A health hub, where you can buy medicine, find hygiene and beauty products, take a quick test, and even ask questions about ways to prevent diseases. This is more or less the blueprint for what the pharmacy of the future could be. And it is the path that Panvel has pursued to continue its plans to stop being a regional company and gain national proportions.
Panvel, a “genuinely Gaucho” company, as defined by its CEO, Julio Mottin Neto, is one of the pharmacy chains that has been leading the growth of the sector in Brazil. The number of company stores has grown by around 50% in the last four years. Today, there are 660 units, which represents a 10% growth compared to 2023. In terms of revenue, the company grew 12% in 2023, above the sector’s general increase of 9%.
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Like other segments of the health sector, pharmacies benefit from the growing wave of self-care, which has as its backdrop the population’s longevity perspective. The logic is that, as people live longer, they will naturally need more medications. And there are more and more new developments that are of interest to the public working with a longer life expectancy: the big highlight, without a doubt, is Ozempic, used to lose weight, which is today the leader in terms of sales in all pharmacies.
But not only that: they want to live with a better quality of life. They spend much more on vitamins and supplements, for example. And they naturally need some consultancy to look for these products. That’s what pharmacy has to offer, in Mottin’s view.
Today, there are around 96 thousand pharmacies in the country. The sector leader is Raia Drogasil, with 16% of the market. The company is the result of the main merger in the sector – between Droga Raia and Drogasil – completed in 2011. Almost 60% of the market is spread among small independent companies.
And how is it possible to differentiate yourself among this crowd of stores? In Mottin’s view, the first step is not to make mistakes in the basics: ensuring a stock of medicines capable of meeting any prescription that arrives over the counter. “There is nothing more frustrating for the customer than not finding the medicines they ordered,” he says.
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Medicines are still the flagship of any pharmacy. At Panvel, 66% of revenue comes from the sale of medicines. And the so-called branded medicines continue to have a majority share. Of the stores’ total revenue, 12% comes from generics. Just looking at the share of medicine sales, they account for 20%.
It is also necessary to think about convenience: stores need to be in a good location and have a suitable parking space. And fast and technically accurate service. “Consumers have less and less time, and being agile is essential,” he says.
But the big leap into health retail is to expand its scope. For Harold Takahashi, partner at Fortezza Partners, being willing to move on to other links in the chain is another characteristic that increases companies’ competitiveness. This may include, for example, the possibility of carrying out health tests – such as Covid tests –, in partnership with laboratories in some pharmacies.
Panvel focuses on selling hygiene and beauty products as a differentiator. The company even has its own brand, produced at the Panvel factory, which includes branding. The Panvel brand is responsible for 70% of all revenue from the sale of hygiene and beauty items.
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“If all pharmacies were the same, we wouldn’t be opening (new units)”, says Mottin. “The fight in the sector involves the best stock, the best point, and a complementary mix of products.”
Regional x national
Panvel is the result of the merger of two pharmacy chains, Panitz and Velgos. This consolidation, which made the Mottin, Pizzato and Weber families partners, took place in 1973. The same year in which the current CEO, Julio Mottin Neto, was born, the third generation of one of the founding families.
The executive joined the company 28 years ago. And he took charge of Panvel 12 years ago as CEO. The three founding families have representatives on the board of directors. But Julio is the only one among them to occupy a management position. The remaining positions are in the hands of market professionals.
It was under his management that Panvel carried out the follow-on in 2020 to finance the company’s expansion. Until then, the chain opened around 35 stores per year. From then on, this number jumped to 60 – a mark that should be repeated in 2025.
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With the advance, Panvel crossed the borders of Rio Grande do Sul and advanced to Santa Catarina and Paraná, where it currently has 7.5% of the market. And it also arrived in São Paulo, where it has 12 stores, and 1% of the market. In its home state, the company has 22% of share.
The presence in the capital of São Paulo is strategic: average sales per store reach R$ 1.4 billion, double what is achieved in stores located in Rio Grande do Sul. Therefore, São Paulo will gain another Panvel store this year, and another five next year. The expansion plan, however, is to prioritize the South region: the idea is to double its participation in Paraná and Santa Catarina, to then reinforce its presence in other regions.
Initially, the idea is that Panvel’s growth will occur organically – just with the opening of new stores. This is because, according to Mottin, the return on invested capital that the company obtains from opening stores is even better than under the acquisition model. Each time the chain opens a store, it takes three to four years to see a return on its investment – the so-called payback. “But we are open to any (acquisition) process that may happen. Today there is nothing on the table”, he states.
The challenge of consolidation, he says, involves culture. “Any move we are going to make, we will take that into account. And people underestimate this variable”, he says.
Size can be document
The pharmacy sector differs from other retail segments because it is much less susceptible to macroeconomic issues. After all, medicines are a basic necessity, and therefore sales are much less affected in times of high interest rates or tight income. At the same time, there is a large dispersion of suppliers. To give you an idea, in the case of Panvel, the company holds a type of auction between generic manufacturers to choose its suppliers.
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Still, pharmacies cannot escape the challenge of scaling up, says Takahashi, from Fortezza Partners. The greater the number of stores, the greater the bargaining power with suppliers and service providers, and the more diluted the fixed cost. Fundamental strategy for a segment that operates with a tighter margin than the rest of the healthcare chain. According to Takahashi, while the EBITDA margin of large chains, such as Raia Drogasil, is usually below 8%, hospitals achieve margins above 20%.
Because of this, the expectation for the sector is that there will still be a large wave of consolidation. For Jonas Marques, CEO of Pay Lessthe second largest chain in the country, this movement is likely to reach mainly independent pharmacies. “You see a normal movement that happened in all other markets: networks gaining more share over independents.”
Pague Menos CFO, Luiz Novais, recalls that independent pharmacies, with their lower purchasing and investment capacity, become potential targets for large chains seeking to expand their presence in the market.
It is estimated today that the largest ones already hold 50% of the market’s revenue, largely because of the difference in average sales between chain stores, with revenues of around R$700,000 per month, while independent ones earn something close to R$ $50 thousand monthly – a sample of the financial power of the big players to expand the consolidation movement.
(Colaborou Rikardy Toge)
