In the pharmaceutical market, distribution stands for the process of moving goods (medicines) from a production facility to end consumers (patients), spanning two principal areas: distribution channels between customers and sellers, and logistics, i.e. the physical movement of products. There are in fact several drug distribution channels including, in particular, direct selling, wholesaling, retailing through full and limited pharmacies, and non-pharmacy channels.
Distribution channels employed by the pharmaceutical market are multi-tier and complex, as they involve pre-wholesaling, wholesaling, and retailing. This is because many medicinal products are initially moved from manufacture to pre-wholesale storage, and only then distributed to wholesalers. As a next step, pharmaceutical wholesalers supply pharmacies and other retail outlets dealing in OTC drugs. Some drugs are also sold through hospital pharmacies, and certain medicines are available from groceries, super- and hypermarkets, discount and convenience stores (independent and chains), gas stations, newsagents (kiosks), and even pubs. Companies’ decisions on the choice of distribution channels involve a complex set of criteria and are even further complicated by their financial resources and production capacities. More and more large manufacturers that can afford the extra investment choose to build their own direct sales systems (direct-to-pharmacy—DTP) alongside their collaboration with non-pharmacy outlets. Smaller businesses often prefer to work with intermediaries (wholesalers). Some make choices that are, to an extent, based on what their competitors do. For example, being concerned about their market share and brand reputation, a company may have to react to other businesses’ decisions on expanding their distribution channels. Another factor that can influence companies’ approaches is potential buyers’ preferences and buying behaviors. Some target groups may be distrustful toward any channels other than traditional outlets for medicinal products, where they can be provided with advice and where sales personnel are perceived as having greater responsibility for their merchandise. What matters the most, however, is the kind of product being distributed, as some products simply imply or predetermine the distribution channel to be used. For example, costly innovative drugs are distributed predominantly through shorter channels; Rx medicines may not be marketed by mail order; and pharmaceutical products that may be administered under medical supervision only are delivered directly to hospitals. Wholesaling Wholesaling is defined as all sorts of activities involving procurement, storage, and delivery or export of medicinal products and engaging manufacturers or importers of medicinal products, or wholesalers of such products, or pharmacies, or veterinary clinics, or other duly authorized businesses, with the sole exception of supply to individual customers. Medicinal products, including products moved into or out of a country, may only be handled by pharmaceutical wholesalers or dedicated bonded warehouses and consignment stores. Pharmaceutical wholesaling plays a major role in marketing medicinal products. Between 2006 and 2014, Poland’s wholesale market (primarily supplying pharmacies and hospitals) grew by 66% to reach a total worth of PLN 30 billion. Its annual growth rate thus averaged 7.3%, with wholesale distribution to hospitals growing faster than supplies to pharmacies. In 2014, wholesale supplies to pharmacies were up 5.1%, totaling PLN 25.3 billion, while the wholesaler-to-hospital market soared by as much as 14.7%, totaling PLN 4.3 billion. Despite the large number of actors (more than 600 wholesale businesses registered with WIF), Poland’s pharmaceutical wholesale market is a highly concentrated one, being dominated by three capital groups whose total share of the wholesale market in medicinal products approximates 70% (UOKiK 2015). These groups are: Pelion Healthcare Group S.A. (based in Łódź), Neuca S.A. (based in Toruń), and Farmacol S.A. (based in Katowice). In 2013, their consolidated revenue from sales totaled PLN 18.3 billion, marking an 8% increase from the 2010 level. The consolidation process in Poland’s pharmaceutical wholesale business mirrors the horizontal integration process occurring between major and minor players whereby many local wholesalers have been taken over by market leaders. The process was initiated by Polska Grupa Farmaceutyczna (PGF) taking over ten wholesale businesses based in different parts of the country. Pharmaceutical wholesalers keep a stock of more than 25,000 products, of which some 3500 are reimbursable medicines that are continuously available. The total worth of medicinal products in stock is estimated at PLN 1.6 billion (PwC 2013). Wholesalers are the key suppliers of medicines to pharmacies (around 80% of sales). In 2013, the NEUCA Capital Group, made up of more than 20 businesses, served some 10,000 pharmacies. However, the largest business in this segment is Grupa Pelion with a 30% share of the wholesale market in 2013. PGF, part of the Pelion Healthcare Group and a leading pharmaceutical distributor working with some 600 drug manufacturers and more than 9000 pharmacies, operates 13 centrally managed modern storage facilities and sells in excess of one million items daily. The Group works closely with the specialized logistics operator PharmaLink providing warehouse management and drug distribution services to more than 100 pharmaceutical industry businesses, including mostly drug manufacturers and wholesalers, and pioneering the use of a state-of-the-art system for temperature tracking in transport (Pelion 2014). Attention should be given to Pelion’s strategy adopted in 2014 and to be pursued in the forthcoming years. The strategy is explicitly founded on building close business partnerships in pharmaceutical distribution:
At the end of 2014, Pelion made an entry into the new market segment of cosmetics by purchasing a 100% stake in Polbita Sp. z o.o., operator of the “Natura” drugstore chain, and Polbita Marketing Sp. z o.o. Natura is one of the largest chains of drugstores in Poland’s cosmetics market and second best nationally in terms of brand recognition. At the beginning of 2016, it operated 270 stores countrywide, a central storage facility near Warsaw, and 14 local warehouses. The decision to take over a drugstore chain was underpinned by the need to diversify operations and hence improve performance in satisfying customers’ changing expectations. Analyses of Poland’s cosmetics market are indicative of its robust growth at an average annual rate of about 5% over the past 7 years.
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