Zameer Choudrey on Bestway’s plans for The Co-op Pharmacy

Why did you want to buy The Co-op Pharmacy?

We’ve been have actively analysing the healthcare sector for the last three years. The fundamentals and demographic trends within the sector are extremely attractive – increasing population size, an ageing population, and the number of prescriptions growing at a rate of more than 2% per year – showing an increasing demand for healthcare services amongst the wider community.

The industry is characterised by fragmentation, with independent pharmacists accounting for 45% of the market. This is similar to the convenience sector, though it’s not as competitive as the independent retail market. There are barriers to entry; for example, the requirement for a licence and professional qualifications. It’s not like the grocery sector where anyone can set up shop anywhere.

And in terms of this particular business?

It’s an extremely well managed business led by [The Co-op Pharmacy MD] John Nuttall and his team. The business itself enjoys 7% market share, and delivers £68m a year in ebitda. And it has the highest service levels in the industry.

How have you financed the deal?

Through a combination of internal cash reserves and external borrowing. We have been provided a new corporate facility by our financing syndicate which allows us flexibility to invest in the future. 

Do you have any contacts in pharmacy? How well do you know the sector?

I wouldn’t say we are experts, but we know more about pharmacy than the private equity boys who would otherwise have bought it. We have some experience in selling medicines.

Most importantly, however, The Co-op Pharmacy is well run and professionally managed by a knowledgeable team who have plenty of experience in the pharmacy sector.

What do you plan to do with the business?

We see potential to grow the business organically and through future acquisitions. The intention is to run the business on a standalone basis, backing the existing management team, with our full support, to take the business forward and in the process we will learn from each other’s experience.  

Will you add groceries to stores?

No.

Will you franchise out the stores?

No. But over time we hope to provide value added services to the pharmacies just as we do for independents through the wholesale business.

We operate a club for 4,000 retailers through our Best-one and Best-in franchise. At some point in the future we would like to offer our expertise to independent pharmacies, offering deals, merchandising, marketing/branding advice IT support and part-investing in store refurbishment and expansion by independents.

Have any of your symbol group retailers expressed an interest?

No. Currently there are no plans to convert any of our symbol group members into pharmacies.

What about rumours that you will move into generic drugs? Do you have connections through your Pakistan business?

We have no existing relationships and this is a highly regulated business. So we do not intend to import any products from Pakistan or India. 

You’re allowed to keep The Co-op Pharmacy name for 12 months – what do you plan to call it afterwards?

Over the course of the next 12 months, we will work with the existing management to establish a new brand and identity.

Are there any other acquisitions in the pipeline and does this continuing diversification signal a gradual move away from grocery?

We are still interested in investing in the grocery business. Only last month we bought Sher Brothers in Scotland. We have invested £280m in the last ten years in our UK wholesale business. In the meantime, where we have found value we have invested strategically.

Going forward, we will of course continue to review any opportunities that might arise in connection with the wholesale business.

You could always give it back to your customers!

We do invest in price. Our margins are much lower than some of our competitors. We pride ourselves on offering the widest range of products at the most competitive prices. 

And unlike our listed competitors, we don’t have to pay dividends to shareholders every year so we can exclusively focus on providing long-term benefits to our customers.

Will you diversify further and when might you make the next strategic move?

For the next two or three years, the focus will be on growing the pharmacy business. Following this, we shall start to look again at investment opportunities, whether it be in healthcare or another industry. We do have some other opportunities to explore.

What’s encouraging is that we’ve shown ourselves to be adaptable. We’ve moved into large-scale manufacturing and financial services and are now market leaders in Pakistan in both cement manufacturing and commercial banking.

Now we’ve moved into pharmacy and have every intention to make this just as successful. Beyond this, who knows what opportunities we may come across.