Mercury Drug Corporation

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Mercury Drug Corporation

7 Mercury Avenue, corner E. Rodrigu
Quezon City
PH-1110
Philippines
Telephone: +63 2 911 5071
Fax: +63 2 911 6673
Web site: http://www.mercurydrug.com

Wholly Owned Subsidiary of Mercury Group of Companies, Inc.
Incorporated: 1945
Employees: 7,000
Sales: PHP 42.98 billion ($8.8 billion) (2003 est.)
NAIC: 446110 Pharmacies and Drug Stores

Mercury Drug Corporation is the Philippines' dominant pharmacy group. The Quezon City-based company operates a national chain of more than 450 drugstores, including company-owned and franchised stores. Mercury Drug is estimated to sell as much as 60 percent of all medicines sold each year in the Philippines (the country's hospitals sell about 12 percent of medicines). Mercury Drug's pharmacies follow the American model, combining drug and medical equipment sales with over-the-counter medicines, personal care items, basic household needs, cosmetics and other beauty products, and the like. Most of the company's stores also are 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 company's pharmacies, the Mercury Drug Superstores extend the group's assortment to include convenience store and fast-food items. By the mid-2000s, Mercury Drug Corporation operated more than 150 Mercury Drug Superstores. Founded by Mariano Que, who first sold pills from a pushcart in the 1940s, Mercury Drug Corporation remains a privately held company. Leadership of the company also remains in the family: The company's president is Mariano Que's daughter, Vivian Que-Ascona. Mercury Drug is a subsidiary of the Mercury Group of Companies, which governs other Que family interests, including the 10*Q convenience store chain and the Tropical Hut fast-food group. In 2003, Mercury Drug's revenues amounted to nearly PHP 43 billion ($8.8 billion).

Founding a Filipino Pharmacy Giant in the 1940s

Mariano Que started his career working in a Manila drugstore in prewar Philippines. There he came into contact with many medications, including the newly discovered class of sulfa drugs, including sulfathiazole. These new drugs, developed by German scientists in the early 1930s, were quickly hailed as new "miracle" drugs. Indeed, the sulfa drugs enabled the treatment of many illnesses, such as pneumonia, gonorrhea, and other bacterial infections, that previously had been difficult, if impossible, to treat. Despite the fact that the sulfa drugs later were shown to have a number of undesirable side effects (they formed deposits in the kidneys, and bacteria quickly became resistant), they were credited with saving millions of lives around the world through World War II.

The end of the war and the liberation of the Philippines by U.S. forces brought new business opportunities in the country. During the occupation, supplies of medicines had become scarce, and the immediate postwar period saw a surge in demand for sulfa drugs, and sulfathiazole, considered by many to be a virtual cure-all. With most of the country's businesses, including its pharmacies, destroyed during the war, much of the country's trade shifted to its busy marketplaces. Mariano Que, inspired by the new entrepreneurial spirit, used his drugstore experience to launch his own business.

At first, Que bought and sold medical vials and capsules. After he had generated sufficient savings, however, he took PHP 100 (worth about $1.50 at the time) and bought a bottle of sulfathiazole tablets. Que brought the sulfathiazole bottle to Manila's busy Banbang market and sold the pills—in single doses. The method of selling, known as "Tingi-tingi," became extremely popular in the poverty-stricken Philippines, bringing life-saving medications within financial reach of many more people than before.

Que invested his profits in purchasing more pills, and before long he had generated enough revenue to buy a pushcart, which he filled with an expanding assortment of pharmaceuticals. The unregulated nature of the country's drug market, especially its pharmaceutical black market, led to abuses by sellers, who sometimes peddled fake or dangerous formulations, or sold medications long out of date, often at extortionist prices.

Que, however, built a reputation for the quality and freshness of his products, and also for the fairness of his prices. Before too long, he had built up a steady clientele, and in March 1945, Que opened his first store. Que named the Bambang-located store Mercury Drug, after the Roman god and bearer of the caduceus, the symbol of the medical profession.

Branching Out in the 1970s

Mercury Drug remained a one-store operation into the 1960s. In the meantime, Que continued to drive innovations in the Filipino pharmacy sector. In 1948, for example, Que began a drug delivery service, becoming the first to use motorized vehicles for swifter delivery times. In the 1950s, Que expanded his store hours, introducing a 17-hour-per-day, seven-days-per-week opening schedule. Part of the motivation behind the move came in recognition of a Filipino tendency to auto-medicate their illnesses. By remaining open longer, Mercury Drug responded to its clients' demands for increased access to pharmaceutical products. Launched in 1952, the new opening schedule was expanded to 24 hours per day in 1965.

Mercury Drug began its drive to become the Philippines' dominant drugstore group in the next decade. At the beginning of the 1960s, the company was contacted by the Ayala Corporation, which was building a shopping center in Makati. Ayala offered to lease space to Mercury, in order to include drugstore services at the center. Mercury agreed, and once again revealed its penchant for innovation, opening the country's first self-service pharmacy in 1963.

Two years later, Mercury opened its third drugstore, in Quiapo, which became the company's flagship and set the model for its further development. In 1967, the company opened a centralized warehouse to serve its growing store chain, introducing computer-guided temperature controls to safeguard its products. Then, in 1969, the company became the first to introduce biological refrigerators in its stores. This permitted the company to assure the quality of its life-saving medicines.

