Celesio AG, through its subsidiary Lloyds Pharmacy Ltd, has agreed to acquire the in-store pharmacy of Sainsbury’s Supermarket Limited. The Competition and Markets Authority (CMA) believes that the Celesio AG and Sainsbury’s Pharmacy will no longer be distinct, and will have created a merger situation.
In December 2015 the CMA assessed the impact that the merger would have on the retail supply of prescription only medicines, pharmacy medicines and pharmacy services to customers in local areas of the UK.
They also assessed the impact the merger would have on the supply of outpatient dispensing services to hospitals in the UK, and the vertical relationship in the wholesale distribution of prescription-only and pharmacy medicines as well as Lloyds’ and Sainsbury’s presence in the retail pharmacy sector.
The final report
The final report was published on 29th July by the inquiry group of independent panel members investigating the merger. In all, 12 areas in England and Wales were identified where the two companies’ pharmacies are such close competitors that the merger may be expected to cause substantial lessening of the competition.
Due to the findings, Celesio will now have to sell a Lloyds pharmacy in each of the 12 areas identified to a new owner. This remedy was approved by the CMA as a way to maintain current levels of competition for local customers.
Although the price of prescription medication is fixed, there are various aspects in which pharmacies compete on that is important to customers. Whilst the majority of a pharmacy’s total revenue is from prescriptions, they still have an incentive to attract customers for other products and services as well.
As Sainsbury’s pharmacy is a strong competitor, this would mean Lloyds would be able to drop their quality of service without fear of losing out on money, in theory.
Simon Polito, Inquiry Chair said:
“By selling the Lloyds pharmacy in those areas to a new owner with the relevant expertise and the incentive to attract customers through its service quality, we can ensure that customers do not lose out from this deal.”
Mergers – a common thing
Mergers are continually being investigated by the CMA to ensure that competition is not adversely affected in all sorts of markets here in the UK. Businesses must be able to compete on a level playing field without a scenario where a business could be tempted to reduce their efforts to compete, or find themselves in a situation where they don’t need to compete as hard, or, at all.