I.

Company Background

After the Second World War in 1945, Mariano Que began his corporate
journey. The Filipinos, who had just suffered a devastating war, had a very
limited access to medicine at that time. Que with his P100, bought a bottle
of the wonder drug Sulfathiazole, and sold it by piece or tingitingi using a
pushcart on the streets of Sta. Cruz, Manila. From pushcart peddling and
with his previous working experience in a drugstore before the war, he
eventually opened his first small drugstore in Bambang Street.

Realizing that not everyone could go to the drugstore, Mercury Drug

pioneered customer delivery service in 1948. Four years later, it commenced
the 17hour, 7 days a week drugstore service; in 1963, the countrys first
selfservice drugstore; in 1965, the 24hour, 7 days a week service; in
1967, the first computerized temperaturecontrolled central warehouse; in
1969, the first drugstore chain to use biological refrigerators to preserve
life saving medicines and in 1976, the first drugstore chain to expand
throughout Luzon, Visayas and Mindanao.

Mercury Drugs growth was impressive: By 1995, the company

operated more than 270 stores. Less than 10 years later, Mercury had
expanded its number of branches to more than 450, giving it a near
monopoly grip on the countrys drug sales. By 2004, Mercury controlled as
much as 60 percent of all drug sales in the Philippines.

II. Current Performance

Mercury Drug is a subsidiary of the Mercury Group of Companies,

which governs other Que family interests, including the 10* convenience
store chain and the Tropical hut fast food group.

1
 Mercury Drug has long been the uncontested leader in the local retail
drug sector, cornering more than 50 percent of the market share in 2014.
(Richmond Mercurio, Philippine Star: September 2014).

2
 With P104.49 billion gross revenue, or 62% share of the market this
th
has catapulted Mercury Drug to the 6 spot in 2015s Top 1000 Corporations.
Its competitors, Watsons Personal Care (Philippines), Inc., and Rose
Pharmacy, Inc., trail Mercury Drug by a mile, with revenues of 19.34 billion
and P8.44 billion respectively. (Uy, Leo Jaymar, Business World Research:
December 2015)

It reported a total of P4.7 Billion liquidity in 2015 against P4.5B in 2014

and an increase to P6.5B equity from P3.9B respectively.

Today, Mercury Drug is more than just a pharmacy it is the countrys

trusted and caring health and wellness partner, providing the widest range
of branded and generic medicines, as well as complete line of healthcare
and personal care products including medical devices and basic everyday
needs.

The 71yearold company has grown into a vast network of more

than 1,000 company owned and franchised drugstores nationwide with over
12,000 employees, who are continuously trained on product knowledge and
customer service.

III. Strategic Posture

A. Mission

The companys mission is to continuously be the leading, trusted and

caring drugstore.

B. ObjectivesStrategies

Mercury Drug believes that it owes its success to the millions of

customers who have trusted and patronized the drugstore chain all
throughout these years. As a way of giving back to the people, Mercury Drug
vows to bring quality, safe and affordable healthenhancing and lifesaving
medicines closer to the public. In the first place, it is what the name Mercury
Drug stands for. In Roman mythology, Mercury is known as the god of
commerce and manual skill. Being the messenger of gods, Mercury needed
a winged feet for his swift flights. Mercury Drug
remains committed to its name as seen on its corporate philosophy of total
and speedy customer service: "To serve you, to have what you want, when
you want it.

Now more than ever, it is committed to introducing enhanced services

to better serve the customers farther and wider, whoever and wherever they
may be. For instance, Mercury Drug makes certain the availability of less
common but lifesaving medical products such as serum, blood plasma,
albumin and the like that are stored in a Biorefrigerator. This would require
Mercury Drug to invest on modern technology and to continuously upgrade
its facilities in its head office, stores and distribution centers. Aside from
pharmaceutical products, it now carries basic household necessities such as
food, health and personal care products and others for the buying
convenience of its customers. It has also incorporated value added facilities
and services in many of its drugstores. More and more branches are open on
a 24hour service all days of the week.

