Should you invest in pharmacies?
No, I’m not talking about big pharma companies but the small little corner stores selling medicines but a guy in a white coat.
I thought why not?
They seem to make a lot of money and pharmacist seem to be rich at least the store owners.
I came to this conclusion after working in a pharmacy for some time. I would come in day in and day out in my little Toyota yet my boss would drive into work with his new Mercedes.
He seemed to be doing well and I thought to myself: “Surely, it’ll be great if I could be like him one day.”
So like any good value investor, I read the annual report of Walgreens because I wanted to do my research right before dumping any money into a pharmacy by buying one or through shares.
So, here are some key points from my reading, I can share with you.
1. What are the Advantages of Investing in pharmacies?
When I first think of the competitive advantage of a pharmacy, it comes along the line of a place where people have to visit to get their medication. Furthermore, they’re often located next to medical practices, so if you get a prescription, then it’s even more convenient to get your medications.
As it turns out in my annual report reading, these aspects are the only competitive advantages of a pharmacy. Further reading tells me that it’s a super competitive industry where location is everything.
You would expect that an e-commerce world would be detrimental to pharmacies but that may not be the case. At least with pharmacies being everywhere physically, they still can act as drive-through services and distribution centers for delivery services.
It surprised me how pharmacies can evolve and work effectively with e-commerce. It appears just because they’re brick and motor stores they aren’t going to be decimated by e-commerce giants.
2. Is Investing in Pharmacies a Good Idea for You?
What pharmacies may have a competitive advantage over, they may lack in profit.
Looking at the well-off pharmacy owner, I thought he’d be rich and set for life.
I was wrong.
Reading Walgreens’ annual report told me that pharmacies are low-profit businesses that require a lot of volumes to stay afloat.
When I thought about it, it made sense to me.
Why does anyone pay more just to go to one pharmacy over another? What’s the difference between Walgreens and CVS?
They both sell the same medication and their prescription dispensing is both subsidized.
What surprised me the most about pharmacies are the expenses involved with maintaining one just to keep it competitive.
Besides rental costs, there are staff costs, IT costs, robotic costs, marketing costs, and so on. It doesn’t sound too cheap to run a shop where you have so many costs and you’re dependent on government payments.
I could only say that the people who profit the most from pharmacies are those who are happy with a low-margin and hyper-competitive business.
Conclusion: My Thoughts on Investing In Pharmacy Companies
Investing in a pharmacy or even a pharmacy company is more or less proportional to the amount of capital you put in.
You’ll most likely be in a stable company that pays dividends but its share price is unlikely to grow massively.
Personally, I like companies with higher profit margins but if you like dividends then it might be a good business for you to go in.
