I.
Company Background After the Second World War in 1945, Mariano Que began his corporate
journey. The Filipinos, who had just suffered a devastating war, had a very limited access to medicine at that time. Que with his P100, bought a bottle of the wonder drug Sulfathiazole, and sold it by piece or “tingi−tingi” using a pushcart on the streets of Sta. Cruz, Manila. From pushcart − peddling and with his previous working experience in a drugstore before the war, he eventually opened his first small drugstore in Bambang Street. Realizing that not everyone could go to the drugstore, Mercury Drug pioneered customer delivery service in 1948. Four years later, it commenced the 17−hour, 7 days a week drugstore service; in 1963, the country’s first self−service drugstore; in 1965, the 24−hour, 7 days a week service; in 1967, the first computerized temperature−controlled central warehouse; in 1969, the first drugstore chain to use biological refrigerators to preserve life− saving medicines and in 1976, the first drugstore chain to expand throughout Luzon, Visayas and Mindanao. Mercury Drug’s growth was impressive: By 1995, the company operated more than 270 stores. Less than 10 years later, Mercury had expanded its number of branches to more than 450, giving it a near monopoly grip on the country’s drug sales. By 2004, Mercury controlled as much as 60 percent of all drug sales in the Philippines.
II. Current Performance Mercury Drug is a subsidiary of the Mercury Group of Companies, which governs other Que family interests, including the 10* convenience store chain and the Tropical hut fast food group.
1
Mercury Drug has long been the uncontested leader in the local retail drug sector, cornering more than 50 percent of the market share in 2014. (Richmond Mercurio, Philippine Star: September 2014).
2
With P104.49− billion gross revenue, or 62% share of the market this th
has catapulted Mercury Drug to the 6 spot in 2015’s Top 1000 Corporations. Its competitors, Watsons Personal Care (Philippines), Inc., and Rose Pharmacy, Inc., trail Mercury Drug by a mile, with revenues of 19.34 billion and P8.44 billion respectively. (Uy, Leo Jaymar, Business World Research: December 2015) It reported a total of P4.7 Billion liquidity in 2015 against P4.5B in 2014 and an increase to P6.5B equity from P3.9B respectively. Today, Mercury Drug is more than just a pharmacy − it is the country’s trusted and caring health and wellness partner, providing the widest range of branded and generic medicines, as well as complete line of healthcare and personal care products including medical devices and basic everyday needs. The 71−year−old company has grown into a vast network of more than 1,000 company owned and franchised drugstores nationwide with over 12,000 employees, who are continuously trained on product knowledge and customer service.
III. Strategic Posture A.
Mission The company’s mission is to continuously be the leading, trusted and caring drugstore.
B.
ObjectivesƒStrategies Mercury Drug believes that it owes its success to the millions of
customers who have trusted and patronized the drugstore chain all throughout these years. As a way of giving back to the people, Mercury Drug
vows to bring quality, safe and affordable health−enhancing and life−saving medicines closer to the public. In the first place, it is what the name Mercury Drug stands for. In Roman mythology, Mercury is known as the god of commerce and manual skill. Being the messenger of gods, Mercury needed a winged feet for his swift flights. Mercury Drug
remains committed to its name as seen on its corporate philosophy of total and speedy customer service: "To serve you, to have what you want, when you want it.” Now more than ever, it is committed to introducing enhanced services to better serve the customers farther and wider, whoever and wherever they may be. For instance, Mercury Drug makes certain the availability of less common but life−saving medical products such as serum, blood plasma, albumin and the like that are stored in a Bio−refrigerator. This would require Mercury Drug to invest on modern technology and to continuously upgrade its facilities in its head office, stores and distribution centers. Aside from pharmaceutical products, it now carries basic household necessities such as food, health and personal care products and others for the buying convenience of its customers. It has also incorporated value added facilities and services in many of its drugstores. More and more branches are open on a 24−hour service all days of the week.