Objectiv Strategi
es es
To sustain its leadership in the Opening more than 1,000 stores
retail drug industry nationwide
Ensuring high quality of branded and
generic medicines
"Nakakasiguro Gamot ay Laging Bago"

Corporate Social Responsibility

Initiatives
1.Free consultation
2.Medical out reach
Marketing and Promotion strategies:
1.Reward Points thru Suki Card
Programs
2.Drive thru services (first in the
country)
3.call order Pickup
Financial Position
1.Maintain a privatelyheld company
2.Owns 99.9% of shares
C.Best Practices

In order to be successful in your field, you have to benchmark. A

benchmark is a standard of excellence or achievement against which similar
things must be measured or judged. In other words, you look for the best
companyperson in your industry or field and study (improved and build on)
their best practices.

The company has initiated various customer value added services,

which are now well in place and well known among pharmacys customers.
These include Gamot Padala options of Call Order PickUp, Order Online and
Order Anywhere PickUp Anywhere to serve customers orders at their
convenience.

Drivethru service, a first in pharmacy retailing in the Philippines;

Pharmacy counselling service to help customers with medication queries;
MercuryTV instore health education service; Suki Card Customer value
card rewarding members with goodascash points and discounts; and
Gising 24 Oras 247 service in over 100 strategicallylocated stores.

When the laws granting medicine discounts to senior citizens and

person with disability were enacted, Mercury Drug readily implemented
them, granting the mandated 20% privilege discount and exemption from
the 12% VAT to all senior citizens.

The management never runs out of ideas to make Mercury Drugs

customers happy. Every Saturday, Mercury Drug offers Suki Sabado Special
products at special markdown prices. Every month, it also offers Suki Extra
Points on top of regular Suki points to reward Suki Card members; and in
selected Mercury Drug stores Bantay Kalusugan free clinics are offered,
providing various free medical services.

D. Unique Selling Proposition

Nakakasiguro Gamot ay Laging Bago

 For Filipinos, the name Mercury Drug has become a byword for
medicines. Its slogan Nakakasiguro Gamot ay Laging Bago is a guarantee of
fresh and high quality medicines sold in Mercury Drug, whether branded or
generic. Customers will always find what they need in
Mercury Drug, and if the medicine is not available in the branch they visit,
Mercury Drug will only be glad to find it in its other stores to ensure customer
satisfaction.

E.Business Model

Mercury Drugs pharmacies follow the American model, combining

drug and medical equipment sales with overthecounter medicines,
personal care items, basic household needs, cosmetics and other beauty
products, and the like. Most of the companys stores are also equipped to
store and sell serums, blood plasma, albumin and similar biologically active
medical products. In addition to its drugstores Mercury operates a chain of
Mercury Drug Superstores. Generally attached to the companys
pharmacies, the Mercury Drug Superstores extend the group assortment to
include convenience store and fastfood item.

IV. CORPORATE GOVERNANCE

A. Board of Directors

Shares
Name Title Stockhol
Type/Num
der
Vivian QueAzcona Chairman Yes ber
Common
Josefina P. Romero Member Yes 5
Common
Jacinto J. Concepcion Member Yes 2
Common
Jesus P. Mangrobang Member Yes 2
Common
Alicia A. Lumanog Member Yes 2
Common
Corazon S. Lim Member Yes 2
Common
Ignacio D. Bernal Member Yes 1
Common
1

Mercury Drug Corporation remains a privately held company.

Leadership of the company also remains in the family: the companys
Chairman and President Ms. Vivian Que Azcona, is the eldest daughter of
the founder of Mercury Drug, Dr. Mariano Que.
 Vivian pursued a BS Pharmacy Degree at the University of Sto. Tomas;
where she graduated cum laude. Vivian passed the pharmacy licensure
examination at the same time that she was learning the ropes of
pharmacy retailing. Under the direct tutelage if Dr Que, she
learned the business and worked her way up from warehousing to
distribution, from inventory and stock control to store operations, from
merchandising to marketing, from HR development and training to research,
finance and overall management to prepare her for her eventual
assumption of the top post in the company. She was appointed Assistant
General Manager in 1984, and finally President in 1998. Under her
leadership, Mercury Drug has grown into a network of more than 1000 stores
nationwide.

