15 June 2004 03:53
Cities Prepare to Privatize Pharmacies
Actress Rimma Markova has lived through film directors' temper tantrums, a world war and the fall of communism
-- but the closure of her neighborhood pharmacy may be one catastrophe too much for the vivacious 79-year-old.
"The dairy and vegetable shops have closed. All I see on Taganskaya Ploshchad are casinos and sex shops,"
she said.
"The only thing that's left is the pharmacy in my building."
Elderly residents like Markova are fearful that City Hall's drive to consolidate city-owned pharmacies is the
precursor to a massive privatization drive that could leave some neighborhoods without affordable and accessible
drugstores.
Today Markova only has to walk downstairs to get to her municipal pharmacy. The convenience and low prices, she said,
easily make up for the lack of variety.
The Moscow city government, which is creating a single chain out of the 300 pharmacies it still owns, is not alone in
creating the conditions for privatization.
St. Petersburg, Perm and other cities have also begun consolidating municipal drugstores, though only Perm has
publicly announced that it plans to sell its pharmacies to a private chain.
"The trend of consolidating municipal pharmacies for possible future sell-off can be explained by market
realities," said Aidar Ishmukhametov, board chairman of Remedium, a pharmaceuticals consulting company.
He said the development of city-owned drugstores is crippled by low investments.
Some market watchers contend that privatizing Moscow's municipal pharmacies, which account for one-third of all
consumer drug purchases, will improve their efficiency without harming consumers.
Other observers claim that the disappearance of state-subsidized, low-profit drugstores will hurt the elderly and the
poor.
"There are both profitable and unprofitable municipal pharmacies. Private companies -- quite obviously -- are
only interested in acquiring the profitable ones," said Nastasya Ivanova, general director of Natsionalnaya
Distributorskaya Kompaniya.
The Sokol neighborhood's municipal pharmacy No. 190, for example, beat both its private and public competitors
in a recent citywide contest.
Consolidating all pharmacies into a single chain makes sense, Ivanova said, because it ensures that after
privatization cities will not be left with the "dead weight" of unprofitable stores.
"Privatization will not have a tangible effect on consumers," said Svetlana Grudachyova, an analyst with
Pharmexpert, a pharmaceuticals market research company.
She added, however, that the major players on the retail market may change as a result, and that nothing would
prevent low-profit pharmacies from closing.
"Under Soviet law, there was a maximum distance permitted between pharmacy locations," Grudachyova
said.
"Now there is no such legal provision, and theoretically, all pharmacies in a neighborhood could close if market
conditions make them unprofitable there."
That has been the fate of neighborhood grocery stores in downtown Moscow, where rents have skyrocketed in recent
years.
"At first, the familiar stores -- where elderly people bought milk and bread for years -- were replaced by
expensive boutiques and restaurants," said Valery Gartung, head of the Pensioners' Party.
He said pensioners cannot afford to shop in new supermarkets and are forced to travel outside the center just to buy
basic staples.
"Now is it the pharmacies' turn?" Gartung asked.
Anna Shiryayeva, general director of commercial real estate consulting company Magazin Magazinov, said that
privatization of city-owned drugstores does not necessarily mean they will all make way for other, more profitable types
of stores.
"It is incorrect to assume that a shoe store, opened in place of a pharmacy, will necessarily bring higher
profits," she said.
"A pharmacy's profitability depends on the accessibility and popularity of its location, the assortment of
products it carries and the number of competing pharmacies in the area."
Shiryayeva stressed the importance of product selection for turning a profit; pharmacies that carry beauty products,
for example, are normally more profitable than those that do not.
While hair gels may become available at all drugstores after privatization, pharmacies selling drugs that require
special government permission may sharply decrease in number.
Private pharmacies have trouble getting licenses for drugs that the government classifies as having a strong
"narcotic and psychotropic" effect, said Pharmexpert's Grudachyova.
Cost-cutting may also force privatized drugstores to close so-called "manufacturing units," or labs where
pharmacists have traditionally created custom-made medicines.
"The prospects for manufacturing units are grim, primarily because of their high maintenance costs, ranging from
10 percent to 15 percent of total pharmacy profits," said Grigory Braude, head of the experimental department at
SIA International, a pharmaceutical distributor.
These labs take up valuable space and require highly skilled personnel, Braude said, but rarely account for more than
5 percent of a pharmacy's total turnover.
Nevertheless, manufacturing units -- found almost only at city-owned pharmacies because of their unprofitability --
have played an important role, allowing doctors to prescribe specialized drugs that are not mass-produced.
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[The Moscow Times] |
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