Mass Merchandise Review
Author: Robert Coopman
Chain Pharmacy Development in Venezuela
Published: November, 2005

As this is being written, President George W. Bush of the U.S. and President Hugo Chavez of Venezuela have dominated the headlines coming from the Summit of the Americas in Mar Del Plata, Argentina. This is an interesting time to be in Maracaibo, Venezuela for the week working with a client on multiple elements of chain drug store retailing in an economy quite different from what we have in the U.S.

To have an appreciation for the Venezuelan economy requires a brief review of economic history of this South American country of 24 million people. For instance, in 1983, the currency of Venezuela, the Bolivar, or “B’s” as they are known here, traded freely at 4.3 to the U.S. Dollar. Shortly thereafter the Bolivar was devalued to seven to the Dollar and shortly after that to nine. Today the official government controlled exchange rate is 2150 to the dollar with trading on the unofficial or black market at 2700 to 2800 to the dollar.

To illustrate the magnitude of such steep currency devaluation in a short number of years, for a person living in Venezuela to travel to the United States, the cost of one dollar has gone from 4.3 to 500 Bolivar’s. For further perspective, the current minimum wage is 4300 Bolivar’s per month, which works out to $200 U.S. Reliable data in Venezuela suggests that 53 percent of the 24 million people of Venezuela live in serious poverty. Another 24 percent live above serious poverty but nevertheless remain classed at a level of poverty. The economic middle class is less than five percent and those considered being wealthy with an income of $50,000 or more annually US are a small part of the population.

We think of the pharmacy and drug store business as being a defensive business in that, along with food, it supplies basic needs of people. We therefore consider it to be a good business in both good as well as more difficult economic times.

It is hard to imagine a better case of proof of that concept than in Venezuela. In the face of an unstable currency and a political climate historically and currently that has had more than it’s share of instability, the drug store business in Venezuela continues to grow, continues to present innovation in store concepts and continues to implement new technologies common to more developed countries.

It is quite a testimony to the entrepreneurial spirit of some forward thinking Venezuelans who continue to invest in their drug store businesses. Leaders among chain pharmacy businesses here are Farmatodo, Locatel and Farmacias SAAS.

Farmatodo has presented a new store format within the last two years that can be best described as a small Walgreen’s, CVS or Rite Aid. Locations are main and main with Pharmacy drive-thru, photo shops cosmetics, personal care and convenience foods. It is a corporately owned pharmacy chain. Locatel, a franchised chain, is similar in concept but not as well developed as Farmatodo. Farmacias SAAS is a franchised chain of community pharmacies under the leadership of Farmacias Unidas S.A., an operating unit of pharmaceutical wholesale distributor, Cobeca. Cobeca is closely held by the Belloso family of Maracaibo and is very near 100 years old.

Pharmacy in Venezuela, somewhat like pharmacy in other Central and South American countries, functions a bit differently from pharmacy in the U.S.

Prescription drug products other than narcotics, psychotropics and controlled substances can largely be sold by customer request over the counter. Unit of use packaging with inner blister packs are much more prevalent than counted medications. With limited income, it is not surprising that frequent prescription requests are for a tablet or two or 10 tablets. Thus the average prescription sale is, at best, one tenth that of the U.S.

Prescriptions are not processed by computerized pharmacy management systems, as we know them in the U.S. For the most part, they are not processed by anything other than a POS system that manages inventory and tracks the economics of the sale. The only Venezuelan to have seen a patient medication leaflet is a foreign traveler.

Until very recently all prescription sales were paid for either out of pocket or by a governmental entity. A transition to third party payment is slowly beginning, driven largely by Venezuelan and foreign nationals working for oil and gas and other multinational companies with prescription drug benefits. So the business of third party payments and health and pharmacy benefit managers is in the very early stages of development.

To a significant degree there is an absence of respect for intellectual equity in that one can find generic forms of protected brand names like Lipitor, Effexor and so on. To that point at least one of the top five global Pharma companies has recently implemented a defensive sales force whose mission is to influence pharmacists and pharmacies against the use of such products in their pharmacy practice. While there is distrust here about the efficacy of generics, their use is mitigated by the lack of money to buy the brand.

A selling and influencing approach to reducing or eliminating the use of what we would consider illegally substituted generics recognizes the absence of legal remedies we take for granted in the U.S.

Politics, legalities and currency devaluations aside, it is assuring to see private market entrepreneurial development in a country that many outsiders might consider to be an entrepreneurial no-mans land for personal investment. Underneath what might be described as activist socialism, active capitalism in the hands of pharmacists and chain pharmacy executives is clearly hard at work.