Super Pharm Ltd., owned by chairman Leon Kofler, has submitted to Antitrust Authority director general Ronit Kan an opinion supporting its claim that the acquisition of New Pharm Drugstores Ltd. by Super-Sol Ltd. (TASE:SAE; OTCBB:SSLTF) will harm competition in the market. Dr. David Gilo and Dr. Yossi Spiegel of Tel Aviv University wrote the opinion.
The opinion states that competition between supermarket and pharmacy chains not only exists in the near-food products sector, but also in prescription drugs. This competition originates in the fact that Super-Sol and Blue Square Israel Ltd. (NYSE: BSI; TASE: BSI) operate pharmacies in some of their supermarkets, which sell prescription drugs.
Super Pharm estimates that, of the 16,000 items sold in its stores each quarter, 13,000 items (80% of all items) are also sold at large supermarket chains. Since the average number of items sold at large supermarkets is 30,000, the overlap for supermarket chains is over 40%.
Super Pharm’s figures indicate that in June-November 2005, an average of only 16% of purchases by consumers at Super Pharm comprised prescription drugs and drugs covered by health funds. 84% of purchases are of near-food products that are also sold by large supermarket chains.
Super Pharm discloses its profit margins in the opinion. The company’s operating profit margin is 3.8% of sales, and its net profit margin is 2.02%. Super Pharm has an estimated NIS 2 billion in turnover a year.
Super Pharm and New Pharm have lower profit margins than those of large pharmacy chains in the US, Canada, and the UK, even though these countries have more than two nationwide pharmacy chains. Spiegel and Gilo therefore assert that the only logical reason for the low profit margin in Israel is that Super Pharm and New Pharm are exposed to strong competition from supermarket chains, which bite into their profits.
Super Pharm adds that it plans to open five new stores each year, and that it predicts sales to grow by 5-10% a year.
Published by Globes [online], Israel business news - www.globes.co.il - on January 9, 2006