OPERATIONAL REVIEW

Lynda van Niekerk Lynda van Niekerk
Managing director
UPD is the country’s leading national full-range pharmaceutical wholesaler and provides the distribution capability for New Clicks’ integrated healthcare strategy. The business services retail and chain store pharmacies, hospital pharmacies, dispensing doctors, veterinarians, health shops and other wholesalers. An average of 12 100 product lines – 6 300 scheduled and 5 800 front shop lines – are held to meet customer needs.

Review of the year

A focused growth strategy has seen UPD entrench its leadership position and grow its share of the pharmaceutical distribution market from 25.6% to 26.4%.

Sales to hospitals accounted for 26.4% of total turnover, with UPD supplying the majority of pharmaceutical product to the Life Healthcare and Medi-Clinic private hospital groups. Services to independent pharmacy contributed 28.6%, Clicks pharmacies 17.0%, Link pharmacies 17.1%, with turnover from third-party distribution contracts doubling and contributing 4.9% of sales.

UPD continued to expand its offering to independent community pharmacy through the Link buying group. As a means of creating increased loyalty UPD offers value-adding services to enable these pharmacies to be more competitive. At year-end 309 pharmacies were contracted to the Link initiative, buying an average of 49% of supplies from UPD.

UPD’s revenue base was further diversified. The business was awarded the distribution contract for pharmaceutical supplier Pharmaplan. Kalahari Medical Distributors, a pharmaceutical wholesaler in Botswana, was purchased by UPD in January 2008 and contributed R30 million to turnover in the financial year.

Owing to increasing cost pressures, UPD has focused on service levels to its more loyal and profitable customers. Shortly before year-end a minimum order value of R2 500 was introduced along with standardised service levels to drive efficiencies in the business. Rising transport costs necessitated a review of delivery routes and frequency of deliveries and this will result in UPD drivers travelling almost 6.6 million fewer kilometres in the year ahead.

The investment in UPD’s automated distribution system in 2007 has started to realise cost savings, with an 8% reduction in headcount over the past year.

A stock rationalisation programme was undertaken and all products were evaluated based on profitability and relevance to retail pharmacy. This reduced the number of lines in stock by more than 6 000.

UPD’s selling price inflation measured 3.9%, including a 6.5% price increase granted to manufacturers by the Department of Health in the second half of the year.

Focus for 2009

UPD plans to further enhance the loyalty of Link pharmacies by achieving a minimum of 60% buying loyalty in the year ahead. The range of Link-branded products will be relaunched and extended to at least 100 products.

The range of front shop products will be further rationalised.

This stock rationalisation programme has created additional space in the distribution centres and R30 million has been committed to upgrading 6 000 m2 at Lea Glen and 2 500 m2 in Cape Town. This includes the upgrading of the receiving and dispatching facilities, increasing cold chain capacity and extending air-conditioning.

In the year ahead UPD plans to diversify its revenue base even further and is aggressively targeting third-party distribution contracts to grow this area of the business. The New Clicks acquisition of courier pharmacy business Direct Medicines will add a new revenue stream as all medication dispatched to patients across the country will be supplied by UPD.

Market share (%) 2008 2007
Total private pharmaceutical market (value)* 26.4 25.6
Total private pharmaceutical market (volume)* 23.8 22.6
* IMS