Turf war: global pharmacies battle for Colombian market share, bringing newer products along the way.

Colombia's traditional drug stores are tormented these days. The country is abuzz with Latin American multinationals out to dominate the market in a fragmented industry that has never really had a leader.

According to the national federation of retailers, Fenalco, pharmacy revenues topped US$1.50 billion in 2005. In Colombia, drugstores have normally been small, mom-and-pop stores. And there are a lot of them: 16,000 locations across the country. However, things are changing, as a fragmented market soon attracted big companies looking to grow. Farmacity, an Argentine company, set up shop here two years ago, threatening to change the competitive landscape. Locatel, a Venezuelan chain, crossed the border and prepped for battle last year. Mexico's Farmacias Similares and Chile's Farmacias Ahumada have set the Colombian pharmacy market in their crosshairs.

Small, neighborhood pharmacies are getting ready for the coming assault. "This battle should have happened years ago," said Maximo Visbal, president of Ascoldru, a Colombian association of retail drugstores. For years, domestic pharmacies have operated without the worry of any major competition, Visbal says. "A couple of neighborhood pharmacies competing with few chain stores has been the pattern for decades." As a result, Colombia's pharmacies fell behind compared with others in the region in terms of productivity. "A large chain pharmacy format never developed," Visbal says. It wouldn't be long before Colombia became fertile ground for multinationals looking for growth.

Farmacity was the first. Founded in 1997, the Argentine company came into the Colombian market with an initial investment of $2 million, forever changing the concept of what a pharmacy should be. "We carry a very different format," says Felipe Gomez, the company's general manager for Colombia. Shelves at Farmacity's 10 locations are packed with beauty products, food, organic products and, of course, medicines. "We are a large healthcare product facility, and healthcare is more than just drugs," Gomez says.

Locatel became the second contender vying for the industry's hegemony. The Venezuelan company showed up in 2005 with a $4 million investment. With two locations operating in Colombia so far, the company is planning to open five additional stores this year. Locatel's strategy, though, differs a bit from the rest of the competition. While it sells many of the products found at Farmacity, it also sells injury-treatment supplies and general household products. "The company's debut in Colombia was very successful," says Andres Galofre, Locatel's marketing director. Colombians have been craving larger pharmacies, Galofre says. "Big chains can offer a broader variety of products than small drugstores," he says.

And the wave of foreign investment in the sector keeps on building. Colombia plays a key role for Mexico's Farmacias Similares' expansion plans. The company is already opening pharmacies in other parts of the Andean region and in the Southern Cone. It caters to the price-sensitive customer by selling cheaper, generic drugs. That may pose the biggest threat of all to Colombian pharmacies, says Fenalco economic director Rafael Espana. "Among all foreign chain stores, Similares is the most competitive, price-wise," Espana says.

Farmacias Ahumada, meanwhile, grew from a Chilean mom-and-pop drugstore into a multinational corporation. It operates franchises in Chile, Peru, Brazil and Mexico. "This company is direct competition for Farmacity and Locatel," Espana says. "The fight for the market will be tough, as they are all showing up at the same time."

Trendy. Anibal Sanchez, sales manager at Drogueria Acuna, one of Colombia's few domestic chains, says the arrival of foreign competitors forced him to modernize his operations. "Some of the renovations include trendier decoration, larger spaces and, most importantly, a larger product range," Sanchez says.

To survive, small drugstores must fight with whatever weapons they can find. Experts say that neighborhood drugstores will have to offer a wider variety of products. They can also use their small size and local knowledge to their advantage. Better service and personalized attention to the customer will make a difference. Streamlining the business without losing human contact will be the key to compete with larger chains, analysts say. And so the battle begins.

DARCY A. CROWE * BOGOTA