The company stock of MDC remains privately held as well. There are
29,933,330 common shares outstanding and only around 15 stocks or 0.01%
is owned by the Board of Directors. 99.99% is owned by the parent company
Mercury Group of Companies.

Ms. QueAscona owns 5 shares of common stock. Ms. Romero owns 2

shares of common stock. Mr. Concepcion owns 2 shares of common stock.
Mr. Mangrobang owns 2 shares of common stock. Ms. Lumanog owns 2
shares of common stock. Ms. Lim owns 1 share of common stock and Mr.
Bernal, Jr. owns 1 share of common stock.

B. Top Management

Corporate
Officers
Vivian QueAzcona Chairman of the Board, Stock holder
Jacinto J. Concepcion President
Member of the Board, Vice Stock holder
Jesus P. Mangrobang Presidentof the Board,
Member Stock holder
Joy Ann Marie N. Garcia Treasurer
Secretary NA

There are four corporate officers which three of them are stock holders
including Chairman Vivian QueAzcona.
V. EXTERNAL ENVIRONMENT

A. Societal Environment

Table 3. PESTLE Analysis

Political
Growing political focus and pressure on Healthcare T
Governments looking for healthcare savings T
Harmonization of healthcare across the country O
New Administrations propose increase of VAT from 12% to 15% T
Propose 3child policy O
Government to revive Botika ng Bayan T
Economic
Strong economic growth and is projected to accelerate at 6.4% O
Global Rankings competitive rankings over the last five years are
encouraging O
Increase in individual disposable income O
Increasing number of buying groups putting pressure on pricing T
The pharmaceutical industry is one of the most promising business
sectors in the Philippines, as the industry revenue estimates grow by
Socio-cultural
Patient awareness, changing expectations.
Patient public activism is also increasing T
Increasing age of population & growth in obesity O
General public is the consumers innate mistrust of generic drugs T
The general public, long exposed to the multinationals marketing
campaigns belief that expensive, branded are more effective in
treating their condition T
Technological
Social Media O
Direct to Patient Advertising O
Discovery of Cure for Dengue O
Legal
Changes to advertising laws. T
Global inconstancies. T
Implementation of Generics Act of 1998 T
Senior Citizens Law granting (20%) discount T
Cheaper Medicines Act T
Environmental
Growing environment agenda and community awareness O
B. Competitors Analysis

Figure 1. Porters Five Forces

Moderate to
High

Threat of
New Entrants

Bargaining Bargaining
ModeratePower
to of Suppliers Industry Power of Buyers
Low
High Competitors

High

Threat of
Substitute

Low

Rivalry among firms - HIGH

The industry has a tough competition, having ample numbers

of competitors from Big Ones such as Watsons, Generic
Pharmacy, Generika Drugstore to the regional or provincial
powerhouse Rose Pharmacy and South Star Drug.
The recent acquisition of JGHoldings to Generika with the plan
of putting up 700 stores in strategic locations specifically at
Robinsons malls.
Aside from these, there are also independent pharmacies in
other provincial areas and sarisari stores retail stores which
sell over the counter drugs. Indirect competitors are also
 present such as convenience stores (711, MiniStop, Family
Mart and All Day).
Supermarkets groceries can also be considered as indirect
competitors since they carry some convenient products
which MDS carries.
Threat of New Entrants MODERATE to HIGH

With the fast franchising programs of Generic Pharmacy and

Generika Drug Stores, entering the pharmaceutical retail
industry for new entrants is easy.
Permits in putting up these types of businesses can easily be
provided by the master franchisor giving opportunity to
people who wants to have their own business.
A lot of convenience stores are also being put up near areas
where there are 24 hour MDSs.

Threat of Substitutes - LOW

Since medicines are essentials and being prescribed by

doctors, it is imperative to conclude that substituting these
products is impossible.
Since Mercury Drug eat chunk of the industry, there is
minimal to low threat of other products services as
substitute.

Bargaining Power of Buyers- LOW

Mercury Drug offers wide range of products such as

medicines in particular. Buyers have no control over the
prices of these products since these are essentials and
dictated by the manufacturer or suppliers.