Mercury Drug began building out its network of drugstores, staying close to the Manila market for much of the early 1970s. The company also began branching out beyond pharmaceutical sales. A significant early purchase was that of Medical Center Drug Corporation (MCDC). Founded in 1946, MCDC focused on sales of pharmaceutical supplies, equipment, and basic surgical instruments.

The purchase of MCDC, complementary to its existing drugstore business, led Mercury Drug to change its structure. In 1972, Que created the Mercury Group of Companies, Inc., which in turn oversaw Mercury Drug and MCDC. Both companies remained independent of the other; in 1980, MCDC changed its name, to Medical Center Trading Corporation (MCTC), in order to highlight its difference from Mercury Drug. MCTC then grew into the Philippines' leading importer and distributor of medical, hospital, laboratory, and related equipment, with branches throughout the Metro Manila and surrounding region.

MCTC was not the only venture by Que (who was joined by daughter Vivian Que-Ascona, later president of Mercury Drug) to expand beyond his drugstore empire. The introduction of the convenience store concept in the Philippines in the early 1980s represented both a new source of competition for Mercury Drug and a new opportunity. Mercury developed its own convenience format in response to the growth of competitors such as 7-11. Typically located next to its drugstores, the Mercury Drug Superstores expanded the company's range of goods beyond drugs and into wider consumer categories, such as beauty and personal care products, fast-foods, and the like.

Separately, the Que family added other interests, including the Q*10 convenience store format and the Tropical Hut fast-food restaurant chain. Nonetheless, Mercury Drug Corporation remained the focus of the family's holdings.

"Oligopoly" in the New Century

Mercury Drug, meanwhile, continued to grow strongly. In 1976, the company expanded beyond the Metro Manila market for the first time, and over the next decades added locations in the Luzon, Visayas, and Mindanao regions of the Philippines as well. Supporting this network was the implementation of a fully computerized warehousing, inventory, and order processing system, installed in 1985.

Mercury Drug's growth was impressive: By 1995, the company operated more than 270 stores. Less than ten years later, Mercury had expanded its number of branches to more than 450, giving it a near monopoly grip on the country's drug sales. By 2004, Mercury controlled as much as 60 percent of all drug sales in the Philippines.

Ironically, Mercury's dominant position led the group, which had achieved its early growth based on its low prices, to be criticized for what many considered as its restrictively high prices. Indeed, as some critics pointed out, similar drugs could be purchased in India and other markets for as much as one-third the price Mercury Drug charged.

In the early 2000s, the government began taking action to force the Philippines' drug industry, including Mercury Drug, to lower prices on many life-saving medicines. As part of that effort, the country's Trade and Industry and Health departments began encouraging the parallel importation of pharmaceutical generics from India, which had earned worldwide recognition for the quality of its generic equivalents.

Company Perspectives:

The company's mission is continuously be the leading, trusted and caring drugstore.

In 2004, the government stepped up its pressure. In September of the year, the government passed legislation expanding drug discounts for the country's senior citizens. The country's smaller independent drugstore owners protested the decision, in part because it was expected to serve only to increase Mercury's dominance over the market—as the country's largest retailer of pharmaceutical products, Mercury was easily able to negotiate discounted prices from its supplies. Also in that year, President Arroyo established the lowering of drug prices as one of the government's priorities.

In December 2004, the Filipino government announced a new plan to break what some were calling Mercury's "oligopoly" on the country's retail market. The Philippine International Trading Corp. (PICT), owned and run by the Filipino government, announced its intention to organize up to 300 of the country's independent pharmacies into a new network of privately owned and operated drugstores, dubbed "Botika ng Bayan." The new network would then sell drugs, sourced by PICT directly from drug companies, at prices as much as six times less expensive than "market"—i.e., Mercury's—rates.

Despite these pressures, Mercury Drug Corporation remained a fixture on the Philippines pharmacy market. The company also remained one of the Philippines' largest corporations, ranking in eighth place among the country's largest corporations and third place among the corporations in the high-quality services/products bracket. Mercury Drug appeared to have discovered its own "miracle drug" for success.

Principal Subsidiaries

Mercury Drug Superstore.

Principal Competitors

Caltex; I-Mart International Corporation; Phils. Corporation; Easy Mart; Petron Corporation; Philippine Seven Corporation; Robinsons Convenience Store Inc.; Seaoil Philippines Inc.; Shell Philippines Inc.; Philippines Corporation.

Key Dates:

1945:: Mariano Que begins selling sulfathiozone out of a cart, then opens a store in Manila and founds Mercury Drug Corporation.
1963:: Mercury Drug opens its second store, in a shopping center built by the Ayala Group.
1965:: Mercury Drug opens a third, flagship branch in Quiapo.
1970:: The company acquires Medical Center Drug Corporation (MCDC).
1972:: Mercury Group of Companies, Inc. is set up as a holding company for MCDC and Mercury Drug.
1976:: Mercury begins expanding beyond the Manila market.
1985:: The company sets up fully computerized warehousing, inventory, and ordering systems.
1995:: Mercury celebrates its 50th anniversary with more than 270 stores.
2004:: Mercury operates more than 450 stores, with annual sales of nearly PHP 43 billion ($8.8 billion).