MAIN TRENDS ON THE RETAIL SEGMENT OF PHARMACEUTICAL MARKET OF GEORGIA
Ganna Yabluchanska doctoral degree student at the department of economics and business at I. Javakhishvili’s Tbilisi State University
One of the important segments of the state economy occupying a considerable share (4.2%), taking the third place in the total structure of import (3) and a magnificent sales volume is the pharmaceutical market.
In the majority of the countries in conjuncture structure the primary share is taken by imported preparations. The given segment of economy is characterised by high investments as in manufacture, advertising and other forms of promotion, as well as in fund of wages. In this sector the considerable quantity of people is employed. Besides that, medical preparations as the basic object of the pharmaceutical market are vitally important for a society and represent one of aspects of national security. All these factors lead to the situation when pharmaceutical market becomes very frequent a target for regulation decisions of the government which make considerable impact on its development and the tendencies. Besides, the pharmaceutical market, as well as all the others, is very sensitive to all economic processes occurring, as within the limits of the concrete state, and on a global scale. The market reacts to currencies exchange rates, level of wages, unemployment, literacy of the population, availability to medical service and many other things.
Each subject (as manufacturers, the trade representative offices of the pharmaceutical companies, distributors and retail chains) of the pharmaceutical market before acceptance of any strategic or tactic decision should make objective estimation of the situation, being based on the real data from the market. (1) For definition of tendencies in many countries of the world the marketing research companies, both international and local work. They collect the information on pharmacy’s sales (on an input or an exit from a drugstore), the data of import, registration, and in certain cases and distributors. The obtained data is processed by specially developed statistical programs and is given to clients in the form of software.
The Georgian pharmaceutical market throughout many years was not analyzed. It has been connected with small volume of the market and consequently, not expressed interest of the multinational companies which are the basic consumers of such products to get the data across Georgia. As a result, the Drug Agency (under the Ministry of Health and Social Affairs of Georgia) was the only source of information. Its data was based on customs information of import of medical products. Very small amount of information was open to the public, so the only analysis was possible to make is general estimation of tendencies occurring on the market without any specifications.
The monitoring of Georgian pharmaceutical market was started in 2004. Since that time a Russian marketing analytical company “PharmExpert” is presented in Georgia (5). In the last quarter of 2008 Ukrainian company “Business-credit” also entered into the market (6). Statistically processed information of “Business-credit” became accessible for preparing this article. This company collects data of sales of medical products from drugstores to the end users. Thus we have information on a retail segment of the pharmaceutical market of Georgia in its retail cost (taking into account all discounts) pharmacy’s prices.
As in 2008 the company only entered into the market the sample size for monitoring of drugstores in the fourth quarter of that year was relatively small. That has led to occurrence of a serious bias in the data and has caused considerable difference between results of a sales volume of the fourth quarter 2008 with other comparable periods. Thus, the decision to exclude the data of the fourth quarter of 2008 from the analysis was made. The year 2009 and the first quarter of 2010 were analyzed and discussed.
The sales volume of a retail segment of the Georgian pharmaceutical market in 2009 in the retail pharmacy’s prices has made more than 172 million US dollars. As soon as we do not have possibility to compare growth dynamics between different years, we can compare only seasonal fluctuations and try to reveal the general trends of analyzed year, and also use the data of the first quarter 2010 which already also became accessible for the comparison:
As we can see from the represented drawings, there was a decrease in sales in the fourth quarter of 2009, especially comparing to the first quarter. It is obvious in both: natural (trade units) and cost (sales volume) terms. According to pharmaceutical marketing expert’s opinion, usually fourth quarter of the year is characterized by the maximum sales of the year, while in the first quarter usually certain recession is observed due to the holiday periods and short February. Thus normal seasonal fluctuations of the market were remained. So unusual situation (when the sales of the fourth quarter do not reach results even of the indicators of the first quarter of the year) can be explained by several reasons. Such insufficient increase of sales can be developed due to global economic processes; and to dollar exchange rate lifting in the autumn months, caused reduction of consumer ability of the population; and to introduction in the fourth quarter of 2009 of the new legislation on medicines, to which the market has reacted with the certain vigilance expressed in insignificant falling of sales.
