UK pharma retail shifts online - ecommerce to grow seven times faster than store-based sales by 2026

UK pharma retail shifts online - ecommerce to grow seven times faster than store-based sales by 2026

• Online sales at UK pharma and health chain retailers are expected to grow by 36% between 2021 and 2026, galloping ahead of the channel’s store-based sales growth (5.6%) - forecasts the market research and data analytics arm of Edge by Ascential
• On-demand delivery, the acceleration of digital innovation and virtual healthcare services, such as the online doctor service launched by Boots in June, will fuel growth of the UK’s Pharma and Health channel
• But the channel’s delayed response to changing consumer habits together with the adverse impact of the pandemic on stores will see muted growth for UK Pharma and Health compared to other major markets - with a five-year compound annual growth rate (CAGR) of just 1.4% expected to 2026 

*Data and forecasts from Edge Retail Insight’s Pharma and Health Channel September 2021 report 

London, 23 September 2021: The UK Pharma and Health retail channel is expected to have a CAGR of just 1.4% between 2021 and 2026, representing the slowest five-year growth rate of the world’s top 10 markets for Pharma and Health chain retail sales, Edge Retail Insight analysts predict.  

The US is the biggest market for this channel, accounting for more than 50% of the world’s total Pharma and Health retail chain sales and will continue to dominate, but over the next five years, faster growth will come from Brazil (led by RaiaDrogasil), Japan (led by Tsuruha) and China (led by Superdrug owner A.S. Watson). 

Forecasts published in Edge Retail Insight’s September Pharma & Health Report, which are based on Edge’s proprietary data analytics technology, show that the channel in the UK, dominated by Boots, Superdrug, Savers and Lloyds Pharmacy will trail Germany and Sweden in terms of growth over the next five years to 2026. 

Edge Retail Insight analysts forecast that the UK Pharma and Health channel will be worth US $18 billion by 2026 - the fifth biggest pharma retail market in the world.  Meanwhile, consumers will be spending US $29.5 billion at Germany’s chain pharmacy retailers, which will experience a five-year CAGR of almost 4% between 2021 and 2025.  

Florence Wright, Senior Analyst at Edge by Ascential and report author, said: “UK chain pharmacies and drugstores have been under pressure for some time as a result of the High Street decline and a shift to online sales, which, pre-COVID-19,  they were not able to take full advantage of due to their extensive legacy store infrastructures and reliance on in-person healthcare provision.

“Most pharmacy shops stayed open during the pandemic to provide communities with access to essential healthcare and then many became instrumental to the pandemic response becoming COVID-19 vaccination centres. But the collapse of footfall at the height of the lockdowns, closure of beauty and fragrance counters, decline in discretionary category spending and rising store expenses related to social distancing and incremental cleaning accelerated existing financial struggles. In its third-quarter results in 2020, Walgreen Boots Alliance said its most significant COVID-19 impact was in its UK market and booked a $2 billion non-cash impairment charge against Boots UK.

“Digital transformation to drive differentiation and store resets to generate closer online-to-offline interactions are now at the centre of UK pharma retail strategies but this sector has been slower to adapt at scale compared to other markets, such as the US where Amazon has been more of an immediate threat and APAC, where the digital infrastructure offered through platforms like Tencent’s WeChat is more advanced and widely used than anything we have at the moment in the UK.”

As an example, Japan’s largest drugstore chain Tsuruha integrated WeChat Mini Programs to accelerate cross-border ecommerce from its stores last year. Customers in China can now access more than 1,400 Japanese products through the Tsuruha Drug Express Mini Program, with orders picked and packed in Tsuruha stores in Osaka before being directly shipped to China.  

Wright added: “Germany’s growth will be led by two of the leading operators - dm and Rossmann, both of which have strong footholds in the market and are investing at pace in stores and digital transformation. dm has been opening distribution centres using robotics technology from Swisslog to improve supply chain efficiency and costs, and Rossmann, which is owned by Superdrug owner AS Watson, has been trialling self-scanning payment services integrated with its own app to create a more convenient offer for shoppers. We also expect strong growth from online players like  docmorris.de”

Globally, ecommerce sales through Pharma and Health are expected to outstrip store-based sales, growing at a CAGR of 7% between 2021-2026, compared to store-based growth of 3.7%.    

Wright points out that the shift to online is challenging for pharmacy retail chains in some European countries because of regulations related to the sale of over the counter (OTC) and prescription and pharmacy products limiting mass expansion of ecommerce. 

“In France, tight rules means OTC is mainly limited to independent pharmacies, but in the UK OTC can be sold across the majority of channels. This allows Boots and Lloyd’s Pharmacy to give people almost on-demand access to painkillers and medication for mild ailments like coughs and colds - as well as makeup, nappies, baby formula and snacks - without leaving the house through their partnership with restaurant and grocery delivery app Deliveroo. In the US, same-day prescription delivery is expanding quickly, with Amazon, Walgreens Boots Alliance, CVS Health and Sam’s Club all offering the service. We are not there yet in the UK, but prescription delivery could become one battleground for UK pharmacy retail as they seek shopper loyalty.      

Chris Elliott, Head of Market Insights at Edge by Ascential, said: “To be competitive in a new era of consumer behaviour and retail transformation, the UK Pharma and Health channel will need to focus on three major areas. On the one hand, it should focus on building out healthcare and wellness services to play a bigger role in their community’s mental and physical health in the aftermath of the pandemic and the urgent drive to get people to take better care of themselves. 

“It must also embrace technology innovation in-store and online to aid discovery, boost engagement and drive loyalty in its key beauty category, which accounts for more than 80% of the channel’s total sales. Finally, speed to market will also become a key differentiator with the pace of expectation now being raised by rapid grocery delivery apps, like Gorillas, Weezy and Jiffy.   

“Health and beauty manufacturers that sell through this channel can support retailers transform their offer, but they should also consider their future route to market. In an age of ecommerce and the profusion of digital touchpoints, the pharmacy retail chain is just one of many channels - including social media and direct-to-consumer (DTC) sites - to grow engagement and sales.”