As the pharmacy sector, along with many other sectors, starts to normalise, we have been encouraging clients to increase their service offering for both NHS and private. Following reduction in category M prices from October 2021 and any potential change in the future, the increase in services performed will be vital in the next 12 months and beyond, to help maintain the profitability of the pharmacy.
Since the category M clawback commenced in October 2021 and with medicine shortages driving up purchase prices, pharmacy gross profit margins have been under pressure. We have seen gross profit margins decrease between 2% and 3%. This may improve in the second half of 2022 and into 2023, if reimbursement prices are increased to maintain the £800 million gross profit margin delivery. We have discussed the gross profit margin in further detail below.
The introduction of the new discount scale will also potentially impact margins as the scheme is phased into pharmacy from October 2022.
Pharmacies are also still feeling pressure from staff retention and recruitment. With increasing salaries and locum fees this is expected to have a negative impact on cash flows for the foreseeable future. How to potentially tackle rising staff costs is covered in further detail later on in the article.
In relation to the pharmacy transaction market, it continued to be very active over the last 12 months with both corporate and independent acquirers in the market. A number of the pharmacies have produced high profits during the pandemic and therefore you need to ensure that the figures you are buying on are normalised. This is covered in further detail in the article below.
The impact of the staffing issues and increased workload from COVID-19 has had an impact on the owners, with some now taking the opportunity of retirement and selling their pharmacy. We are also expecting the large corporates to continue to rationalise their portfolios either by selling or closing branches, therefore we anticipate the pharmacy market to continue to buoyant through 2022 and 2023.
