We’re already over a month into 2023! What’s clear for us is the conversations we’re having this year is different to those of 2022. Mostly, we have been chatting with our clients about the current market and how to project store performance for the calendar year.
Last year, pharmacies were trading well! Scripts and customer numbers were up, also sales and GP$. With the positive business outcomes, there were also some downfalls, with extreme staffing shortages (Pharmacists particularly) and their teams can only be explained with one word, exhausted. Fast forward to today, things has evolved. The first signs of the inevitable impact of increasing interest rates and inflation are starting to show. We knew that at some stage that was going to hit, and it seems it is now, by the conversations we’ve been having.
It appears owners who managed to have some sort of a break, are considering where they are at. Some though are making a mistake in their forecasting and outlook for 2023! So, I feel it’s important you know some are going wrong.
Think about 2021 and 2022. Your community were in the middle of Covid, so Pharmacies were the centre of their world. Everyone in your community visited a pharmacy on a regular basis. They could get vaccinated, buy RAT’s, hand sanitizers, face masks and want to talk to a pharmacist because they have Covid and want to know what to do (then cough in your face). Customer numbers and script numbers were up, retail Sales in particularly was up. Even after you have stripped out RAT’s and vaccinations sales, GP$ were growing, trading was buoyant, pharmacies were making money and seeing good growth. Many were making GP$ at levels they have never seen! Confidence was certainly up and so were the sale values (as was the exhaustion.)
So what mistake are they making? The mistake is they are thinking 2023 will continue to be the same. They think 2022 is the new norm and these trading levels will continue. The reality is, we have yet to understand 2023. We don’t know exactly what new norm is! But what we do know is this, your community doesn’t have to go to a pharmacy like they did previously. They don’t need, (or they don’t think) they need a Covid vaccination, they don’t need RAT’s.
Interest rates are taking out a bigger chunk of the household purse, as is inflation. Wage costs have also gone up, and as they should be too. Pharmacists are grossly underpaid. The world of pharmacy is different, and we are heading into a different world. Early conversations with pharmacy owners are that 2023 is showing the signs of a slowdown. Interestingly, for some this is a surprise! The good owners I know were expecting this mid-2022 and were talking strategies to address this. For the others, the big mistake is thinking its business as usual.
Why?
What does this mean for profit outlooks if you are not thinking ahead strategically? Possibly the most optimistic you can be in 2023, is to make the same $ as 2022. The likely expectation however is your profitability will be down. You see, very simply, profit is simply a factor of income and expenses. If customer numbers and consumer spending is threatened, and inflationary pressure and wages costs go up, simple maths tells you what could happen to profitability. Pharmacy owners need to be aware of this and plan accordingly. Don’t plan, be reactive, and your pharmacies trading performance may suffer.
Interestingly, this mistake has also been happening in the marketing world too. You see, in 2022 your community were going to your pharmacy website and your Facebook/Instagram sites to check for RAT’s, vaccinations, making appointments etc. That level of activity has stopped dead. So, when they check the months website traffic and social media traffic, the numbers have declined. The most important question you can ask here is…Why? The numbers have declined, and that is not because the strategy is wrong, or the marketing is not effective. It is simply because the community don’t need to find out about things Covid. You are now just understanding what your true marketing activity levels are. And this is great! Because you have a solid reliable base to work from.
So, what should pharmacy owner be doing to whilst their businesses are recalibrating back to a new norm? If we focus on Peak philosophy, is looking how to grow customers and create customer loyalty.
Because I am a nice lad, I am shared further below:
1. Refocus back on the concept of the lifetime value of a customer. A single customer, x number of scripts, x number retail purchases, x types of services used, x number of years shopping at your pharmacy. A single customer can bring in a significant amount of potential GP$ over the years. Therefore, customer loyalty is important. Keeping your customers, servicing them at your absolute best and constant communication. Don’t give them an excuse to go to another pharmacy.
2. It is now more important than ever for your to be connecting with your communities. Your marketing strategies should be a big focus in 2023. Why? Well, if consumers are cutting back on spending, you need to be engaging with them more. This is a big one and needs a lot of time and focus.
3. There should be a renewed focus on your health services. For many pharmacies, this took a back step in 2022 due to staffing pressures. Make sure you take a fresh look at this and together with your marketing, give in a solid push in 2023.
4. Take another look at your staffing structures and determine the ideal structure to suit your pharmacy as it is currently trading. Granted that will take you a while to determine what the new norm is. Alternatively, determine how to maximise the use your current staffing levels. How can you service your patients better?
5. Also, make sure you are forward thinking with your staffing structure, particularly with pharmacists. Always have a succession plan! Who are your next generation of pharmacists? Start recruiting interns, train, develop and mentor them.
6. The natural order of things in business, is when business is good, we get relaxed on our expenses. Have a relook at this and see where you can cut back. Note though the effort that can go into this versus the $ return. So, use your time wisely.
7. Check with your accountant if you should be revising your PAYG Instalments. Like most pharmacies, your profit may have gone up in 2022 financial year. Meaning your tax will also be higher. For those pharmacy owners who pay PAYG instalments, the amount of the instalment you pay is based on your last lodged tax return. Once your 2022 return is lodged your PAYG instalments will be revised, potentially upwards. But note, your 2022 profits may have also included Covid Vaccinations and RAT sales, masks, hand sanitizers etc. Most of which is not likely to occur at that same level. Speak with your accountant and see if your PAYG Instalments need to be adjusted to match the profits your pharmacy is currently earning. Cashflow is king! Also note this is a timing issue only.
We are in a new norm for pharmacy land! Opportunities are still abundant for those who are looking for them, just be careful about your assumptions for 2023.
