Drug distribution channels bound for change as part of aging society phenomenon

Japan may be a long way from the 24-hour, drive-through pharmacies that one sees in the U.S., but a recent flurry of activity to create “new types of drugstores” shows that innovation is alive and well.

Several large players last year announced their intentions to team up with somewhat unlikely partners in an effort to develop new distribution channels targeting the growth presented by Japan’s aging population. And that activity has continued into this year.

Second-ranked convenience store operator Lawson Inc. and fifth-ranked pharmacy chain operator Qol Company plan to launch outlets this year that offer prescription drugs alongside products typically sold at convenience stores. Lawson will also partner with Japan’s largest drugstore operator, Matsumotokiyoshi Holdings Company, to develop so-called “hybrid outlets.” These two retailers representing very different sectors will develop larger-scale retail spaces (2–3X the size of regular convenience stores) to offer OTC drugs and cosmetics, and presumably prescription-filling pharmacies as well. The firms hope to have 1,000 “convenience-drugstore hybrids” within 5 years, on par with Matsumotokiyoshi’s drugstore network.

Japan’s second-largest retailer, Aeon Company, perhaps better known for its mass market outlet Jusco, and trading company Mitsubishi will collaborate through their respective affiliated drug-related businesses (Growell Holdings Company and Qol Co.) to innovate new types of drugstores that cater to customers aged over 40 and offer OTC and prescription drugs, herbal remedies and nursing care items. The two firms plan to co-develop “medical malls” as well, locating them in shopping centers to improve accessibility.

Meanwhile, Seven & I Holdings Company established “Seven Health Care Co., Ltd.” jointly with Ain Pharmaciez Inc., a major chain of prescription drugstores, to develop new-style drug stores utilizing Ain’s high level of specialization and Seven & I’s strength in retail business infrastructure. Its first drugstore was opened in August of 2009 (called “Seven Bi no Gardens”) in the Ito-Yokado Funabashi store location, with plans to open some 30 locations per year. The store offers products related to nursing care and other products which cater to health needs, as well as cosmetics and drugs.

Is it any wonder there is so much activity on the distribution front for non-prescription and prescription drugs?

In addition to the coming regulatory changes in the over-the-counter (OTC) sector in June 2010, there is also the looming demographic phenomenon of Japan’s rapidly aging society, projected to result in nearly one-third of the population being aged over 65 by the year 2025.

OTC drug sales in Japan grew by about 2% in 2008 to reach a value of US$9.4 billion, and the market is forecast to increase by 8% (to US$10 billion) in 2013. Pharmacies and drugstores are a leading distribution channel for OTC drugs, and account for approximately 70% of the total value.

Meanwhile, the pharmaceutical market in Japan grew by nearly 3% in 2009, reaching a value of US$67 billion, and is forecast to increase by 11% (to US$74 billion) in 2014.

Japan clearly dominates in the Asia-Pacific OTC and pharmaceuticals markets, accounting for 35% and 54% of the respective regional values.

In the U.S., a no-less-pressured pharmacy dispensing industry also struggles to innovate and change. There, large players such as Walgreen’s, CVS Caremark, Walmart, Rite Aid and other chains are hustling to position their pharmacies, walk-in clinics and other health-and-wellness activities as solutions to the nation’s healthcare crisis. We may yet see drive-through pharmacies in Japan!

Debbie Howard is Chairman of CarterJMRN and President Emeritus of the American Chamber of Commerce in Japan.

Originally published in Nikkei Weekly, 5th April 2010

CarterJMRN is a strategic market research agency that has been helping clients with consumers and businesses in Japan and beyond since 1989.

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