Bargaining Power of Suppliers- MODERATE TO HIGH

The suppliers in the industry pose a moderate to high control

over Mercury Drugs products since most of the medicines are
being produced by big manufacturers.
Big drug manufacturers such as UNILAB, GSK, and PHZER
produce medicines that re solely owned by them respectively.

1
0
 Hence, they tend to have moderate to high control over the
prices of these products.
80% of the countrys medicine purchases are done in drug
stores, because its normally difficult for distributors to
coordinate their operations.

1
1
 C.List of Opportunities and Threats

Opportunities

Market expansion into international markets

Expanding into new geographic markets
Expanding the product lines to meet broader range of customer
needs
Using social media to increase online sales
Acquiring rival firms or companies
Entering into alliances or joint ventures

Threats

Rise of new competitors with lower price of medicine and

the intensity of competition between competitors.
Shop lifting cases.
Growing bargaining power of suppliers
Loss of sales to substitute products
Increasing intensity competition among industry
Government regulations policies (relieving of Botika ng
Bayan in every Municipality)

D. External Factor Evaluation (EFE Matrix)

Weighted
Weight Rating Comments
Key External Factors Score
Opportunities
Market expansion into international markets 5% 2 0.1 Joint venture in other ASEAN
Expanding into new geographic markets 16 4 0.6 Countries
Feasibilty study in key provinces
Expanding the companys product line to % 4
meet a broader range 3 Intensify other catrgories
of customer needs 10 0.3 (beauty
welness)and
Online sales 8% 1 0.08 Intensify Ecommerce
Entering into alliances or joint ventures 7% 2 0.14
Acquiring rival firms or companies 5% 1 Consdier buying South Star Drug
0.05 Rose Pharmacy
and
Join venture outsie the
pharmacuetical Industry

Threats
Likely entry of potent new competitors with
lower price
of medicines Threat of
5% 3 0.15 Substitues
Growing bargaining power of suppliers 8% 3 0.24 Threat of Suppliers
Increasing intensity of competition among 12% 4 0.48 Competitor Check
industry
Loss of sales to substitute products 7% 3 0.21 Threat of
Entrants of government regulated drugstores 12% 2 0.24 Substitues
Regulatory
(Botika ng Bayan)
Loss of sales through shoplifting cases 5% 2 0.1 Compliance
In store security
100% 2.73
 Legend: 1 = the response is poor. 2 = the response is below average. 3 = above
average. 4 = superior.
Weights are industry specific. Ratings are company specific.

Based on the matrix, the weighted score sums to 2.73, which we

indicates that the firm has a little or more than average response to the
external factors. This shows that the companys strategies are neither
effective nor ineffective in exploiting opportunities or defending against
threats and should improve its strategy and focus more on how to take
advantage of the opportunities.

VI. INTERNAL ENVIRONMENT

A. Corporate Structure
Decentralized organization storesbranches are divided into
sub units base on locations.
Segmented into three functions : Drugs, Personal Care, Customer
Service
B. Corporate Culture
Mercury Drug Stores is conservative that maintains the
management of the company as privatefamily held
organization.
The President and at Chairman of the board is the daughter of the
founder
The board of directors and corporate officers assumed positions
such as directors, executives, managers in the pharmaceutical
industry.
C. Corporate Resources
a. Marketing
Market leader and the pioneer in the industry since 1940s S
 Captured 60% of the market shares S
Strong brand positioning S
Product lines that targeted different age groups S
b. Finance
 99.9% of shares comes from the parent company Mercury
Group of companies S
2015 Financial performance shows a positive result compare
from the loss of 2014 S
Companys current assets are dependent on inventory W
Company liquidity is efficient (Basis: Free Cash Flow) S

c. Research and Development

Continuous research on additional value added services for its

customers S

d. Operations and Logistics

More than 400 stores are operating 24hours nationwide. S

Has 1,000 stores and branches nationwide Strength
12,000 employees ensuring services are delivered to
customers Strength
Inventory Turnover takes more than 50days Weakness

e. Human Resource Management

Pharmacy Assistants are required to be a graduate of any

4year course S
Compliant on RA 5921 that all establishments has required
pharmacist S
Trainings and Seminars S

f. Information Technology

Use of ERP systems for unified procurement and inventory

S
Installations of MercuryTV in all branches S
Computer system for guiding warehouse temperature
storage
D. Financial Ratio-Analysis
 Financial ratio analysis is a powerful tool used in evaluating the
overall financial condition and performance of an organization.
Mercury Drugs key financial ratios for 20142015 are discussed
below:

