Pharmacy chain Super-Pharm is at risk of losing one of its most profitable growth channels, due to pending legislation in Poland that might block the chain from opening new branches there.
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The chain’s branches in Poland are extremely profitable, and help offset the falling sales and profitability of its Israeli branches.
The bill would limit pharmacy chains to owning no more than four branches. Chains that already own more than four branches would not be permitted to open new branches.
Super-Pharm currently has 68 branches in Poland. The proposal would not force the chain to sell off any of its branches, but would block it from expanding. Super-Pharm had planned to open hundreds of branches in Poland over the next few years.
Super-Pharm’s profits in Poland are higher than those in Israel. Profits in Israel have fallen due to falling consumption and competition with supermarket chains. To some extent, the profitability in Poland subsidizes the chain’s sales in Israel, which further cut into its profitability.
CEO Nitzan Lavie stated at a press conference last year that the chain’s gross profit was eroding due to the increased minimal wage and growing competition. “In an attempt to continue growing, we are sacrificing our operating and gross profit in order to lower prices in Israel, while our profit sources are in Poland and China,” he said.
The declining profitability is a problem for banks Leumi and Discount as well, which are looking to sell off their respective 15% and 10% shares in the company. Founder Leon Koffler holds the remaining shares.
The group’s total turnover in 2015 was 5.35 billion shekels, which included 800 million shekels of revenues from Poland.
Super-Pharm stated in response that the pending legislation in Poland could indeed affect it, and that it is following developments there.