such as Farmacias Similares and Farmacias Fénix have taken a different approach, offering drugs at low prices, without emphasizing brands or a broad range of products. They have enjoyed strong growth in Latin America because they enable even the poorest people in the population to have access to medicine.
Generic drugs are made with the same raw materials as brand medications, have the same therapeutic effects and are subjected to the same strict quality controls.
The kings of this market are two Mexican brothers who are engaged in a fight to the death. Victor González Torres owns Farmacias Similares, which has more than 2,200 stores and revenues of more than $300 million. His brother, Javier González Torres, heads Farmacias Fénix, which has 500 outlets, and revenues of about $250 million.
Both chains have been diversifying, and they have taken their business battle to Argentina, Venezuela and Costa Rica. Several factors have helped their growth They have a strong presence in Mexico among lower-income groups, for example. Also, they don’t just sell products at lower cost than their competitors; they offer low-cost medical consultations and even home delivery.
They have taken this concept to Argentina, where the Law of Generics has also made things easier. This regulation limits doctors to prescribing specific kinds of medications but not prescribing commercial brands. “These chains work fundamentally on variable ‘pricing,’ and working with generics generates their ‘competitive advantage,’” explains Filgueira. “They clearly target different consumer segments than Farmacity does.”
The Key to Survival
In the competition to gain market share, the chains have managed to locate their stores face-to-face with those of their adversaries, just a few meters away. “This is inevitable if regulations permit it, and it is what happens in Argentina,” says Ascher. “If we want ‘to defend’ small business people, there will be another sort of debate. But obviously, some locations are ‘more appealing’ than others, so the chains choose them when locating their pharmacies.”
“More than simply setting up shop right near the competition, I believe they should look for locations where they can find the consumers they are targeting,” says Filgueira. “That’s especially true for the generic drugs consumed by people with limited resources.” Marketing specialists have their doubts about pharmacies that continue to offer only generic drugs. “This has produced very good results in Mexico where it originated,” notes Ascher. “To find out if a communications proposal is successful, you have to use the market research technique known as ‘pre copy test’; we do not know if these two successful chains have implemented this guarantee.”
Nevertheless, when it comes to generics, Ascher believes that in Argentina, at least, “they are here to stay. You have to realize that a small pharmacy chain in the Matadero neighborhood is promoting a very appealing approach in which, even physically on its shelves, brand medications co-exist with their corresponding generic equivalents.”
Despite the battle for shelf space and brands, all the chains continue to grow. They also have plans for opening more stores. For example, Farmacias Similares plans to open some 200 shops in Argentina. Likewise, FASA will invest $17 million in remodeling some 200 outlets and expanding its distribution center. Economed, an Argentine firm that sells generic drugs, has 20 shops in the city of Córdoba and will open its first location in Buenos Aires.