Financ Formula 201 201

ial 4 5
Ratio
Current Current Assets CR = 1.25 CR =
Ratio Current Liabilities 1.29
30,495,129,594.0 32,929,817,845.00
0
24,340,507,162.00 25,379,494,877.00
Acid Test Current Assets ATR = 0.68 ATR = 0.70
Ratio Inrentory
Current Liabilities
16,537,545,739.00 17,713,835,905.00
24,340,507,162.0 25,379,494,877.00
Cash Cash and Cash CR = 0.18 CR =
Ratio Equiralents
Current Liabilities 0.19
4,480,960,341.00 4,742,792,853.00
24,340,507,162.0 25,379,494,877.00
Gross Gross Profit GPM = 18% GPM = 18%
Margin
Profit Rerenue
18,471,950,681.0 19,696,615,998.00
0
104,237,325,957.00 112,527,306,583.00
Net Profit Net Profit NPM = -2% NPM = 3%
Margin Rerenue
(1,962,681,654.00) 3,043,331,747.00
104,237,325,957.00 112,527,306,583.00
Return on Net Profit ROA = -0.06 ROA = .08
Assets Total Assets
(1,962,681,654.00) 3,043,331,747.00
34,176,574,849.00 36,295,636,746.00
Return on Net Profit ROE = -0.67 ROE = 1.03
Equity ShareholderrsEquity
(1,962,681,654.00) 3,043,331,747.00
2,933,333,000.00 2,933,333,000.00
Debt Total Liabilities DR = 0.89 DR = .
Ratio Total Assets 83
30,273,442,158.00 30,144,105,551.00
34,176,574,849.00 36,295,636,746.00
Debt/Equi Total Liabilities DER = 10.32 DER = 10.28
Ratio
ty ShareholderrsEquity
30,273,442,158.00 30,144,105,551.00
2,933,333,000.00 2,933,333,000.00
 Based on the above financial ratios, Mercury Drug Corporation has the
capacity to settle its short term obligations through its current assets, as
long as the inventory turnover is fast. The companys gross profit margin is
only 18%, which means that 82% of the revenues are going to the cost of
goods sold.

The net profit margin of 2% and 3% for 2014 and 2015: The negative
NPM is due to the retirement benefits provided during that year, worth
almost P6.9 billion. Mercury Drug Corporation was able to use its assets
more efficiently in the year 2015 compared to 2014, as shown by the
increase in ROA by .14 in 2015. The profit that the company has created
using the shareholders money has also increased by 1.7, as shown in the
ROE. The entity was also able to reduce the leverage of the company by
reducing its debt ratio, lesser proportion of the companys assets that are
financed by debt.

E.Common Size Financial Statements

Mercury Drug
Corporation Common Size
Income Statement
For the years ended and
December 31, 2014 2015
2014 2015
Revenue
Net Sales 100.00 100.00
Miscellaneous Income %2.12% 1.95%%
Total Revenue

Cost of Sales 84.02% 84.11%

Gross Profit 18.10% 17.85%

Operating Expenses 14.73% 14.24%
Income from Operations 3.37% 3.61%
Income subjected to final tax 0.24% 0.23%

Income Before Income Tax 3.61% 3.84%

Provision for Income Tax
Current 1.01% 1.08%

Net Income from Operations 2.60% 2.76%

Recognition of Retirement Benefit

 Retirement benefit 6.46% 0.00%
Less: Deferred Tax 1.94% 0.00% 15
4.52% 0.00%
Income (Loss) 1.92 2.76%
 Mercury Drug
Corporation Common Size
Balance Sheet December
31, 2014 and 2015
2014 2015
Assets

