Struggling Pharmacies Amid Steady Sales
Pharmacy sales experienced a rise during the previous year. - Pharmacy sales experienced a surge in the preceding year
In the German market, the average pharmacy clocks around 3.7 million euros in annual sales, with the cost of goods accounting for a whopping 80%. After chopping off other costs, the average pre-tax operating profit leans at approximately 162,073 euros. Unfortunately, a considerable 26% and 7% of pharmacies ended the year in the red or with less than 75,000 euros, respectively.
The national pharmacy association has voiced concerns over the stagnant situation, as the sales figures have barely budged in the past 20 years, even factoring in inflation. Despite these dire warnings, the federal government has failed to revise the pharmacy fee – the remuneration pharmacies receive for dispensing medicines – for 12 long years. This inaction leaves many pharmacies struggling under mounting financial pressures.
Unsurprisingly, the number of pharmacies in Germany continues its downward spiral. As of Q1 this year, there were 16,908 registered pharmacies, which is 133 more than projections by the end of 2024.
Now, it's not all doom and gloom. The pharmaceutical sector is experiencing growth in overall production and exports, with revenue projections soaring for 2025[1][3]. However, this economic success at the manufacturing level doesn't necessarily guarantee the expansion of brick-and-mortar pharmacies. Retail pharmacies face unique challenges compared to their pharmaceutical peers.
The decline in the number of pharmacies, despite stable sales and unchanged fees, can primarily be attributed to:
- Financial squeeze from stagnant fees: Despite stable sales, operational costs (such as rent, salaries, logistics) continue to rise over time. However, the revised pharmacy fee remains the same, creating a financial imbalance that makes it difficult for some pharmacies to sustain operations and meet their financial obligations.
- Competing against online and retail giants: The German pharmaceutical and healthcare landscape is heating up with fresh competition from online pharmacies, discount chains, and even other healthcare providers. This increased competition can reduce profitability for traditional brick-and-mortar pharmacies, pushing some out of business.
- Regulatory and structural challenges: The pharmacy sector faces complex regulatory constraints and the need to constantly adapt to new treatments and technologies. These demands add additional costs and complexity to pharmacies, making it challenging for some businesses to keep up or invest in necessary upgrades and expansions.
- Stable sales not equaling profit growth: While sales revenue may remain steady or even increase due to factors such as demographic trends and pharmaceutical exports, this doesn't necessarily drive higher profits for pharmacies. The retail side of pharmacies must grapple with distinct challenges compared to pharmaceutical manufacturers.
Despite modest growth in pharmacy-related segments (2.5% year-on-year) and forecasted revenue increases for 2025[5], the retail pharmacy sector hasn't seen a significant surge in expansion. In other words, stable sales don't always translate into a thriving industry for pharmacies in Germany.
- In light of the financial squeeze from stagnant fees and increased competition from online and retail giants, some pharmacies may consider diversifying their offerings to include community programs, health-and-wellness programs, science-based workshops, or finance seminars, such as vocational training, to attract more customers and generate additional revenue.
- To adapt to regulatory and structural challenges, pharmacies might partner with universities, research institutions, or businesses to collaborate on innovations in pharmaceutical manufacturing, or leverage technology to streamline operations and cut costs, thus improving their financial standing and enabling expansion.
