I recently spoke to the team at HBF at their strategy day about the state of community pharmacy. As part of preparing for that I was digging through 20 years’ worth of Guild Digest data and the CP2025 Research data.
Now I do get geeked out on stuff like this, but it does make very interesting reading. If you are a pharmacy owner, or looking at owning a pharmacy soon, I certainly encourage you to read the CP2025 reports. It paints a good current picture of pharmacy.
But some data really stood out to me;
- Rent to GP$ Ratio has increased from 9.65% in 1998, to 10.72% in 2007 to 14.25% in 2017. Certainly, no surprise to most pharmacy owners, but it shows how rent is consuming a greater part of pharmacy profits.
- Pre-Christmas shopping centre traffic for the 2 weeks prior to Christmas declined 15% and 23% respectively – source “Retail fall worst in 20 years” Eli Greenblat, The Australian 17 Jan 2019.
- Total Expenses to GP$ has increased from 68.03% in 1998 to 74.18% in 2007 to 84.64% in 2017. Expenses continue to take greater part of pharmacy profits at a time in which PBS Reform, difficult retail environment and discounters are placing more pressure on Gross Profit dollars.
- Net Profit ratios have declined from 14.29% in 1998 to 9.05% in 2017.
- Only 13% of customers chose a pharmacy based on service. Whereas 47% of owners and 43% of employees believe service matters. Customers choice of pharmacy is primarily driven by cost and convenience. Perhaps owner’s perception of customer needs is misaligned.
- Only 36% of owners believe their business model needs to undergo major adjustment.
Except for the 6CPA funded services, the community pharmacy model has not changed sufficiently for a long time. But given the current environment and given the degrading financial performance many pharmacy owners are experiencing, to continue to do the same thing is foolish. Owners now must make a choice and take stand about what type of pharmacy they want to own and operate and be sustainable in the future.
There are some pharmacy models who are retail specialists and do a very good job of it. There are other models who are your health specialists, and again some do a very good job of it. Then there is this huge pool of pharmacies who really don’t stand for anything.
It is my belief that the community pharmacy of the future will favour those who choose to be brave today. There are examples now of successful pharmacies that were brave and undertook a journey many years ago and are reaping the benefits of that now. Both the owners, the team and their customers are benefitting from this. These owners have very clear visions about what they want to turn their pharmacy into. Meanwhile everyone else is still doing the same thing, and most of these do not have clear visions. There are quite a few owners, even most soon to be pharmacy owners don’t have a vision for the future.
Perhaps for many pharmacy owners their perceptions of what customers want are either misaligned, or they don’t know what they want, or they don’t know what to do. Perhaps there is a fear of change and uncertainty about whether something will work. Clinging to the comfort of what they know rather than the difficult uncertain path of changing.
I believe there are good opportunities for pharmacies. For example;
1. 6CPA funded services need to be maximised as a basic pass rate now.
2. Pharmacy needs to look beyond these funded services and enter the world of patient paid services. Look at the CP2025 data as a guide.
3. Pharmacies are generally good at dealing with customers when they come to the store, but with convenience being a big factor in how customers choose what pharmacy they go to, perhaps the time has now come for pharmacy to go to the customer in their home.
4. Greater alignment with other allied health professionals.
5. Specialist health providers
Current community pharmacy owners now must be innovative and make changes to their models, to create a sustainable business model for the future. This is nothing you haven’t heard before, but there is a lack of ideas out there at the moment. This is a case of survival for some. Unfortunately for some the vultures are swarming over the carcass of what remains of their business.
If you are looking at buying a pharmacy, make sure you have firm ideas and a very clear vision about what pharmacy you want to operate and be sustainable in the future. Come see me and let me guide you through this process to ensure you don’t make a mistake.
If you are an existing owner and your pharmacy’s trading performance is going south, it is time you made a change and get some good advice. We are here to support you and guide you through these tough times.