Objectiv es To sustain its leadership in the retail drug industry
Strategi es Opening more than 1,000 stores nationwide Ensuring high quality of branded and generic medicines "Nakakasiguro Gamot ay Laging Bago" Corporate Social Responsibility Initiatives 1.Free consultation 2.Medical out reach Marketing and Promotion strategies: 1.Reward Points thru Suki Card Programs 2.Drive thru services (first in the country) 3.call order Pick−up
Financial Position 1.Maintain a privately−held company 2.Owns 99.9% of shares
C.Best Practices In order to be successful in your field, you have to benchmark. A benchmark is a standard of excellence or achievement against which similar things must be measured or judged. In other words, you look for the best companyƒperson in your industry or field and study (improved and build on) their best practices. The company has initiated various customer value added services, which are now well in place and well known among pharmacy’s customers. These include Gamot Padala options of Call Order Pick−Up, Order Online and Order Anywhere Pick−Up Anywhere to serve customers’ orders at their convenience. Drive−thru service, a first in pharmacy retailing in the Philippines; Pharmacy counselling service to help customers with medication queries; MercuryTV in−store health education service; Suki Card Customer value card rewarding members with good−as−cash points and discounts; and Gising 24 Oras 24ƒ7 service in over 100 strategically−located stores. When the laws granting medicine discounts to senior citizens and person with disability were enacted, Mercury Drug readily implemented them, granting the mandated 20% privilege discount and exemption from the 12% VAT to all senior citizens. The management never runs out of ideas to make Mercury Drug’s customers happy. Every Saturday, Mercury Drug offers Suki Sabado Special products at special mark−down prices. Every month, it also offers Suki Extra Points on top of regular Suki points to reward Suki Card members; and in selected Mercury Drug stores Bantay Kalusugan free clinics are offered, providing various free medical services. D.
Unique Selling Proposition “Nakakasiguro Gamot ay Laging Bago”
For Filipinos, the name Mercury Drug has become a byword for medicines. Its slogan “Nakakasiguro Gamot ay Laging Bago is a guarantee of fresh and high quality medicines sold in Mercury Drug, whether branded or generic. Customers will always find what they need in
Mercury Drug, and if the medicine is not available in the branch they visit, Mercury Drug will only be glad to find it in its other stores to ensure customer satisfaction. E.Business Model Mercury Drug’s pharmacies follow the American model, combining drug and medical equipment sales with over−the−counter medicines, personal care items, basic household needs, cosmetics and other beauty products, and the like. Most of the company’s stores are also equipped to store and sell serums, blood plasma, albumin and similar biologically active medical products. In addition to its drug−stores Mercury operates a chain of Mercury
Drug
Superstores.
Generally
attached
to
the
company’s
pharmacies, the Mercury Drug Superstores extend the group assortment to include convenience store and fast−food item.
IV. CORPORATE GOVERNANCE A.
Board of Directors
Name
Title
Vivian Que−Azcona Josefina P. Romero Jacinto J. Concepcion Jesus P. Mangrobang Alicia A. Lumanog Corazon S. Lim Ignacio D. Bernal
Chairman Member Member Member Member Member Member
Mercury
Drug
Corporation
Stockhol der Yes Yes Yes Yes Yes Yes Yes
remains
a
privately
Shares Type/Num ber Common ƒ 5 Common ƒ 2 Common ƒ 2 Common ƒ 2 Common ƒ 2 Common ƒ 1 Common ƒ 1
held
company.
Leadership of the company also remains in the family: the company’s Chairman and President Ms. Vivian Que− Azcona, is the eldest daughter of the founder of Mercury Drug, Dr. Mariano Que.
