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Customer switching data is an important factor that the Competition and Markets Authority (CMA) considers when assessing the closeness of competition of merging parties. However, as the completed acquisition by Pharmacy2U Limited (Pharmacy2U) of Lloyds Direct demonstrates, switching data can also be determinative when it comes to market definition.

Pharmacy2U is a Distance Selling Pharmacy (DSP) that supplies prescription-only medicines (POMs) in England. POMs are pharmaceutical drugs that require a prescription and are dispensed by a pharmacist. Pharmacy2U also provides other healthcare services, runs an online doctor consultation service and sells a range of health and wellbeing products. Metabolic Healthcare Limited (trading as Lloyds Direct, together with Pharmacy2U, the Parties) is also a DSP and supplies POMs in England. Following the completed acquisition of the entire share capital of Lloyds Direct by Pharmacy2U on 5 October 2023 (Transaction), the CMA called in the Transaction for review and decided to clear the Transaction on 12 March 2024.

The Parties overlap in the supply of ordering, dispensing and delivery of NHS England POMs and accordingly submitted that the relevant product market was the provision of pharmacy services (i.e., dispensing and delivering) for POMs by all community pharmacists. The CMA considered whether it would be appropriate to define the product market with a focus on the delivery of POMs and, if appropriate, delineating between:

  1. delivery by DSPs only; and
  2. delivery by both DSPs and brick-and-mortar pharmacies); or
  3. to define a wider product market comprising both the delivery of POMs and collection of POMs from brick-and-mortar pharmacies.

While the exact definition of the relevant product market was ultimately left open as the CMA found that the Transaction did not give rise to a realistic prospect of a significant lessening of competition (SLC) on any basis, if the CMA were to define a narrower product market for the delivery by DSPs only, then the Pharmacy2U and Lloyds Direct would be the two largest DSPs with a combined share of 40-50% (no other DSPs have a share over 5%). In the context of the POMs dispensed by all pharmacies, the market share analysis showed that DSPs only make up a small proportion of total POMs dispensed in England, with the vast majority being dispensed by brick-and-mortar pharmacies.

However, the switching data provided by the Parties suggested that the Parties may not compete as closely as the shares suggest, with only 0-5% of Pharmacy2U customers that change their nomination leaving to Lloyds Direct. The switching analysis provided by the Parties showed that most of the nominations lost by Pharmacy2U were lost to brick-and-mortar pharmacies. Similarly, Pharmacy2U won most of its nominations from brick-and-mortar pharmacies. The CMA recognised that this indicated a large degree of competitive interaction between Pharmacy2U and brick-and mortar pharmacies, likely reflected the broader pattern of competitive interaction that takes place between DSPs and indicated the wide range of brick-and-mortar pharmacies present in the wider market.

Ultimately, given that the switching data was supported by third-party evidence which also indicated that many customers view visiting brick-and-mortar pharmacies as substitutable to obtaining POMs from a DSP, the CMA concluded that while the merger will result in the removal of a direct constraint on each of the Parties, the remaining constraints from other DSPs and brick-and-mortar pharmacies will be sufficient to prevent an SLC in the supply of POMs.