The Australian Financial Review has reported on comments by the outgoing head of the Pharmacy Guild of Australia, Mr Kos Sclavos. Mr Sclavos singled out Coles, owned by diversified conglomerate Wesfarmers (ASX: WES), and Woolworths (ASX: WOW) for expanding their general medicines, vitamins and beauty product range which has put them into competition with pharmacies.

The majority of pharmacies in Australia use the buying power of distributors Australian Pharmaceutical Industries (ASX: API) and Sigma (ASX: SIP). API and Sigma own chemist banners including Priceline, Soul Pattison, Gaurdian and Amcal. The third and rising force in chemist retailing is the Chemist Warehouse chain.

As the article highlights, while each of these buying groups enjoy the regulated protection of providing prescription medicine, which the supermarkets are not allowed to sell, their buying power for much of the general medicines, vitamins and beauty product range is weaker than that of the supermarkets, a situation the Guild acknowledges is a problem for their members.

Foolish takeaway

Wholesale distribution businesses can be very tough given they are usually low margin. A low margin business model generally requires high volumes to be successful. The Pharmacy Guild is rightly concerned that its members’ volumes are under pressure; investors in these types of low margin businesses should be concerned too if they see volumes begin to fall.

Rather not risk investing in low margin, difficult businesses? The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading


Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

HOT OFF THE PRESSES: Motley Fool’s #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.