Retail pharmacy chains: setting standards for quality and price

Retail pharmacy chains and franchise networks have the potential to change the way drug markets work in low and middle-income countries, standardising quality, lowering prices, and increasing access to medicines for people across all income levels.

Most low and middle-income countries (LMICs) have pharmaceutical retail markets consisting of formal and informal independent retail outlets, but the emergence of chains or franchises is limited, due to both legislative barriers and a mix of secondary factors.

The experiences of India, South Africa, and other countries suggests that where chain retailers do develop, the resulting standardisation and advantages of scale can lead to increased availability of services and lower prices for consumers.

More than 50 percent of total health expenditure in Africa, and more than 70 percent in Asia, comes from private sources, nearly all out-of-pocket expenditure by individuals and households. The World Health OrganizationÕs 2004 World Medicine Situation Report found that between a quarter and a half of all out-of-pocket expenditure in LMICs is on medicine.

Of the countries in Africa and Asia studied by the University of California, San Francisco (UCSF), almost all have pharmacy markets which are exclusively made up of single outlet stores. The study used key informant interviews, secondary data, and analysis of published materials from a range of sources to document the current status of private sector retail pharmacy legislation and regulation in 25 LMICs.

In only two of the countries surveyed - South Africa and India - has there been recent growth in pharmacy chains and franchises over the past five years. In South Africa this consolidation appears to have been initiated by a change in legislation regulating ownership which was implemented in 2003.  In India the legal framework governing ownership changed earlier, and it appears that the availability of financing (mostly from private sources) and private companiesÕ growth in confidence regarding regulatory intentions were the critical factors which led to multiple chains developing beginning around 2003/2004. Nigeria, Uganda, and other countries with ownership laws which would theoretically permit chain and franchise creation have not seen similar market changes, despite growing demand for pharmaceuticals.

UCSF findings suggest that legislative restrictions on shared ownership or multi-outlet ownership is a barrier to retail market consolidation, as one would expect, but that this alone is unlikely to fully explain the level of consolidation. Access to financial inputs also appears to be critical: limited personal savings and weak capital markets leave potential entrepreneurs in Nigeria and elsewhere unable to raise funding which would permit them to expand successful pharmacies.

Limited evidence from South Africa and India suggests that where market consolidation has occurred it has resulted in an increase in pharmacy outlets and a decrease in consumer prices. Competition has led Indian independent pharmacist associations to explore group purchasing in order to be able to match the lowered prices.

In South Africa while some independent pharmacies have closed, the large supermarket chains have opened as many or more new pharmacy outlets within their existing groceries and accessibility appears to have increased.

Whilst more research is needed, particularly from middle-income countries, the research discussed in this article suggests that facilitating consolidated ownership of retail pharmacies can lead to an overall increase in their number and distribution, and a decrease in retail prices.

‘Franchising of Health Services in Developing Countries’, Health Policy and Planning, 17(2), pages 121-130, by Dominic Montagu, 2002 Full document.
World Medicine Situation Report, World Health Organization: Geneva, 2004 Full document.
‘Making Health Markets Work for Poor People’, id21 insights 76, March 2009 Full document.

id21 Research Highlight: 7 April 2009

Further Information:
Dominic Montagu
Global Health Group
University of California
3333 California Street, Suite 285,
San Francisco
CA 94143-0443

Contact the contributor: montagud@globalhealth.ucsf.edu

Global Health Group, University of California, USA

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