Vivian pursued a BS Pharmacy Degree at the University of Sto. Tomas; where she graduated cum laude. Vivian passed the pharmacy licensure examination at the same time that she
was learning the
pharmacy retailing. Under the direct tutelage if Dr Que,
she
ropes of
learned the business and worked her way up − from warehousing to distribution, from inventory and stock control to store operations, from merchandising to marketing, from HR development and training to research, finance and overall management − to prepare her for her eventual assumption of the top post in the company. She was appointed Assistant General Manager in 1984, and finally President in 1998. Under her leadership, Mercury Drug has grown into a network of more than 1000 stores nationwide. The company stock of MDC remains’ privately held as well. There are 29,933,330 common shares outstanding and only around 15 stocks or 0.01% is owned by the Board of Directors. 99.99% is owned by the parent company Mercury Group of Companies. Ms. Que−Ascona owns 5 shares of common stock. Ms. Romero owns 2 shares of common stock. Mr. Concepcion owns 2 shares of common stock. Mr. Mangrobang owns 2 shares of common stock. Ms. Lumanog owns 2 shares of common stock. Ms. Lim owns 1 share of common stock and Mr. Bernal, Jr. owns 1 share of common stock. B. Top Management
Vivian Que−Azcona Jacinto J. Concepcion Jesus P. Mangrobang Joy Ann Marie N. Garcia
Corporate Officers Chairman of the Board, President Member of the Board, Vice Presidentof the Board, Member Treasurer Secretary
Stock holder Stock holder Stock holder NƒA
There are four corporate officers which three of them are stock holders including Chairman Vivian Que−Azcona.
V.
EXTERNAL ENVIRONMENT A. Societal Environment
Table 3. PESTLE Analysis Political Growing political focus and pressure on Healthcare − T Governments looking for healthcare savings − T Harmonization of healthcare across the country − O New Administration’s propose increase of VAT from 12% to 15% − T Propose 3−child policy − O Government to revive Botika ng Bayan − T Economic Strong economic growth and is projected to accelerate at 6.4% − O Global Rankings − competitive rankings over the last five years are encouraging − O Increase in individual disposable income − O Increasing number of buying groups putting pressure on pricing − T The pharmaceutical industry is one of the most promising business sectors in the Philippines, as the industry revenue estimates grow by Socio-cultural Patient awareness, changing expectations. Patientƒ public activism is also increasing − T Increasing age of population & growth in obesity − O General public is the consumers’ innate mistrust of generic drugs − T The general public, long exposed to the multinationals’ marketing campaigns − belief that expensive, branded are more effective in treating their condition − T Technological Social Media − O Direct to Patient Advertising − O Discovery of Cure for Dengue − O Legal Changes to advertising laws. − T Global inconstancies. − T Implementation of Generics Act of 1998 − T Senior Citizens Law granting (20%) discount − T Cheaper Medicines Act − T Environmental Growing environment agenda and community awareness − O
B.
Competitors Analysis
Figure 1. Porter’s Five Forces Moderate to High
Threat of New Entrants
Bargaining of Suppliers
ModeratePower to High
Industry Competitors
Bargaining Power of Buyers Low
High
Threat of Substitute Low
Rivalry among firms - HIGH
The industry has a tough competition, having ample numbers of competitors from Big Ones such as Watsons, Generic Pharmacy, Generika Drugstore to the regional or provincial powerhouse Rose Pharmacy and South Star Drug.
The recent acquisition of JGHoldings to Generika with the plan of putting up 700 stores in strategic locations specifically at Robinson’s malls.
Aside from these, there are also independent pharmacies in other provincial areas and sari−sari storesƒ retail stores which sell over the counter drugs. Indirect competitors are also
present such as convenience stores (7−11, Mini−Stop, Family Mart and All Day).
Supermarketsƒ groceries can also be considered as indirect competitors
since they carry some convenient products
which MDS carries.
Threat of New Entrants – MODERATE to HIGH
With the fast franchising programs of Generic Pharmacy and Generika Drug Stores, entering the pharmaceutical retail industry for new entrants is easy.
Permits in putting up these types’ of businesses can easily be provided by the master franchisor giving opportunity to people who wants to have their own business.
A lot of convenience stores are also being put up near areas where there are 24 hour MDS’s.
Threat of Substitutes - LOW
Since medicines are essentials and being prescribed by doctors, it is imperative to conclude that substituting these products is impossible.
Since Mercury Drug eat chunk of the industry, there is minimal to low threat of other productsƒ services as substitute.
Bargaining Power of Buyers- LOW
Mercury Drug offers wide range of products such as medicines in particular. Buyers have no control over the prices of these products since these are essentials and dictated by the manufacturer or suppliers.