Current Asses
Cash and Cash Equivalents 13.11% 13.07%
Receivables 34.11% 34.78%
Inventories 40.84% 41.92%
Prepayments 1.17% 0.96%
Total Current Assets 89.23% 90.73%
Non-Current Assets
Deferred Tax Asset 5.79% 4.69%
Property and Equipment net 4.89% 4.48%
Other Assets 0.09% 0.10%
Total Non-Current Assets 10.77% 9.27%

Total Assets 100.00% 100.00

%
Liabilities

Current Liabilities
Accounts Payable and Accrued 70.32% 69.72%
Expenses
Income Tax Payable 0.90% 0.20%
Total Current Liabilities 71.22% 69.92%
Non-Current Liability
Retirement Liability 17.36% 13.13%
Total NonCurrent Liabilities 88.58% 83.05%

Equity
Paidup Share Capital 8.58% 8.08%
Retained Earnings 2.84% 8.87%
Total Equity 11.42% 16.95%

Total Liabilities and Equity 100.00% 100.00

%

1
6
F. Altman Z-Score

The Altman ZScore is a statistical tool used to measure the likelihood

that a company will go bankrupt. In general analysis, the lower the Zscore,
the higher risk of bankruptcy a company has, and vice versa.

Formula:

working capital retained earnings ebit equit

z score = 6.56 + 3.26 + 6.72 + y
1.05 deb

Where in substituting the formula from the financial statements the

result is:

2. 653 = 6. 56(0. 208) + 3. 26(0. 089) + 6. 72(0. 117) + 1.

05(. 024)

Companies with scores above 2.6 means possibility of bankruptcy is

very low, and since Mercury Drug Corporations score is 2.653, investors are
more likely attracted in buying the shares if made available to the public.

G. List of Strengths and Weaknesses

Strengths

Efficient company liquidity basis (Cash Flow)

An attractive customer base captured 60% of the market share
Strong advertisement and promotions
Good customer service capabilities (wide array of value added
services)
Wide geographic coverage
Diverse product range

Weaknesses
 Has no global distribution capacity
Weak inventory management procedures
High Operating Expenses
 Low paidincapital from stock holders

G. Internal Factors Evaluation (IFE Matrix)

Weight
Internal Key Factors Weight Rati Comme
ed
ng nts
Strength Score
An attractive customer base 10% 3 0.3 Customer Loyalty
Strong advertisement and promotions 8% 2 0.16 Good Madvertising and
Good customer service capabilities 10% 4 0.48 PromotionsRetention
Customer
Wide geographic coverage 10% 4 0.44 Georgraphical Representation
High product quality competencies and 10% 4 0.4 Product Quality Standards
capabilities
Diverse product range 8% 3 0.24 Product Availability

Weakness
Lack of adequate global distribution 3% 1 0.03 Distribution Channel
capability
Weak inventory management procedures 9% 2 0.2 Internal Inventory System
High Operating Expenses 10% 2 0.2 Cost Minimization
Low paidincapital from shareholders 12% 4 0.2 Shareholders ROI
Current Assets are dependent on 10% 4 0.2 Inventorry Turnaround
inventory 100% 2.85

The ratings in internal matrix refer to how strong or weak each factor
is in a firm. The total weighted score ranges from 1 to 4 (where 1 is low, 4 is
high and 2.5 is average).
The weighted average score for the internal key factors is 2.85 which
is almost above average which means that the company has a strong
internal position.
VII. Strategic Alternatives and Recommended Strategy

