This Day in History | 2001 – UK supermarkets slash price of drugs

British consumers are already reaping the benefits of cheaper over-the-counter medicine after a court ruling today put an end to the drug industry’s price-fixing policy.

The major supermarkets are cutting the price of popular brands by over a half.

Tesco supermarket chain has said it will slash up to 40% from the price of some medicines from Wednesday, including painkillers Calpol and Nurofen. Asda and Safeway have also announced similar cuts.

Last October, the Office of Fair Trading (OFT) challenged the so-called resale price maintenance (RPM) in the Restrictive Practices Court arguing that it allowed drug companies to keep the price of branded over-the-counter products artificially high.

John Vickers, director general of the OFT, was delighted by the outcome. “This is excellent news for consumers who will now benefit from lower and more competitive prices for common household medicines,” he said.

The Community Pharmacy Action Group (CPAG) had campaigned to keep RPM, claiming its abolition would lead to the closure of 12,000 local pharmacies forced out of business if the supermarkets launch a price-cutting war.

But the court found there was insufficient evidence that a significant number of pharmacies would be shut and ruled RPM was against the public interest.

The news has been condemned as a “devastating blow” to Britain’s pharmacies by CPAG’s chairman and community chemist, David Sharpe.

“Many pharmacists will simply not be able to survive given the buying power and aggressive pricing tactics of the supermarkets,” Mr Sharpe said.

A spokesman for Boots said he was “disappointed” with the court’s decision and estimated the move will knock £15m off full year profits. Shares in Boots, the biggest chain of pharmacies in the UK, fell 4.5% on the news.

Courtesy BBC News

In context

A month later, the Chancellor Gordon Brown said the Labour government would crack down hard on any attempts at price-fixing as part of its policy to encourage competition and do away with what Trade and Industry Secretary Stephen Byers had called “rip-off Britain”.

In March 2000 Mr Byers had increased the powers of the OFT and created the Competition Commission from the old Monopolies and Mergers Commission charged with investigating anti-competitive practices.

As a result of a medicines price war with the supermarkets, Boots spent £170m on revamping its health and beauty ranges and cut costs by selling off the Halfords car accessory chain in June 2002.

In November 2001, the European Union imposed record fines on eight drug companies for fixing the price of vitamins.