Bargaining Power of Suppliers- MODERATE TO HIGH
The suppliers in the industry pose a moderate to high control over Mercury Drug’s products since most of the medicines are being produced by big manufacturers.
Big drug manufacturers such as UNILAB, GSK, and PHZER produce medicines that re solely owned by them respectively. 1 0
Hence, they tend to have moderate to high control over the prices of these products.
80% of the country’s medicine purchases are done in drug stores, because
its normally difficult for distributors to
coordinate their operations.
1 1
C.List of Opportunities and Threats Opportunities
Market expansion into international markets Expanding into new geographic markets Expanding the product lines to meet broader range of customer needs Using social media to increase online sales Acquiring rival firms or companies Entering into alliances or joint ventures
Threats
D.
Rise of new competitors with lower price of medicine and the intensity of competition between competitors. Shop lifting cases. Growing bargaining power of suppliers Loss of sales to substitute products Increasing intensity competition among industry Government regulationsƒ policies (relieving of Botika ng Bayan in every Municipality)
External Factor Evaluation (EFE Matrix)
Key External Factors
Weight
Rating
Weighted Score
Comments
Opportunities Market expansion into international markets Expanding into new geographic markets Expanding the company’s product line to meet a broader range of customer needs Online sales Entering into alliances or joint ventures Acquiring rival firms or companies
5% 16 %
2 4
0.1 0.6 4
3 10
0.3
8% 7% 5%
1 2 1
0.08 0.14 0.05 and
5% 8% 12% 7% 12% 5% 100%
3 3 4 3 2 2
0.15 0.24 0.48 0.21 0.24 0.1 2.73
Joint venture in other ASEAN Countries Feasibilty study in key provinces Intensify other catrgories (beauty welness)and Intensify Ecommerce Consdier buying South Star Drug Rose Pharmacy Join venture outsie the pharmacuetical Industry
Threats Likely entry of potent new competitors with lower price of medicines Growing bargaining power of suppliers Increasing intensity of competition among industry Loss of sales to substitute products Entrants of government regulated drugstores (Botika ng Bayan) Loss of sales through shoplifting cases
Threat of Substitues Threat of Suppliers Competitor Check Threat of Substitues Regulatory Compliance In store security
Legend: 1 = the response is poor. 2 = the response is below average. 3 = above average. 4 = superior. Weights are industry specific. Ratings are company specific.
Based on the matrix, the weighted score sums to 2.73, which we indicates that the firm has a little or more than average response to the external factors. This shows that the company’s strategies are neither effective nor ineffective in exploiting opportunities or defending against threats and should improve its strategy and focus more on how to take advantage of the opportunities.
VI. INTERNAL ENVIRONMENT A.
Corporate Structure
Decentralized organization − storesƒbranches are divided into sub units base on locations.
B.
Segmented into three functions : Drugs, Personal Care, Customer Service Corporate Culture
Mercury Drug Stores is conservative that maintains the management of the company as private−family held organization.
The President and at Chairman of the board is the daughter of the founder
The board of directors and corporate officers assumed positions such as directors, executives, managers in the pharmaceutical industry.
C.
Corporate Resources a. Marketing
Market leader and the pioneer in the industry since 1940’s − S
Captured 60% of the market shares − S
Strong brand positioning − S
Product lines that targeted different age groups − S
b. Finance
99.9% of shares comes from the parent company Mercury Group of companies − S
2015 Financial performance shows a positive result compare from the loss of 2014 − S
Company’s current assets are dependent on inventory − W
Company liquidity is efficient (Basis: Free Cash Flow)− S
c. Research and Development
Continuous research on additional value added services for its customers − S
d. Operations and Logistics
More than 400 stores are operating 24hours nationwide. − S
Has 1,000 stores and branches nationwide − Strength
12,000 employees ensuring services are delivered to customers − Strength
Inventory Turn−over takes more than 50days − Weakness
e. Human Resource Management
Pharmacy Assistants are required to be a graduate of any 4year course − S
Compliant on RA 5921 that all establishments has required pharmacist − S
Trainings and Seminars − S
f. Information Technology
Use of ERP systems for unified procurement and inventory −S
Installations of MercuryTV in all branches − S
Computer system for guiding warehouse temperature storage
D.