Table 7 TOWS Analysis

OPPORTUNITIES THREATS
TOWS ANALYSIS

1.Market expansion into international 1. Likely entry of potent new

``
3.Expanding the company's product
MERCURY DRUG STORE
1.An attractive customer base
2. Strong advertisement and promotions
3. Good customer service capabilities
STRENGTHS
4. Wide geographic coverage
5.High product quality competencies
and capabilities
6. Diverse product range
1.Lack of adequate global distribution
capability
2. Weak inventory management
3. High Operating Expenses
WEAKNESSES
4.Current Assets are Dependent on
Inventory
5. Low Paid in capital from
shareholders
competitors with lower price meds
2. Possible new local suppliers 2 Growing bargaining power of suppliers
line to meet a broader range 3.Increasing intensity of competition among
industry
4. Online sales
4. Loss of sales to substitute products
5. Acquiring rival firms or 5. Entrants of government regulated
companies 6. Loss of sales through shoplifting cases
6. Entering into alliances or joint
S-O S-T
Expansion into other untapped areas Offering-cost efficient products
locally (s1,o5,o3) (S5,5S6,T1,T5)
Intensify E-Commerce (s1,S2,S5,o4) Widen coverage of Bantay-Kalusugan
Create Specialty Stores (s1,s6,s7,o3) Program in local provinces (S3,S4,T3,T5)
Intensify loyalty/crm programs
(s2,o4)
W-O W-T
Improve profit margins through Develop realistic forecast-error measures
Backward Integration (w1,w2,w6,o2) (W2,W4,T4)
Reducing Overall Cost (W3,O2) Centralize inventory planning (W2,W4,T4,T6)
Offer stocks to public
(W5,O1,O6)
Mandatory tracking of fill rate
and inventory turns for all
product lines (W2,O3)

Mercury drug is already the uncontested leader in the local retail drug
with 62% market share and more than 1,000 stores nationwide across most
provinces. With this, Mercury drug has little to no room for expansion in the
Philippines as it has penetrated nearly all the feasible markets it has
available in the Philippines. With this, we have formulated the following
strategies for Mercury drug to not only maintain but improve on its position.
A. Strategic alternatives

1. Growth through backward integration

Based on the value chain analysis of the pharmaceutical industry, the

manufacturing section is where Mercury Drug is at the mercy of its suppliers
when it comes to price, being a major determinant in the retail price of the
end product, having control of the suppliers can significantly improve the
profit margins of Mercury Drug. The strategy is to acquire small
pharmaceutical companies, little by little as to slowly eliminate directly
purchasing of medicine from its current suppliers like Unilab, Pfizer and
Abbot.

Pros:

Retail price of medicines can be reduced

Higher assurance of Quality Control
Can dictate price, discounts and valued added services from suppliers

Cons:

May have a negative effect on the existing relationship with current

suppliers
High Capital requirements for acquisition

2. Improve brand loyalty by providing added value through

services

Gamot Padala is part of Mercury Drugs marketing plan which provides

added value to customers by providing more options to buy and send items.
Currently, there are 3 options: 1.) Order online 2.) CallOrderPickup 3.)
OrderPickup Anywhere. This can be improved upon by adding a delivery
th
service as a 4 option in Gamot Padala.

Pros:

Easy and lowcost implementation

Broadens the target market

Cons
2
0
 Minimal growth potential

3. Diversification through specialized stores

2
1
 Create Mercury branded specialized stores such as Mercury skin care
store which can compete with shops like The body shop.

Pros:

Easy and lowcost implementation

Broadens the target market

Cons:

Minimal growth potential

4. Using ABC Analysis to managed Inventories

With good inventory management, Mercury can reduce excess

inventories and improve turnover rate.

Pros:

Avoid having too many SKUs

Minimise inventory cost

Cons:

Requires a personnel with good inventory management skills

Additional training cost for personnel

5. Offer stocks of MDC to Public

Pros:

Additional stocks from interested shareholder

Cons:

Switching from privately held to public

B. Decision Criteria

CRITER WEIGH
A. IA
Sustainability (Longrun) TS
.20
B. Growth Opportunity .35
C. Profit Maximization .25
D. Customer Retention .20

Weight
Alternatives A(. B(.3 C(.25) D(.2)
ed
2) 5)
1.Improve profit SCOR
margins through 4 5 3 (0.75) 2(0.4) 3.7
Backward (0.8) (1.75
Integration
2. Improve brand )
loyalty by providing 5 (1) 1 1 (0.25) 4(0.8) 2.4
added value through (0.35)
services
3. Diversification 2.4
3 (.6) 2 2 (0.5) 3(0.6)
through specialized
(0.7)
stores
4. Using ABC 2.35
2 (.4) 1 4 (1) 3(0.6)
analysis to merged
(0.35)
inventories 3.1
5. offer Stocks to 4 5 3 (0.75) 1(0.1)
Public (0.8) (1.75)

C.Recommendations and implementations

Recommendatio Implementation Evaluation and

ns
1. Acquire s
Evaluate Control
Capacity to produce
manufacturing manufacturing Net worth of the
companies that can companies that are Current profitability
produce products we viable for acquisition of the company
are currently selling Integrate the output Retail cost of the
of the newly acquired medicine produced
company to the must be lower than
supply chain competitors
A target of 1% of the
medicine sold must
be manufactured by
Mercury
 Drug.

