Mercury Drug Corporation

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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).

Further Reading

Aning, Jerome, "City Hall Clarifies Mercury Contract," Philippine Daily

Inquirer, July 11, 2002.

Balabo, Dino, "Pagdanganan Vows to Break Oligopoly in Pharma Industry," ABS-

CBN.com , December 17, 2004.

Flores, Shirley, "Mercury Drug Not Planning to List in Stock Exchange

Yet," Corporate News, December 7, 1999.

Jiminez, Cher, "Drugstores Protest Discounts," ABS-CBN.com , November 23,

2004.

"Mercury Drug Corporation Honored by the Philippines," Stamps, November 11,

1995, p. 13.

"MSD, Mercury Renew Deal to Increase Access to

Drugs," Business World, September 17, 2003.

—M.L. Cohen