Financial Ratio-Analysis
Financial ratio analysis is a powerful tool used in evaluating the overall financial condition and performance of an organization. Mercury Drug’s key financial ratios for 2014−2015 are discussed below: Financ ial Ratio Current Ratio
Current Assets Current Liabilities
Acid Test Ratio
Current Assets — Inrentory Current Liabilities
Cash Ratio
Cash and Cash Equiralents Current Liabilities
Gross Margin Profit
Formula
Gross Profit Rerenue
Net Profit Margin
Net Profit Rerenue
Return on Assets
Net Profit Total Assets
Return on Equity
Net Profit ShareholderrsEquity
Debt Ratio
Debt/Equi Ratio ty
Total Liabilities Total Assets Total Liabilities ShareholderrsEquity
201 4 CR = 1.25 30,495,129,594.0 0 24,340,507,162.00 ATR = 0.68 16,537,545,739.00 24,340,507,162.0 CR = 0.18
201 5 CR = 1.29 32,929,817,845.00 25,379,494,877.00 ATR = 0.70
4,480,960,341.00 24,340,507,162.0 GPM = 18%
17,713,835,905.00 25,379,494,877.00 CR = 0.19 4,742,792,853.00 25,379,494,877.00 GPM = 18%
18,471,950,681.0 0 104,237,325,957.00 NPM = -2%
19,696,615,998.00 112,527,306,583.00 NPM = 3%
(1,962,681,654.00) 104,237,325,957.00 ROA = -0.06
3,043,331,747.00 112,527,306,583.00 ROA = .08
(1,962,681,654.00) 34,176,574,849.00 ROE = -0.67
3,043,331,747.00 36,295,636,746.00 ROE = 1.03
(1,962,681,654.00) 2,933,333,000.00 DR = 0.89 30,273,442,158.00 34,176,574,849.00 DER = 10.32
3,043,331,747.00 2,933,333,000.00 DR = . 83 30,144,105,551.00 36,295,636,746.00 DER = 10.28
30,273,442,158.00 2,933,333,000.00
30,144,105,551.00 2,933,333,000.00
Based on the above financial ratios, Mercury Drug Corporation has the capacity to settle its short term obligations through its current assets, as long as the inventory turnover is fast. The company’s gross profit margin is only 18%, which means that 82% of the revenues are going to the cost of goods sold. The net profit margin of −2% and 3% for 2014 and 2015: The negative NPM is due to the retirement benefits provided during that year, worth almost P6.9 billion. Mercury Drug Corporation was able to use its assets more efficiently in the year 2015 compared to 2014, as shown by the increase in ROA by .14 in 2015. The profit that the company has created using the shareholder’s money has also increased by 1.7, as shown in the ROE. The entity was also able to reduce the leverage of the company by reducing its debt ratio, lesser proportion of the company’s assets that are financed by debt. E.Common Size Financial Statements Mercury Drug Corporation Common Size Income Statement For the years ended and December 31, 2014 2015 2014 2015 Revenue Net Sales 100.00 100.00 %2.12% 1.95% % Miscellaneous Income Total Revenue Cost of Sales
84.02% 84.11%
Gross Profit Operating Expenses Income from Operations Income subjected to final tax
18.10% 14.73% 3.37% 0.24%
17.85% 14.24% 3.61% 0.23%
Income Before Income Tax Provision for Income Tax Current
3.61%
3.84%
1.01%
1.08%
Net Income from Operations
2.60%
2.76%
Recognition of Retirement Benefit
Retirement benefit Less: Deferred Tax Income (Loss)
6.46% 1.94% 4.52% −1.92
0.00% 0.00% 0.00% 2.76%
15
Mercury Drug Corporation Common Size Balance Sheet December 31, 2014 and 2015 2014 Assets