2. Improved brand Creation of additional Customer retention

loyalty by proving team in the supply rate.
value added services chain management.
A 5% increase in
customer retention
Structure
can lead to a 25
nonmonetary
100% increase in
programs around
profit.
3. Diversification customers values.
Create a core Increase in
through specialized competence for a performance usually
stores competitive advantage (sales and market
by performing activities share) beyond past
at a cost lower than levels
Invest of
in performance.
marginally
competitors or profitable projects.
4. Using ABC analysis providing inventory
Identify unique hot Inventory turnover
to manage spots, and separate them rate.
inventories from the rest of the items,
especially those that are
numerous but not that
profitable. FIFO and LIFO: First In
First Out and Last In
Last Out.

VIII. Conclusions

After analyzing the current performance and strategies of Mercury

Drug Corp the analysts found out that the firm is efficient in achieving their
corporate mission and philosophy to be the leading retail drugstore in the
country by providing and attending to the customers needs. Evidence of
this is being the consistent highest market share holder in the retail drug
industry despite of the tough competition in the industry.
Among of their best practices are ensuring that their USP and slogan,
Nakakasiguro Gamot ay Laging Bago and Gising 24 Oras is being followed
by the entire organization. Mercury Drug Store offers both generic and
branded medicines. Their CallOrderPickUp Anywhere is a benchmark
of the company being the first in the country to offer drivethru services.
Reward Points through Suki card is also part of their value added services.
MDC never
runs out of ideas, part of their Reward Program is the so called
SukiSabadoSpecial giving special discounts to their valued customers.
Mercury Drugs brand recognition has already instilled to the Filipino
mind, which gave them the opportunity to open stores in different strategic
locations in the country.
However, despite of being the leader in the industry and capturing the
highest number of market share, their current financial standing tells a
different story.
On their financial records ending 2014, MDC shows a low ratio in terms
of liquidity and solvency. The net loss was derived from the recognition of
retirement benefits in accordance to Revised PAS 19 (Employee benefits). In
2015, additional equity was invested by the parent company Mercury Drug
Group of Companies; however their liabilities have also increased. On our
analysis with their Free Cash Flow, it shows that there is a problem with their
inventory turnover. Their current assets are dependent with the
inventories. Therefore, the analysts suggest that MDC should consider
reviewing their inventory management process. With good inventory
management, accurate forecast can be formulated, determining reorders
point to avoid excessive inventories and of course monitor SKUs avoiding
stock out as well. MDC should hire an employee with good inventory
management skill, with this they can protect their cash to be used in other
purchases and investments.
Mercury is a conservative type of organization, wherein they maintain
the management of the company as a privately held corporation. They own
99.9% of shares and only 0.1% is available to be owned by other
shareholders. In the future, Chairman Vivian QueAzcona may consider
offering their shares in public. Though there are rumors that they have
joined the Philippines Stocks Exchange through a backdoor deal. Engaging in
public offering of shares might help them to source additional capital and
may increase the value of the shares.
 Furthermore, according to our research International Pharmaceutical
Companies dominate the market in the Philippines, giving few chances to
local suppliers. In the future to take advantage of being the industry leader,
the analysts recommend considering vertical integration.
IX. APPENDICES

A. Financial Statements
B. The Business Model Canvass
VII. References:

Uy, Leo Jaymar, Top 1000 Story: Pockets of Monopolies Amid Growing
Economy
Business World Research, posted Friday, December 11, 2015.
Extracted August 14, 2016.

th
Wheelen and Hunger, Strategic Management and Business Policy 13 ed.

BMI Research Philippines

www.mercurydrug.co
m.ph
www.philstar.com
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