July 20, 2017
German drugstore barons dwarfed by WBA

Global trend: Drugstore sales are foaming
Götz Werner, Dirk Roßmann and Erwin Müller, the founders of leading German drugstore chains dm, Rossmann and Müller, also rank among the planet's wealthy. But their thriving businesses hardly extend beyond Europe and cannot match the US and Chinese giant in annual sales, store count or global reach. Put in health & beauty terms, they are provincial European belles in a Miss World contest.
A question of size

A Boots drugstore and pharmacy in London
As of July 2017, A.S. Watson runs more than 9,800 outlets in 19 markets, in addition to a joint-venture with Rossmann in Germany and Central & Eastern Europe (CEE).
These realities must be compared with the international expansion of German drugstore operators who, with the exception of Rossmann in Turkey, have confined themselves to Europe. The US, Asia and Australia, let alone Latin America or Africa, are still terra incognita for them all and are likely to remain so for the foreseeable future.
By contrast, WBA's Stefano Pessina has long been gunning to enter the People's Republic of China big time.
When one confronts German drugstore managers with the big difference in size, they are quick to point out that Walgreens Boots Alliance, created in December 2014 after the merger of UK market leader Boots and US multiple Walgreens, benefits from a different historical tradition where chemists (pharmacies) developed into health & beauty retailers and are frequently integrated on their sales surfaces.
It's a family affair
It is also true that dm, Rossmann and Müller as private, family companies cannot tap the international money markets via listings on the Nasdaq, S&P 500 or the Hong Kong Stock Exchange in order to finance their expansion.
But the fact remains that Walgreens Boots Alliance and A.S. Watson are thundering past the Germans on the takeover lane of the international drugstore motorway.
Should anyone doubt this, just look at the rate of store openings. Whereas dm and Rossmann will get a good 250 outlets up and running between them in Europe in 2016/17, the global giants each work in thousands.

Feeding frenzy: Walgreens already has 8,200 outlets, but wants to devour nearly half the storebase of rival Rite Aid on the lucrative US market
In its company report for 2016, global rival A.S. Watson announced the opening of more than 1,000 new outlets worldwide this year. But COO Malina Ngai Man-Lin indicated to Chinese sources last month that the actual figure will be around 1,400.
About half of these will be in China, but a "significant share" will go to CEE, including the Ukraine and Russia, where as a Chinese company it will not be hampered by sanctions. The group will also expand in Western Europe, primarily through Superdrug in the UK and Kruidvat in the Netherlands.

Market leader: One of 3,000 Watsons drugstores in mainland China
The size and the pace of global growth at both Walgreens Boots Alliance and A.S. Watson will inevitably lead to increasing competition with Germany drugstore empires in western and eastern Europe. A partial exception will be Rossmann with whom A.S. Watson has a 40:60 joint-venture agreement.
To date, German drugstore chains have had to contend with a fiercely competitive local market, but with little interference from abroad. If one excludes WBA's acquisition of Frankfurt-based pharmaceutical wholesaler Alliance Healthcare, Germany is currently not on the global players' radar.
This has allowed dm and Rossmann to virtually carve up the Health & Beauty segment between them, despite spirited resistance from Müller and the surprising new plans by Edeka, Germany's largest grocer, to enter the market in partnership with Hamburg's local hero Budnikowsky.
They shall not pass
Another barrier for foreign entrants is the Pharmacy Act (Gesetz über das Apothekenwesen), making it all but impossible for multiples to break the cosy status quo enjoyed by local chemists. But given the numerous holy cows that have gradually been slaughtered on the altar of modern retailing even in Germany, change could come in due course.
Whenever that time arrives, Germany's drugstore stars must hope that they are healthy and beautiful enough to meet the global beasts.
Related article in German: "WBA und Watsons machen Tempo" (paywall) by Mike Dawson on page 10 of Lebensmittel Zeitung, no. 29, 21.07.2017
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A.S. Watson's holding in Rossmann
You seem to have negated the fact that AS Watson have a significant holding in the Rossmann business.
Answer: You seem to have missed the two occasions where this was referred to in the text:
"in addition to a joint-venture with Rossmann in Germany and Central and Eastern Europe (CEE)"
and
"Rossmann with whom A.S. Watson has a 40:60 joint-venture agreement".
Intriguingly, the annual report of CK Hutchison Holdings Limited for 2016 gives its percentage share in Dirk Rossmann GmbH in Germany as 30 per cent and in Rossmann Supermarkety Drogeryne Polska Sp z o.o. in Poland as 53 percent. Yet Rossmann insist that the participation is still down as 40 per cent in their books.
Hutchison's press team explain the 30 per cent figure with the dilution caused by a participation of Singapore's sovereign wealth fund Temasek in Hutchison and even sent the maths in writing (40% x 75% = 30%). Fair enough, but where did the 10 per cent go?!
Regardless of whether the stake is 30 or 40 per cent, however, it remains a minority one. It is therefore a little curious that Rossmann sales in Germany and Europe seem to be fully consolidated on the Hutchison balance sheet.
However, Hutchison is registered in the Cayman Islands where many things seem possible... :-))
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