2015
Current Asses Cash and Cash Equivalents Receivables Inventories Prepayments Total Current Assets
13.11% 34.11% 40.84% 1.17% 89.23%
13.07% 34.78% 41.92% 0.96%
Non-Current Assets Deferred Tax Asset Property and Equipment net Other Assets Total Non-Current Assets
5.79% 4.89% 0.09% 10.77%
4.69% 4.48% 0.10%
100.00%
100.00 %
69.72% 0.20%
Total Current Liabilities
70.32% 0.90% 71.22%
69.92%
Non-Current Liability Retirement Liability
17.36%
13.13%
Total Non−Current Liabilities
88.58%
83.05%
8.58% 2.84% 11.42%
8.08% 8.87%
Total Assets
90.73%
9.27%
Liabilities Current Liabilities Accounts Payable and Accrued Expenses Income Tax Payable
Equity Paid−up Share Capital Retained Earnings Total Equity Total Liabilities and Equity
100.00%
16.95% 100.00 %
1 6
F. Altman Z-Score The Altman Z−Score is a statistical tool used to measure the likelihood that a company will go bankrupt. In general analysis, the lower the Z−score, the higher risk of bankruptcy a company has, and vice versa. Formula: working capital retained earnings ebit z — score = 6.56 + 3.26 + 6.72 + 1.05
equit y deb
Where in substituting the formula from the financial statements the result is: 2. 653 = 6. 56(0. 208) + 3. 26(0. 089) + 6. 72(0. 117) + 1. 05(. 024) Companies with scores above 2.6 means possibility of bankruptcy is very low, and since Mercury Drug Corporations’ score is 2.653, investors are more likely attracted in buying the shares if made available to the public.
G.
List of Strengths and Weaknesses Strengths
Efficient company liquidity − basis (Cash Flow) An attractive customer base ƒ captured 60% of the market share Strong advertisement and promotions Good customer service capabilities (wide array of value added services) Wide geographic coverage Diverse product range
Weaknesses
Has no global distribution capacity Weak inventory management procedures High Operating Expenses
Low paid−in−capital from stock holders
G. Internal Factors Evaluation (IFE Matrix)
Weight
Strength An attractive customer base Strong advertisement and promotions Good customer service capabilities Wide geographic coverage High product quality competencies and capabilities Diverse product range
Rati ng
Weight ed Score
Comme nts
10% 8% 10% 10% 10% 8%
3 2 4 4 4 3
0.3 0.16 0.48 0.44 0.4 0.24
Customer Loyalty Good Madvertising and PromotionsRetention Customer Georgraphical Representation Product Quality Standards Product Availability
Weakness Lack of adequate global distribution capability Weak inventory management procedures High Operating Expenses Low paid−in−capital from shareholders Current Assets are dependent on inventory
3% 9% 10% 12% 10% 100%
1 2 2 4 4
0.03 0.2 0.2 0.2 0.2 2.85
Distribution Channel Internal Inventory System Cost Minimization Shareholders ROI Inventorry Turnaround
Internal Key Factors
The ratings in internal matrix refer to how strong or weak each factor is in a firm. The total weighted score ranges from 1 to 4 (where 1 is low, 4 is high and 2.5 is average). The weighted average score for the internal key factors is 2.85 which is almost above average which means that the company has a strong internal position.
