e of the sector and what they should do to survive, let alone prosper in a changing marketplace. Like most retail categories, pharmacists are now facing much tougher general retail conditions along with a tightening of the federal government payments on the pharmaceutical benefits scheme and an industry disrupter within – Chemist Warehouse, the big box discounter. These three factors are re-shaping the pharmacy sector, a sector in which Amcal was the dominant national brand before the emergence of Chemist Warehouse, Terry White Chemists and Priceline Pharmacy. Amcal remains a well recognised pharmacy brand in Australia, one of five banners owned since 1998 by the publicly listed wholesaler, Sigma Pharmaceuticals, but it is a shadow of its former self. Sigma Pharmaceuticals has more than 700 pharmacies under brands such as Amcal, Guardian Pharmacies, Pharmasave, Discount Drug Stores and Chemist King. Sigma Pharmaceuticals has rebounded from a disastrous period which saw its former CEO and chief financial officer prosecuted for doctoring the financial results of the company. It boasts the largest retail network, representing close to 20 per cent market share. Buoyed by sales from the Discount Drug Stores chain it acquired in September 2014, Sigma Pharmaceuticals posted a 7.2 per cent gain in revenues from its retail pharmacy banners for the first half of FY17. The acquisition of Discount Drug Stores was an opportunistic strategic move by Sigma Pharmaceuticals to shore up its customer base after the collapse of a number of independent banners that were overwhelmed by debt and unable to satisfy tighter trading terms and rebate changes implemented by the wholesaler to improve its own balance sheet. Concerned about the potential entry of Coles and Woolworths into pharmacy, Sigma Pharmaceuticals attempted a merger in 2002 with Australian Pharmaceutical Industries (API), the Sydney-based wholesaler, but the deal was quashed by the Australian Competition and Consumer Commission. API has strengthened its position in the market after snapping up the then 16 store Priceline Pharmacy chain from New Price Retail and turning the “Barbie-look” pink chain into a 440 store network. Priceline Pharmacy is the key brand in API’s portfolio of 80 Soul Pattinson chemist stores and 90 Pharmacy Advice pharmacies. The wholesaler also owns the Club Premium banner for independent pharmacies. The two listed wholesalers account for most of the stock distribution to branded and independent pharmacies, including Alliance Pharmacies which has 500 members and is aiming to add 200 more in the next 12 months. However, ownership and control of their own retail banners is a crucial defensive bulwark against the possible entry of the supermarket chains into the category and, more significantly, the expansion of Chemist Warehouse and Terry White Group with a capacity to deal direct with suppliers and bypass wholesalers. The Chemist Warehouse group, which includes My Chemist, has been the major driver of change in the pharmacy category for more than a decade as it has amassed a dominant market share and estimated annual revenues of $2.9 billion. Established in 2000 by the Gance family and Mario Verrocchi, Chemist Warehouse controls more than 300 pharmacies through a complex structure that skirts around government ownership restrictions and riles competitors who complain that the Pharmacy Guild should have stopped its relentless expansion. Chemist Warehouse operates under a different business model to the pharmacy banner groups of the wholesalers and Terry White Group which have a more conventional franchise or licence model. The Chemist Warehouse stores are category killers with large footprints in prominent freestanding locations identified with an unmistakable yellow livery. The discount chain promotes and advertises aggressively and is now the most recognisable brand in Australia and, according to the Roy Morgan research firm, the most frequently visited pharmacy chain in the country. Chemist Warehouse has been a consistent advocate for the deregulation of pharmacy ownership which would allow the chain to raise capital more easily to invest in further store and online development and support innovation and modernisation. Chemist Warehouse also argues that consumers would benefit from ownership deregulation, noting in submissions to competition inquiries that it has seen competitors reduce prices on products in response to its entry into markets with its discounted pricing. Those competition reviews, including the most recent Harper Review, have agreed that there would be a consumer benefit in deregulating ownership restrictions, but successive federal governments have been reluctant to accept the recommendations. There has been little commentary from government ministers as to why deregulation has not been pursued. However, a reason advanced is the need to ensure the survival of pharmacies in rural and regional areas. In any event, Chemist Warehouse has become a disrupter in the category and has forced more change and, arguably, a greater flight of independents and smaller pharmacy groups to the larger banners than any other factor. The threat of deregulation, higher rent, labour and inventory management costs as well as the subdued retail spending of recent years and ongoing pressure from government on dispensary returns have all played a part in industry consolidation, but Chemist Warehouse is preying on every pharmacist’s mind. Terry White Group, the Brisbane-based pharmacy chain, has not necessarily been spooked by Chemist Warehouse, but it has developed its own expansion strategies with a weather eye to the discounter that has been posting stronger sales growth over an extended period. Terry White Group looked to have lost momentum for a period as Priceline Pharmacy courted independents and prospective conversions from other banners. But under new CEO Anthony White, Terry White Group broke its slumber in July 2015 with the acquisition of the South Australian headquartered chain Chemplus which has around 60 pharmacies. This helped lift retail sales for the half year to December 2015 by 18 per cent and continued to show above industry growth in the full year. But the big move by Terry White Group was the merger with Chemmart, announced last August, a deal that creates a network of around 500 pharmacies with annual sales of $2 billion. White said the merger was “the next step” in an ambitious growth strategy, adding that it would deliver significant scale benefits. He added: “The merger with Chemmart will allow us to build on and leverage the best of what each of the respective networks has been delivering in health and health services, to expand the scope of pharmacists within the combined group into other areas of health.” Unveiling the first pharmacy in Glenferrie Road Hawthorn in Melbourne’s inner eastern suburbs to sport the new livery, White announced that all pharmacies in the Terry White and Chemmart groups will be rebranded as TerryWhite Chemmart. White said the new retail name built on the existing brand equity of the pharmacies within the network and supported the future direction of the group, which is now almost certain to include a listing on the Australian Securities Exchange within the next two years. Chemist Warehouse Group is also tipped to pursue a public listing in the future, although a float could be hampered in much the same way The Good Guys was by the complicated ownership structure – an impediment the retailer has itself vigorously argued should be changed. The decision on a float may well be driven by a need for capital to fund international expansion as Chemist Warehouse, like Amcal, looks to develop an online retail business in Asia. Certainly on growth metrics, both Chemist Warehouse and the Terry White/Chemmart merged pharmacy retail network would attract investor interest and, quite possibly, drive further consolidation in the category.