Organisation: Office of Fair Trading
Issue: End of RPM system on over-the-counter drug sales
The Office of Fair Trading (OFT) and supermarket chains have been
celebrating as the High Court destroyed the last bastion of Retail Price
The 14 May ruling ended 38 years of artificial price protection of
over-the-counter (OTC) branded pharmaceutical products, which had been
exempted in the 1964 Resale Prices Act. John Vickers, OFT director
general, said: 'This is excellent news for consumers' (The Times,
Supermarket heads were exuberant. Sainsbury's CEO Peter Davis asserted:
'We have been waiting for a quarter of a century for an end to RPM',
while Safeway categories manager Stephen Painter stated: 'We are
delighted this ridiculous law has finally ended' (The Mirror, 16/5).
Supermarkets and high street chemists responded immediately with price
reductions of up to 50 per cent on some branded pharmaceutical products,
giving rise to estimates that the reversal of RPM legislation could save
consumers pounds 300m a year.
However, not all parties welcomed the news. The Community Pharmacy
Action Group (CPAG) claimed that the abolition could endanger the
business of 3,000 pharmacies, which would find themselves unable to
compete against the purchasing and pricing power of the supermarket
chains. Highlighting the customer service and advice offered by local
pharmacies, the group's spokesperson claimed: 'It's a sad day for
Britain as this outcome threatens yet another community service on the
high street' (Daily Express, 16/5).
Boots, which had supported RPM legislation, was immediately affected by
the law's abolition. Its share price slumped 6.25 per cent following the
news, as analysts voiced concern about the company's ability to recoup
the estimated pounds 15m to pounds 20m that would be wiped off its
profits. 'Boots needs anti-depressant,' headlined internet-based
However, Boots responded quickly with a game plan involving aggressive
advertising, price cuts and growth in market share. Its spokesperson Ken
Piggot conceded that smaller pharmacists may consider that their former
ally had changed sides, but stated: 'This is a whole new ball game ...
We don't intend to let anyone steal our sales' (The Guardian, 17/5).
Analysis and commentary by Echo Research. More information can be found