VII. Strategic Alternatives and Recommended Strategy Table 7 TOWS Analysis
OPPORTUNITIES
THREATS
TOWS ANALYSIS 1.Market expansion into international ``
2. Possible new local suppliers 3.Expanding the company's product line to meet a broader range
MERCURY DRUG STORE
1.An attractive customer base 2. Strong advertisement and promotions STRENGTHS
3. Good customer service capabilities 4. Wide geographic coverage
5.High product quality competencies and capabilities 6. Diverse product range 1.Lack of adequate global distribution capability 2. Weak inventory management
4. Online sales
3.Increasing intensity of competition among industry 4. Loss of sales to substitute products 5. Entrants of government regulated
5. Acquiring rival firms or companies 6. Loss of sales through shoplifting cases 6. Entering into alliances or joint S-O S-T Expansion into other untapped areas Offering-cost efficient products (S5,5S6,T1,T5) locally (s1,o5,o3) Intensify E-Commerce (s1,S2,S5,o4) Widen coverage of Bantay-Kalusugan Create Specialty Stores (s1,s6,s7,o3) Program in local provinces (S3,S4,T3,T5) Intensify loyalty/crm programs (s2,o4)
W-O W-T Improve profit margins through Develop realistic forecast-error measures Backward Integration (w1,w2,w6,o2) (W2,W4,T4)
3. High Operating Expenses
Reducing Overall Cost (W3,O2) Offer stocks to public (W5,O1,O6)
5. Low Paid in capital from shareholders
Mandatory tracking of fill rate and inventory turns for all product lines (W2,O3)
WEAKNESSES 4.Current Assets are Dependent on Inventory
1. Likely entry of potent new competitors with lower price meds 2 Growing bargaining power of suppliers
Centralize inventory planning (W2,W4,T4,T6)
Mercury drug is already the uncontested leader in the local retail drug with 62% market share and more than 1,000 stores nationwide across most provinces. With this, Mercury drug has little to no room for expansion in the Philippines as it has penetrated nearly all the feasible markets it has available in the Philippines. With this, we have formulated the following strategies for Mercury drug to not only maintain but improve on its position.
A.
Strategic alternatives
1.
Growth through backward integration Based on the value chain analysis of the pharmaceutical industry, the
manufacturing section is where Mercury Drug is at the mercy of its suppliers when it comes to price, being a major determinant in the retail price of the end product, having control of the suppliers can significantly improve the profit margins
of
Mercury
Drug.
The strategy is
to
acquire small
pharmaceutical companies, little by little as to slowly eliminate directly purchasing of medicine from its current suppliers like Unilab, Pfizer and Abbot. Pros:
Retail price of medicines can be reduced Higher assurance of Quality Control Can dictate price, discounts and valued added services from suppliers
Cons:
May have a negative effect on the existing relationship with current suppliers High Capital requirements for acquisition
2. Improve brand loyalty by providing added value through services ‘Gamot Padala’ is part of Mercury Drug’s marketing plan which provides added value to customers by providing more options to buy and send items. Currently, there are 3 options: 1.) Order online 2.) Call−Order−Pickup 3.) Order−Pick−up Anywhere. This can be improved upon by adding a delivery th
service as a 4 option in ‘Gamot Padala’. Pros: Cons
Easy and low−cost implementation Broadens the target market 2 0
3.
Minimal growth potential Diversification through specialized stores
2 1
Create Mercury branded specialized stores such as ‘Mercury skin care store’ which can compete with shops like ‘The body shop’. Pros:
Easy and low−cost implementation Broadens the target market
Cons: 4.
Minimal growth potential Using ABC Analysis to managed Inventories With good inventory management, Mercury can reduce excess
inventories and improve turn−over rate. Pros:
Avoid having too many SKU’s
Minimise inventory cost
Cons: 5.
Requires a personnel with good inventory management skills Additional training cost for personnel Offer stocks of MDC to Public
Pros:
Additional stocks from interested shareholder
Cons: Switching from privately held to public
B. Decision Criteria
A. B. C. D.
CRITER IA Sustainability (Long−run) Growth Opportunity Profit Maximization Customer Retention
Alternatives 1.Improve profit margins through Backward Integration 2. Improve brand loyalty by providing added value through services 3. Diversification through specialized stores 4. Using ABC analysis to merged inventories 5. offer Stocks to Public
WEIGH TS .20 .35 .25 .20
Weight ed SCOR
A(. 2)
B(.3 5)
C(.25)
D(.2)
4 (0.8)
5 (1.75 ) 1 (0.35)
3 (0.75)
2(0.4)
3.7
1 (0.25)
4(0.8)
2.4
2 (0.7) 1 (0.35) 5 (1.75)
2 (0.5)
3(0.6)
2.4
4 (1)
3(0.6)
2.35
3 (0.75)
1(0.1)
3.1
5 (1) 3 (.6) 2 (.4) 4 (0.8)
C.Recommendations and implementations Recommendatio ns 1. Acquire manufacturing companies that can produce products we are currently selling
Implementation s Evaluate manufacturing companies that are viable for acquisition Integrate the output of the newly acquired company to the supply chain
Evaluation and Control Capacity to produce Net worth of the Current profitability of the company Retail cost of the medicine produced must be lower than competitors A target of 1% of the medicine sold must be manufactured by Mercury
Drug. 2. Improved brand loyalty by proving value added services
3. Diversification through specialized stores
4. Using ABC analysis to manage inventories
Creation of additional team in the supply chain management.