The first quarter of 2010 had 11.2 % decrease in sales volume in comparison with the first quarter and 8.5 % decrease in comparison with the last quarter of the previous year. In natural (trade units) expression falling level has reached 8.7 % concerning similar quarter of previous year, but in comparison with the fourth quarter 2009 weak positive dynamics (0.5 %) was marked. Such picture reflects the general economic situation: the market has reacted to the economic recession observed all over the world, therefore at comparison with the similar period of previous year the expressed recession is observed. Insignificant growth of sales in trade units which was observed in the first quarter 2010 at negative dynamics in cost terms says that the share of sales of more expensive preparations has decreased and cheaper drugs has increased. The same picture can be seen when compare shares of sales in natural expression of import and local preparations (4).
Government of Georgia has launched the new legislation on medications in autumn of 2009. The main ideas of the new law are: the simplification, shorting time for registration and reduction of cost for registration of medical products. Such innovation has been made to increase quantity of importers of preparations and to create natural market conditions for reduction of prices in drugstores and maintenance wider availability and accessibility to the medical products for the end users without introduction of rigid state price regulation. As we can see, while those changes were implemented the share of sales of preparations of the Georgian manufactures grows.
At the analysis of the average price, which characterizes the general structure of sales the same tendency, is visible. If to compare dynamics of the average prices in US dollars and national currency it is obvious that more expressed changes are observed in GEL. It is connected with the course and inflationary component weakening national currency.
At the analysis of the growth rate of the weighted average prices for products of domestic and foreign manufacture becomes obvious that the weighted average prices had decreased for 17,82 % in relation to 4 quarter and 31,46 % in relation to the first quarter of last year on the Georgian products; and also has decreased for 4,32 % in comparison to the last quarter and has increased by 7,15 % by similar quarter of last year on preparation of foreign production. To determine the reason of such changes of the weighted average prices and to estimate value related to the real average price depreciation an inflationary index of Paashe was calculated (2).
Thus, reduction of the weighted average retail price for the preparations of the Georgian manufacture by 6% in relation to 4th quarter of 2009 and on 27 % in comparison to the 1st quarter 2009 is caused by retail price decrease, and the remained difference testifies that consumers began to buy cheaper products in the given segment.
At the analysis of the inflationary index of Paashe on preparations of foreign manufacture becomes obvious that the general policy on decreasing of retail prices was reflected and in this segment as well. Retail prices have fallen on 13 % in comparison to the 4th quarter of 2009 and 20 % in comparison to the 1st quarter of 2009. At the same time, increase of the average price in the annual period says that despite a dumping situation in the market which is observed throughout last several months, consumers began to get more expensive products. To understand in which segment of the pharmaceutical market is such change of the average price happened and for what reason (occurrence of new products, niches or redistribution of consumers in the parties of better preparations is simple) it is necessary to carry out the additional analysis which did not stand in the tasks for preparation of the current paper, but definitely will be studied in details further.
In the conclusion it is obvious that the pharmaceutical market of Georgia is very sensitive to many processes undergoing in the country. It can be seen already according to the data of retail sales throughout several months. Negative dynamics of growth of the market in cost terms throughout the analyzed period has shown that carrying out of the state reforms directed on decrease of retail prices has made the impact.
LITERATURE
3. http://geostat.ge/cms/site-images/-files/english/bop/External-Trade-of-Georgia-in-January-2010-June.pdf, accessed 20.07.2010
4. http://www.medicus.argon.biz.ua/image/newsimg-ru/analytic/16710.pdf accessed 10.07.2010
5. www.pharmexpert.ru accessed 10.07.2010
6. www.bck.com.ua