For many suppliers, this weekend’s proposed ‘equal’merger between Boots and Alliance UniChem will create one of Europe’s biggest H&B and pharmaceutical retailer-distributor customers, with an initial market capitalisation of £7bn.

Government interference should be minimal (UK retail =17% market share, but 40% of wholesale drug may be a problem), and alternative bids by private equity funds and retailers are less likely options, which means that EU H&B suppliers face one of the most fundamental trade challenges of the past decade.

The Boots Gain

Alliance UniChem has 939 retail pharmacies in the UK (many community pharmacies, less vulnerable to supermarket competition), and a further 261 throughout The Netherlands, Norway and Italy. This means Boots will be less exposed to UK high street competition, whilst providing an international platform for the company to grow outside the UK.

The wholesale advantage

Moreover, with Alliance UniChem making 2/3rds of its profits from wholesaling pharmaceuticals in the EU, providing supplier access to 100,000 independent pharmacies, via 250 distribution centres in 12 EU countries, the merger will represent greatly enhanced buying muscle, potential for large cost savings, and a means of boosting margins.

As a result, apart from the impact upon continental European markets, the merger will represent fundamental change on several levels for UK suppliers.

How the NAM role will change

Essentially, for many suppliers, Boots will become an EU account in one move, having access to suppliers’ wholesale and retail prices and terms disparities across the whole region. They will have the ability to insist upon lowest common prices or resort to physically moving appropriate products from country to country via their new wholesale network. This ‘new’ customer will also want a pan-european dialogue based upon a trade strategy that anticipates their new and future development throughout the EU, in both retail and wholesale.

For UK NAMs, this means establishing a dialogue and working relationship with their new EU colleagues, fast. It means quickly establishing a Alliance-Boots customer database as a means of ‘collecting’ details of the different ways in which colleagues trade with the companies’ retail and wholesale arms across the EU, in an attempt to anticipate the immediate issues.

New buying muscle

By combining Boots and Alliance product portfolios, resulting in a sales turnover of £13bn, the new partners will be able to aggregate their combined purchasing requirements and demand scale discounts in their key categories.

Within the UK, their combined retail estate will more than double their retail presence, offering suppliers two distinct route to consumer, high street and community pharmacy, requiring a fundamental change in the traditional management of the Boots account. A further complication will be added by having to factor in an overlay of wholesale relationships with independent retailers, who in turn will have to accommodate their old rival becoming their main wholesaler. On a more positive note, perhaps Celesio should budget for some increase in new independent customers this week…

Moves by retail competition

Apart from anticipating retaliatory moves from Tesco and Asda, currently selling more H&B and OTC medicines than pharmacies, it will be important for suppliers to factor in the reaction of AS Watson, the joker-in-the-pack with much to lose (or gain) within the UK and across continental Europe in its new 4,800 outlet estate in 21 countries, with a sales turnover of over £5bn. And little evidence of aggregating its buying muscle, as yet...

A special opportunity

For suppliers prepared to undertake a fundamental review of their trade strategies, now seriously out-of-date since Friday last, the Alliance-Boots move can represent a unique opportunity to rebalance their customer dependencies, and thereby capitalise on the major opportunity that has just opened up in their UK and continental European markets, fast.

All else is detail…..

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