Country Report: Mexico - Pharmaceutical Executive


Country Report: Mexico
Shaking Up the System

Pharmaceutical Executive

"The suppliers and distributors now have to deliver to the hospitals directly – which means that when we used to have just one point of delivery, we now have hundreds. The second major shift is that in the past, the government was responsible for dispensing, whereas today it is the distributor's responsibility. The government pays the distributors upon dispensing, and no longer upon delivery." he continues.

Not only are pharmacy chains buying directly from pharmaceutical companies, but a more visual change is taking place. Private label drugs have had a growth explosion in Mexico and are affecting the way both national and international companies operate.

Hector Valle of IMS explains, "The national companies who used to sell to the government are now coming to the private market because of the price drop in the institutional sector. Now private labels give them a very good opportunity to do just that. This enables national companies to grow but also affects the brands from multinational companies as well."

Companies promoting their own brands to sell in retail stores, at the same time find themselves increasingly attracted to manufacturing private label goods for that very same point of sale. Pharmaceutical companies are 'having an affair' with private labels, but can they have their cake and eat it, too?

Local company Gelpharma is doing just that. Luis Verduzco, managing director of the company, realizes just how important private labels are to his business after producing primarily for the public sector.

"The private market didn't have the same level of uncertainty as the government market, so we changed direction. At the moment, we are giving higher priority to third party manufacturing for private labels because the relationships we are forming with pharmacy chains and supermarkets are extremely important. If we don't make those relationships robust now, maybe in a couple of years there will be another company offering the same service and we will lose market share."

The core Mexican business of U.S. company Perrigo is to manufacture private label medicines. When compared to the United States or Europe, up until now Mexico has been fairly slow on the uptake of private label products. But not only for pharmaceuticals. Ricardo Ganem, vice president and general manager of Perrigo Mexico, explains why it took so long.

"For many years, store brands in general were all about putting a "cheaper" product next to the leader with focus on low prices, but often at the expense of quality. The stigma that private labels are low quality stayed in the mind of the Mexican consumer, but this has changed dramatically over the last several years."

Ganem also notes that Mexico is the country with the highest brand loyalty index. He observes that this can be explained by studies on the monopolistic advertising structure favoring high-priced media such as television, for the last 60 years. Ironically, this historical attrition to well-known brands is exactly what is helping to make private label generic medicines successful now. Mexicans feel confident buying own-brands from pharmacy and supermarket chains that they know and love.

In August 2010, regulations prohibiting the sale of antibiotics in retail pharmacies were implemented by the health authorities, with the intention of reducing risk related to inappropriate usage of antibiotics and increased bacterial resistance. Retailers came up with a solution in the form of having a qualified doctor on site to avoid any problems, which also fuelled the intense rise of private label medicines.

A recent study by IMS Health showed that the majority of Mexicans who use a doctor at the point of sale had used the service up to ten times previously. This is clear evidence of its popularity. The most common reasons for using a doctor present in a pharmacy were found to be convenience and low price; the perfect combination for a busy, working Mexican on a budget.

So what next for the private label business at the points of sale? Ganem is already thinking to the future and working on innovative ways to develop his customers' products.

"I'll give it another three or four years before most retailers will have upgraded strategies in place with differentiated brands to satisfy specific consumer needs."

Zavala adds, "Many years ago power in the industry was in the hands of the pharmaceutical companies, a few years after that it was in the hands of the distributors, and today we have it in the points of sale."


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