Hutchings 2025 UK Pharmacy Market Update

Newly appointed Minister of State for Care with responsibility for pharmacy, Right Honourable Stephen Kinnock, said during a pharmacy visit in October, “We inherited a broken NHS, where pharmacies have been neglected for years. As we shift care out of the hospital and into the community, we will support community pharmacies and pharmacists who will be crucial to making a healthcare system fit for the future.” With current severe financial pressures affecting the sector, these positive statements are encouraging, but many contractors will nonetheless earnestly await the outcome of the ongoing CPCF negotiations in England between sector representatives and the government to understand better the financial outlook in the short to medium term.

In our January 2024 Market Update we predicted pharmacy sale transaction volumes would remain relatively high, which proved true as some larger groups and multiples such as Rowlands, Boots, and Well continued to sell poorer-performing or outlier branches as part of strategic portfolio reviews. Some smaller independent owned groups also followed suit. Financial woes within the sector continued to take their toll with a marked increase in administrator led sales, adding to the number of opportunities on the market, which attracted interest from potential buyers looking to reverse poor trading performance and ensure patient services remained unaffected.

Pharmacy buyers’ understandable concerns around rapidly increasing Bank of England interest rates impacting business loan costs were alleviated to some degree as improved economic data allowed rates to peak at 5.25% before reducing slightly towards the end of the year.

Overall pharmacy buyers’ confidence remained high throughout the year, buoyed by the numerous opportunities available on the market and the additional income available from the introduction of patient services such as the Pharmacy First Scheme in England, emulating similar schemes already operating successfully in Scotland and Wales.

Buyer Activity (UK sales completed England/Scotland/Wales combined)

The unprecedented level of pharmacy disposal and acquisition activity experienced in 2023 triggered a huge uplift in new buyer registrations at the time, but as expected, last year saw a return to some normality with registrations falling 46% below that experienced in the previous year. Once again, first-time buyers dominated, capturing a 79% share of total new registrations, followed by existing pharmacy owners with 11.5%, group owners at 1.51%, and the rest split between multiples, investors, and buyers who have previously owned and sold seeking to re-establish pharmacy ownership.

A review of sales across England, Scotland, and Wales shows first time buyers led acquisition activity, purchasing 53% of the pharmacies sold through Hutchings in 2024, followed by group owners and existing pharmacy owners seeking to expand with a 22.5% share each. Interestingly, investor buyers accounted for a 2% share of sales, successfully improving on the previous year, where they did not register any purchase activity. First-time buyers may have accounted for an even higher percentage of purchases over the course of the year were it not for high loan repayment costs paired together with targeted acquisitions showing low profitability, creating issues for increasing numbers of potential buyers trying to source bank funding. An emerging trend of joint venture activity between this specific group of buyers and more experienced, financially secure group owners has aided some in overcoming these funding hurdles in the current lending environment.

Average Pence in Pound

The large-scale disposal of corporate pharmacies dissipated in the early months of last year, drastically reducing the number of opportunities on the market, but was replaced to a significantly lesser degree with an uplift in branch sales instigated by smaller, multi-site operators, augmented by an increase in distressed seller activity and small independent owners keen to implement their exit plans.

Generally achieving higher average Goodwill values, as opposed to the potentially riskier corporates, independent sales helped improve UK average Goodwill values achieved over the course of the year, albeit with the support of sales in Scotland, which from recent activity indicate values are currently around an average of £1.52 pence paid per pound of turnover. Analysis of Hutchings own sales data shows offers received in England ranged between £0.31 pence in pound at the lower end, up to £1.08 and £0.39p up to £0.80p in Wales.

Reflecting the greater level of perceived governmental support for community pharmacy, a review of our sales over the course of last year and recent activity shows Scottish pharmacies continue to outperform those operating in England and Wales by some distance, benefitting from a higher average gross profit margin. Pharmacy contractors in England and Wales have reported placing greater emphasis on their supply and purchase operations while improving the delivery of patient services to increase their income and supplement shortfalls from other activity.

Due to the heavy influence of gross profit margins on both the business valuation and goodwill value, pharmacy contractors are recommended to keep a strong focus on improving their margin where possible.

Market Outlook & Prediction

The UK government’s initial messages to the pharmacy sector have been predominantly more positive than in recent years, but looking ahead, how community pharmacy fits into the longer-term vision for delivering healthcare to the nation is expected to become a little clearer when the new 10-year plan for the NHS is announced this spring. Already identified in the recent Darzi Report as ‘one of the great strengths of the health service with the potential for it to deliver more value-added services’, pharmacy stakeholders will be keen to understand how the sector’s undoubted capabilities can be utilised as part of an expected shift in emphasis in the delivery of patient healthcare away from overrun hospitals and back into primary care settings. Playing a key role within an integrated healthcare system, a more positive change in outlook and vision for pharmacy from the government offers potential scope for the sector to push for greater expansion and financial resource.

In the more immediate future, pharmacy contractors eagerly await a positive outcome to current negotiations over a new 5-year CPCF deal, having endured delays and stalled talks due to last year’s general election. It is hoped that discussions can be swiftly concluded and agreement reached on an improved contract providing some relief for hard-pressed contractors and their teams, from the cost of living and inflationary pressures that have impacted heavily over recent years. Ahead of any new contract agreement, we expect pharmacy profitability to remain under pressure with inflationary and cost of living issues set to continue for the foreseeable future.

Supply & Demand

Over the next 12 months we expect the supply of pharmacies entering the market to remain steady as multiple and group operators continue to implement small-scale divestments of superfluous, less profitable pharmacies as part of streamlining plans. While some independent contractors may decide to await the outcome of CPCF negotiations before choosing to sell, others will continue with their exit strategies, allowing many new owners to implement the changes necessary to enable the business to orientate towards increased delivery of patient services.

Pharmacy buyers’ confidence is expected to remain positive across the country, most notably in England, where the introduction of the Pharmacy First Scheme last year introduced an additional £645 million funding injection over two years. The stabilisation of the Bank of England interest rate has settled concerns over rising costs, and it is hoped that rates will remain steady or fall further as we progress through the year. Bank lenders are expected to continue their strong focus on target business profitability when considering lending, inevitably leading to buyers remaining cautious when submitting offers.

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