Power up: big pharmacies boost technology spending in Peru. Can the little guys hack it?

Author:Wing, Lisa K.
Position:Pharmaceuticals - Inkafarma - Boticas FASA

Corner drug stores in Peru are beginning to look alike. Pretty soon, they may all look alike. Less than a decade ago, Peru had more than 10,000 small, mom-and-pop type pharmacies. No single company held more than 1% of the market. Consolidation of the nation's pharmacies has put 40% of the market into five pharmacies.

Yet, compared with places like Chile, where three companies own 90% of the market, Peru's pharmacy retail sector still has room for the small, unregulated neighborhood pharmacies that account for the remaining 60% of the market.

Boticas FASA, owned by Chile's FASA, and Inkafarma, owned by Chile's Salcobrand, control 26% of the Peruvian market, and they are betting that technology spending--more than US$15 million across the region--will give them more control in Peru and other fragmented markets in the region.

Inkafarma plans to open nine locations by the end of 2004, bringing its total number of outlets to 70, says Angelo Porcile, Inkafarma's general manager. To date, the company has spent $2.9 million, 42% of its total capital expenditures, on software licenses and equipment. In 2004, software licenses and equipment will make up nearly 40% of its programmed investment of $1.4 million.

"Of the investments I made for many years in the pharmacy, I had to do the same in one year in technology," says Porcile. Inkafarma's investments thus far have paid off. In its fourth year in operation, one year before expected, the company was out of the red. Sales in 2003 reached $72.2 million, a 31% increase over 2002.

FASA in April said that it would spend $25 million in the four countries in which it operates--Peru, Chile, Mexico and Brazil--of which $10 million will he destined to a new tech-heavy Santiago distribution center. The company says that this will generate savings of $2 million during the center's first year of operation.

State-of-the-art supply chain management lowers distribution and inventory costs by entrancing the flow of information between pharmacies and suppliers, say analysts. "These investments in technology are actually investments in processes, distribution centers and in inventory handling and distribution, which is...

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