Pharmacy market in Poland: resistant to crisis...and recovery

Although the Polish economy has proved relatively resilient to the global crisis compared with other countries (it was the only EU economy to avoid a recession in 2009), last year the nominal rate of growth of retail sales slowed to 4.3%, from 13.3% in 2008 (in real terms growth decelerated from 9.9% to 2.7%). At the same time, however, pharmacy sales grew by as much as 8.3%[1] over this period, which appears to confirm the thesis that the pharma industry is one of the sectors most resistant to the economic cycle (in 2008 the growth rate was only slightly faster, at 11.5%). Last year’s results clearly demonstrated that demand for medicines and other products sold by pharmacies is highly dependent on weather conditions, and especially on periodic surges in flu[2] and respiratory infections (of considerable importance, too, are various administrative decisions, particularly those pertaining to drug reimbursement). However, it would be mistaken to believe that the nature of the sector makes it completely immune to changes in consumers’ income levels (especially in a situation where the share of items other than medicinal products in overall pharmacy sales is growing steadily).

For contrary to popular belief, the income situation of Polish consumers in 2009 was quite good. Thanks to strong economic fundamentals and a happy coincidence of numerous other factors, Poland experienced no real crisis last year, with a slowdown of GDP growth that came later and was less pronounced than in other EU countries. Furthermore, labour market adjustments to changes in the economic cycle occur at a certain time lag (the situation on the labour market deteriorated sharply only in late 2009, just as the economy was beginning to show first signs of recovery). As a result, in 2009 as a whole average employment in the national economy fell by just 0.1%, whereas real wage growth, while markedly slower than the year before, remained in positive territory (up by 2.1%). Under these circumstances, consumers did not need to do any major belt-tightening, and the total wage bill grew by approx. 1.4% in real terms.

The situation was even better among pharmacy customers. This group includes a disproportionately high number of pensioners and people on disability benefits, whose financial condition, far from deteriorating, in fact improved substantially in 2009, thanks to a generous indexation of their entitlements approved before the crisis struck. In 2009 the total pension and disability-benefit bill surged by as much as 9.7% (about 6.2% in real terms), reflecting a strong increase in average pensions and benefits, by 8.1% and 8.4%, respectively, accompanied by an 0.8% rise in the population of claimants.

 

Although global economic conditions appear to be gradually improving, and though the Polish economy has been showing clear signs of recovery since the fourth quarter of 2009, the first months of this year were not a good period for the pharmacy market. As a consequence, in the five months to the end of May retail pharmacy sales amounted to PLN 10.9bn (€2.6bn) and were flat compared with the same period a year ago. Of this, sales of reimbursed medicines were worth PLN 4.9bn (€1.2bn), which represented an increase of 0.3% y-o-y. By contrast, sales of fully-paid prescription medicines slumped 4% y-o-y, to PLN 2bn (€482m). Meanwhile, OTC sales, at PLN 3.9bn (€939m), were 1.6% higher than in the first five months of 2009. The poor start to the year was chiefly due to the early peak of the flu season, which typically acts as the main engine of sales growth during this time of the year.

 

 

 

Even though pharmacy sales accelerated somewhat in May, the weak beginning of the year means that full-year growth is likely to be much slower than in 2009. Furthermore, in the next two months market growth will be dragged down by a high reference base. But the really decisive period for the rate of expansion in 2010 as a whole will be the final part of the year, when pharmacy sales tend to be significantly higher than in the summer season (though this difference has been diminishing in recent years, reflecting the rising share of non-medicines in pharmacy sales). If the flu season peaks in Q1 as it typically does, with the number of respiratory and flu cases in the autumn (and the level of sales of related medicines) at its more usual moderate level, then there is virtually no chance for the full-year figure to even come near last year’s results. We adopt a moderately positive scenario and forecast that in 2010 the Polish pharmacy market will grow by 3-4%.

 

 

 

Paweł Sionko

Senior Economist

PMR Publications