Alpha Pharm: Shaking up the pharmaceutical industry

There are some major changes afoot within South Africa’s pharmaceutical industry, as Alpha Pharm looks to bring a refreshing outlook to a competitive sector whilst helping to safeguard the future for the independent pharmacy.

alpha-pharm-productionEarlier this year the cheque was delivered by Shogun AG, which saw the amalgamation and restructuring of the nation’s oldest traditional pharmaceutical wholesaler, one with a combined heritage spanning the past 130 years. Whilst there will inevitably be changes, Lynton Lomas, Chairman of the Group, is very keen to retain the best elements of service, as he explains:

“Alpha Pharm as a company is a wholesaler but historically it was owned by 920 independent pharmacies who traded out of all areas of South Africa and supplied medicines to pharmacists, retailers, veterinarians, anyone in need of anything pharmaceutical.

“There were 3 regions and management styles and we have taken all the regions and bought them out and merged them into one Alpha Pharm entity. Shareholders previously operated as one of 920 local pharmacies but they now work as shareholders of a national business. Shogun AG controls 51 per cent of the business and the remaining 49 per cent is owned by the 920 individual pharmacies.

“Operationally we are here to take the best practices from the 3 major regions and to consolidate the business. There is enormous opportunity to review the business and create a company that provides excellent dividends for the shareholders and new opportunities for all the individuals.

“We are identifying the best people we have for talent retention and will also look to add new talent to Alpha Pharm. We are the best positioned company as there are around 2,800 pharmacies in South Africa and 900 of those are ours,” he states. “Geographical footprint is the secret needed to deliver medicines and all medical support functions to South Africans. Being based in high LSM areas is not the prime focus of our focus.”

One of the key elements to Alpha Pharm’s success through the years has been the personal touch created by operating a series of community pharmacies. Indeed, the corporate website underlines this emphasis when it states:

“It`s about Convenience and we know that – that`s why we have increased the number of Alpha Pharm pharmacies around the country.

“All our pharmacies are independent and living in your community. Increasing our members means that ‘your first step in healthcare’ is even closer and more convenient than ever. Our pharmacies offer ‘Service – with a Smile’ and they understand your needs. Every pharmacy carries a range of products ‘ with your health in mind’.”

Lomas says that maintaining this focus is one of the core strategies for the new business:

“Our big drive is for in-store clinics and known value items (KVIs) that provide primary care and if we want to align ourselves to be the designated service provider, this is without a doubt the way we need to go. We are bringing back the real touch of the community pharmacy. We will reintroduce the personal touch to our market,” he asserts.

The new Alpha Pharm is headquartered in Johannesburg, where Lomas says there remains enormous opportunity for growth as many competitors enjoy up to 53 per cent market share out of the Johannesburg region at present. With its national footprint Alpha Pharm, through its DCs uses 160 vehicles to service its footprint which in some instances the areas receive 2 to 3 deliveries per day.

At present the company is looking at how it can enhance its BEEE rating – and with 1,500 employees, there is lots of opportunity, something Lomas is excited by, although the intricate process of reviewing all aspect of the business make timescales difficult to pin point when some of these priorities will materialise.

Certainly one area that Lomas feels offers scope for cost-savings and better value lies within the 18,000 sku’s that Alpha Pharm currently deals with.

“We simply carry too many lines. “The market is shifting more towards private label and as we currently reassess our sku levels this white label offering for our Group becomes very relevant. Our strength lies in volumes, we need to fill boxes and there are economies of scale within the products but there may be opportunity to operate more efficiently and deliver far better dividends for our shareholders.”

Stock control on such a grand scale requires a robust system – and Lomas says that Alpha Pharm is currently looking at ways to amalgamate its existing IT systems.

“We are in a situation where 2 of the regions were on the same software system, while the other region is operating a recently purchased ERP system. We are very fortunate that two thirds of the business is on the same system and we are now looking at an IT platform that can integrate everyting – a data warehousing system. This system is about to go live as we talk.

alpha-pharm-storage“With 180,000 products a day leaving the Alpha Pharm warehouses it is natural and very important for us to stay on top of stock control and look at centralised buying; it is a hell of a balancing act,” Lomas adds.

Of course part of the challenge for Lomas is to get buy-in from everyone involved in the business, a point he is keen to express:

“We first have to draw the road map for where we want to take the business and that needs all the people to have a mind shift that says we are all one company and work for a national company without going corporate. However, certain corporate governance attributes will have to be introduced into the organisation.

“At the same time we have to take care of the financials, the banking, overdrafts and stock control all need to be consolidated. This being the first focus of the Group.

“We need to keep on top of market changes and decrease our lead times for getting products back onto the shelves. It is essential for us to listen to the market and we want the corporate market to respect us based on our sheer size of 900 pharmacies.”

Having a highly skilled pharmacy workforce is an important element of Alpha Pharm’s long-term strategy, Lomas is also looking to attract talented people who can help him to identify new business opportunities:

“Of course we need the wholesale pharmacy staff with their experience, but the business is now changing and we are also looking for pairs of eyes that understand business and that we are now a business-focussed service provider. Alpha Pharm will now offer business centric external talent a new platform to explore.”

Another area set to be reviewed is that of logistics, one of Alpha Pharm’s big strengths but also potentially an area where efficiency can be introduced.

“We own our vehicles and operate a fleet of somewhere between 120 and 160 vehicles and this infrastructure could safely deliver all our expansion plans on a daily basis. Additionally we use overnight couriers and operate a calling system.

“Logistically-speaking we are over-servicing some areas, however this opens up a whole new line of investigation and logistics opportunities currently being exploited by other successful logistical services companies.”

With so much to review within the business and so many plans to formulate and execute, time lines can be difficult to precisely establish, but Lomas is clear about targets:

“Alpha Pharm business should be attracting a safe 50 per cent increase in market share amongst all its customers and its share holder base.

“We will align ourselves with key partners and I believe that this company in the next 2-3 years will realise its true potential.

“Longer term the business analysts feel both locally and abroad we are in the right market and that this will be the ideal product and company to publicly list. This is not on top of our minds at present but definitely a nice viewpoint shared by the outside market. We bought this business to see how big it can get and to see what opportunities it can manifest. Our goal is to help keep the independent pharmacists alive in our country and attract the other indendent pharmacies that have no sense of belonging and together create an exciting future,” he concludes.