Boots, a spent force?
...cts provide £1,862.5m and lifestyle provides £733.9m. Major competitors to Boots are leading supermarkets such as Tesco and Asda. Tesco have seen a growth in their sales of health and beauty products of 13%. These supermarkets have an advantage over Boots as they can provide customers with these products in the same place as where customers can do their weekly shop. Tesco now has 201 in-store pharmacies and has recently invested £5.5m in their health and beauty sector to encourage this increase in sales. This is evidence that there is a real battle for market share within the sector. Boots have had to react to the ease of purchase within the supermarkets by slashing prices. The market value has increased by £9.81bn since 1998 (increase of 7.7% per year). Boots has declared their focus on pharmaceuticals and with prescription drugs sales currently at £11.5bn, Boots will need to maintain their market share of 12% and offer a greater range of products at competitive prices. Appendix 2 demonstrates Boots’ market trend within the medicine sector. Within 2 years (2002-2004) they lost 6% of their market share to rival competitors, with Tesco recording the biggest gain of 3%. This proves customers are enticed by value for money and the ease of purchase supermarkets offer. This is further evident in the sales of toiletries purchased between November 2002 and February 2004. Boots again lost a huge market share, down 7% in the period, with rival supermarket firms the main beneficiaries. These market trends show that Boots has lost its previously untouchable monopoly of the pharmaceutical and healthy and beauty sector. Since Appendix 3 was published, Boots recorded an increase in sales of 3.3% within the beauty and toiletry sector. They also published a growth in revenue of 1.1% (Appendix 4). These rises in sales are minimal in comparison to Boots success in the retail sector, where revenue raised 13.3% in the six months ending 30th September 2005. Though Boots have seen a growth in sales within the health and beauty sector, the sector as a whole has received an increase in consumer spending. This is shown in Appendix 6, where consumer spending is compared for a 5 year period. Spending has increased each year, as high as 5.7% in 1999, and in 2003 it was 3.8%. In medical goods and equipment there was an increase of 18.8% between 2002 and 2003. This demonstrates the amount of scope available to the companies able to manipulate a customer orientated market, where consumers are spending more money on healthcare products. On the whole sales are increasing within the healthcare market. However, this increase has slowed in recent years due to a number of contributing factors. Included in these factors are; newly established rival competition (Supermarkets) and the introduction of alternative methods of treatment such as herbal remedies and practices. Boots have ventured into other markets, but their success is pivotal on their ability to sustain their presence within the chemist sector. Their ability to achieve this is determined by their strategy of combating supermarkets price and ease appeal. There is no lack in consumer spending; meaning the demise in Boots’ sales is down to the increase in activity from rivals. 3. Political • Prior to the changes in legislation in 2003, NHS contracts were very rare; this in turn restricted Boots’ performance as companies were unable to expand or diversify. • In 2003, the office of fair trading reviewed legislations, as it was felt that entry regulations prevented new outlets, which would allow greater access to the public. • This has resulted in a boom in the pharmaceutical sector. • In July 2003, The Department of Trade and Industry decided that it would offer a certain level of protection to existing pharmacy operators. • However, it also agreed to the relaxation of legislation towards large development in retail areas. • Following this relaxation in legislation, Boots intended on putting pharmacy outlets in many of their stores. This also meant that the 40 new stores that Boot’s opened in 2004/5, could have pharmacy outlets. Economic • In recent years, interest rates have increased significantly, which has restricted expansion in all market sectors. • Property values have increased sharply in recent years, meaning a lack of investment in property. This has also meant that rents have increased, making expansion a very hard task for smaller companies in the Chemist sector. This has meant that bigger companies, with big profits have been able to invest large amounts of money in property, so that they can expand, and further dominate the market. • The rise in interest rates has led to a rise in wage levels, which is increasing operating costs for Boots. Socio-cultural • More people are turning to alternative healthcare. The number of people using these alternative healthcares has more than doubled between 1993, and 2003. • People have grown to distrust conventional medicines, due to the fear of side effects. It is paramount for boots, to gain the trust of their customers. • Public spending on healthcare has increased significantly in the last six years; however, the annual percentage change has dipped slowly during those years, suggesting that the market is slowing down. 1999 2000 2001 2002 2003 Total consumer spend 565,062 596,408 626,155 654,890 679,834 Annual % change +5.7 +5.5 +5.0 +4.6 +3.8 • Boots must ensure that they keep their customers loyalty as it is vital to their success. • An ageing population relies on healthcare/skincare for medical reasons. • People now have more disposable income to spend on healthcare products, in order to prolong their life and remain healthy longer. Technological • Technological advances have resulted in Boots producing a higher number of products at lower costs, therefore benefiting from economies of scale. • Technology has also meant that more useful drugs have been created. • Communication has also been made much easier due to the creation of E-mail, Internet and other such things. This means that decisions can be sent to all Boots outlets swiftly. • The internet has meant that Boots have been able to utilize a new method of advertisement, therefore reaching more people. • Mail order has enabled more people to use Boots’ products, who may not have used them before, due to reasons such as Boots not having a store in some local areas. Past Future P Laws were tight as to the number of NHS pharmacies could open, and a NHS license was hard to get. More lenient laws may lead to a flood in the market, providing new market entrants, meaning more competition for boots. E People had less money to spend, due to the fact that their income was a lot lower compared to people of today. As incomes generally rise, boots will see an increase in sales as people will start to see the importance of their health more, and will be able to spend more money on their health’s, as they will have a higher amount of disposable cash. S People did not worry too much about their health many years ago, as it was not generally seen as important; work was the main thing in people’s lives. People are starting to realise the importance of their health, and in the future, this knowledge will grow, leading to them spending more money, giving boots’ profit a boost. T Technology wasn’t really developed many years ago, which restricted the knowledge of pharmacists in terms of creating more advanced drugs, or research into illnesses, preventing them to knowing what drugs needed to be worked on. Technology is rapidly moving forward in the modern world. This means that boots will be able to create new, more advanced drugs, for illnesses, which until now, have not been able to be cured. This will help make the publics health at the top of people’s priorities. 4. Strengths • Large market demand for a wide variety of readily available pharmaceuticals and cosmetics - this provides Boots with a guaranteed market that will constantly demand newer and improved products. • Society is becoming increasingly health and appearance-conscious, therefore people are purchasing more healthcare products, which will lead to increased profits and capital; to invest in research and development for new products. • When Boots releases new products, such as the re-launch of the No.7 brand, this increases media attention around the company which encourages growth in Boots’ market share as customers try its new products. This will improve Boots’ global image. • The introduction of the Boots Advantage Card in 1997 is rewarding customer loyalty with points and discounts through using the scheme. With customer loyalty high and the ever ageing population, the Advantage Card will inevitably guarantee customers returning as apposed to customers straying to competitors. • As Boots is the biggest supplier of healthcare products it can provide cures to chronic conditions such as asthma and hay fever where demand increased, thus increasing its global image. • Boots’ staff provide expert advice to customers, which is very important to a health conscious population. This will increase the customers trust in Boots and ensure their return for future products. Weaknesses • Boots rely on specialist wholesale distributors, this adds to costs. Also by Boots relying on these distributors, they are dependant on them delivering on time and the correct quantities. • Boots lacks presence in the world’s two largest OTC (“over the counter”) markets (USA and Japan). The acquisition of Clearasil has helped combat this, but without a major presence in these two markets, Boots is being restricted of growth and access to larger markets. • Boots pushes its key brands; therefore smaller products may suffer from under investment, leading to falling sales. This can lead to failure of smaller brands which may be pivotal to its future succe...