As health and beauty retailer and wholesaler Alliance Boots acquires a 12% stake in chinese chain Nanjing Pharmaceutical, Retail Week speaks to the group’s chairman Stefano Pessina about his plans for the business and what’s next in his quest for global domination.

Why did you choose to partner with Nanjing Pharmaceutical?

We are always looking at businesses. As usual, we have met everyone in China. You know we like relationships and certain people are more available than other people. This is a company where we found a friendly atmosphere. 

Really we started the conversation three years ago. We were very close to an agreement 18 months to two years ago but the process slowed down, probably for a bureaucratical reason. A few weeks ago they said they were ready and immediately we completed the work we had done. They wanted to sign and I had just two weekends available, this weekend being one of them. 

What will you do with the company?

We will help them to structure the business. They have bought up a lot of companies but not integrated them. It is easy to grow by acquisitions but you need to digest it and that process is very difficult unless you have a very good stomach. So we have come along to try and be that. 

Their pharmacies are good in Chinese terms. They are making money. There is a lot to do in the company but there are a lot of prospects. It’s important that there is expansion in the future, and I hope we will do other deals. We hope that in a certain point in time people will realise it is better to go with you.

What is the Chinese market like at the moment?

The Chinese market is consolidating. I believe right now it only needs a few hundred pharmaceutical companies of which three quarters will account for 50% of the market as it is in Europe and the UK. And this is the way I see the evolution and sooner rather than later. 

But there are a lot of tensions and jealousies between provinces this will be overcome and we will have a very consolidated situation. China is the third biggest market in the world and makes up 20% of the market, so it really could be a big company. That’s what we want to do - partner and take a third or quarter of a company because we wouldn’t want to own a whole company, it’s not possible in China. It’s another part of our strategy to create a global busienss. 

Will you increase your stake in Nanjing and will you join forces with other Chinese partners?

Both are possible. When and how, I don’t know. We’ve had conversations with everyone in China. Sooner or later we will have to. At the moment, we represent the fifth and sixth largest pharmaceutical companies in China and they generate a little less than £4bn of sales which is not a negligible amount and account for 4-5% of the market. Profit will be £1-1.5m after tax, so it is not a bad company but, in future I want to see the company take 20% of the market but that will take a lot of time. We can easily grow the company. 

How will you help restructure the business?

We have done this for years - buying and integrating. We will probably help them in relationships with their suppliers because we have a very good relationship with suppliers. I repeat, they are not a bad company but they have a long way to go. They need to understand that cash is king. In China people don’t understand the value of cash flow and instead they look at the top line and bottom line. They don’t care about cash it is relatively unimportant. But sooner or later it will become substantially important and we will be able to help them and they can help us. 

China is still very difficult. There are many tensions between provinces and cities so putting companies together isn’t easy. I don’t expect we will have an easy time but we will persevere. At the end of the day we have put together a French and English company when we merged Alliance and Unichem. It wasn’t easy but it worked very well.  We are absolutely sure this will not be easy and we’ll have to overcome a lot of difficulties.

We are the only foreign company that has been accepted by the pharmaceutical federation in China and there is a reason for that. We have fantastic team of local people here and this will help us bridge the gap.

Will you open your own Boots pharmacies in China?

It is too early to say. In China we don’t have a clear model of a pharmacy, so the first thing for us to understand is the model. In Thailand it worked because we adapted it and we are doing very well there. But it took many, many years and of course, Thailand is different to China. 

How have things been progressing since the deal with Walgreens was revealed in June?

Things are progressing exactly on schedule and the relationship couldn’t be better. The spirit is one of collaboration. 

We sent a lot of people to the US and they sent a lot of people to the UK. We are creating a global network and I am surprised to see how keen the people from our side and their side are to collaborate and make this happen. 

You have previously mentioned that you wanted to find a partner in Latin America – how is that progressing?

As always we are speaking to everyone and for the time being we have found a lot of people willing to do the deal with us but they are very greedy. If we pay too much and if we want to keep our double-digit growth and reduce our debt it will be difficult to get a return.  We cannot make more strategic deals at the moment but we hope we will find more. 

We have a big job with integrating Walgreens and a big job in growing in China. These markets are more important than Latin America. It is important for the future of the company so we can be truly global but China and the US are priorities.