Customer retention rate.
A 5% increase in customer retention Structure can lead to a 25− non−monetary 100% increase in programs around profit. customer’s values. Create a core Increase in competence for a performance usually competitive advantage (sales and market by performing activities share) beyond past at a cost lower than levels Invest of in performance. marginally competitors’ or profitable projects. providing inventory unique Identify hot Inventory turnover spots, and separate them rate. from the rest of the items, especially those that are numerous but not that profitable. FIFO and LIFO: First In
First Out and Last In Last Out.
VIII.
Conclusions After analyzing the current performance and strategies of Mercury
Drug Corp the analysts found out that the firm is efficient in achieving their corporate mission and philosophy “to be the leading retail drugstore in the country by providing and attending to the customer’s needs”. Evidence of this is being the consistent highest market share holder in the retail drug industry despite of the tough competition in the industry. Among of their best practices are ensuring that their USP and slogan, “Nakakasiguro Gamot ay Laging Bago and “Gising 24 Oras” is being followed by the entire organization. Mercury Drug Store offers both generic and branded medicines. Their “Call−Order−Pick−Up− Anywhere is a benchmark of the company being the first in the country to offer drive−thru services.
Reward Points through Suki card is also part of their value added services. MDC never
runs out of ideas, part of their Reward Program is the so called “Suki−Sabado−Special” giving special discounts to their valued customers. Mercury Drug’s brand recognition has already instilled to the Filipino mind, which gave them the opportunity to open stores in different strategic locations in the country. However, despite of being the leader in the industry and capturing the highest number of market share, their current financial standing tells a different story. On their financial records ending 2014, MDC shows a low ratio in terms of liquidity and solvency. The net loss was derived from the recognition of retirement benefits in accordance to Revised PAS 19 (Employee benefits). In 2015, additional equity was invested by the parent company Mercury Drug Group of Companies; however their liabilities have also increased. On our analysis with their Free Cash Flow, it shows that there is a problem with their inventory
turn−over.
Their
current
assets
are
dependent
with
the
inventories. Therefore, the analysts suggest that MDC should consider reviewing their inventory management process. With good inventory management, accurate forecast can be formulated, determining re−orders point to avoid excessive inventories and of course monitor SKU’s avoiding stock out as well. MDC should hire an employee with good inventory management skill, with this they can protect their cash to be used in other purchases and investments. Mercury is a conservative type of organization, wherein they maintain the management of the company as a privately held corporation. They own 99.9% of shares and only 0.1% is available to be owned by other shareholders. In the future, Chairman Vivian Que−Azcona may consider offering their shares in public. Though there are rumors that they have joined the Philippines Stocks Exchange through a backdoor deal. Engaging in public offering of shares might help them to source additional capital and may increase the value of the shares.
Furthermore, according to our research International Pharmaceutical Companies dominate the market in the Philippines, giving few chances to local suppliers. In the future to take advantage of being the industry leader, the analysts recommend considering vertical integration.
IX. APPENDICES A.
Financial Statements
B.
The Business Model Canvass
VII. References: Uy, Leo Jaymar, “Top 1000 Story: Pockets of Monopolies Amid Growing Economy” Business World Research, posted Friday, December 11, 2015. Extracted August 14, 2016. th
Wheelen and Hunger, Strategic Management and Business Policy 13 ed. BMI Research Philippines www.mercurydrug.co m.ph www.philstar.com www.store.bmiresearch.comƒPhilippines−pharmaceuticals−healthcare−report .html
