SuperPharm Soars Despite Competition

SuperPharm recorded a total of NIS 2.3 billion in sales in 2004, an increase of 7.9 percent over 2003. This despite stiff competition from the big supermarket chains - Super-Sol, Blue Square and Clubmarket - which last year undertook major marketing efforts in many product categories that were traditionally SuperPharm's strong points.

SuperPharm CEO Lior Reitblatt says the drugstore chain's growth target for 2005 in identical stores (those open for over a year) is 1.5 percent - a modest goal compared to the chain's reported performance in the past two years. In 2004 sales at identical stores rose by 3 percent and in 2003, by 4.8 percent.

"I love promising a little and delivering a lot," says Reitblatt of this year's growth target, adding that he figures total sales will grow by 6 percent despite rising competition.

SuperPharm is a private company, so it does not publish complete financial reports. Company sources would not provide profit figures for 2004 but did state that in order to increase sales and the chain's market share, profit margins (the gap between the price at which the chain buys products and the price at which they are sold) were reduced in 2004.

"We are lowering prices and lowering profit margins due to the competition," says Reitblatt.

SuperPharm now has 112 stores throughout Israel. In 2004 the company opened seven new branches and expanded its commercial space by 7 percent, with average monthly sales totaling $1,140 per square meter of actual store space. SuperPharm had reported sales of $1,200 per square meter for 2003.

"Contending with the stiffening competition in the market helped us to improve and maximize the profits per square meter," explains Reitblatt, noting that the drop in average sales per square meter stems from the opening of new outlets, whose sales in their first years are low.

"At most of the malls in which we have branches, returns per square meter for the store space, not including the office and storage spaces, are among the highest for each mall," says SuperPharm marketing vice president Yair Eshael.

In 2004 sales grew by 3.2 percent in cosmetics departments at identical stores, and general cosmetics sales were up by 8 percent. SuperPharm reported similar sales growth in its cosmetics department in 2003. This year SuperPharm has introduced the exclusive marketing of two cosmetics brands, Clarins and Pupa.

This year SuperPharm chose to publish its sales figures at the same time as Super-Sol published its financial reports. SuperPharm's product lines overlap those of the big supermarket chains by about 70 percent, and with the upcoming changes in the non-prescription drug market and the entry of the supermarkets to this field, the product overlap will be even greater.

Sources at SuperPharm report 17-percent sales growth in the chain's private label, Life brand products, which accounted for 11 percent of sales in the categories in which it has products (not cosmetics or prescription drugs). In 2004 Lifestyle added 12 new products, bringing its total to 1,600 products in some 40 categories. These new products included non-prescription drugs, which managed to garner 15 percent of the sales in their categories.

SuperPharm's development plans for 2005 include the opening of six more stores, three of them in the first quarter of the year. Over the next four years SuperPharm plans to expand to a total of 140 stores in Israel. The chain also has operations in Poland and is examining the possibility of entering the Chinese market.

Reitblatt says SuperPharm is still conducting talks with the Chinese administration regarding the official restriction of 49-percent private foreign ownership in drugstore chains. SuperPharm is seeking a special permit to retain a controlling stake. Negotiations are likewise continuing with Chinese investors.

SuperPharm currently operates seven branches in Poland and Reitblatt says two more branches will open in the next few months, one in Krakow and another in Warsaw - that city's fourth branch. By the end of the year SuperPharm will have 14 stores in Poland.