2017 Economics of the Independent Pharmacy
Another year in the books, and another year of declines – but why? How are you supposed to survive at this rate –and at what point do you throw in the towel? According to Drug Channels, the average pharmacy owner saw their salary decline by 20% in 2017. Your gross margins are declining — DIR fees continue to plague your business – so how the HELL are you supposed to believe you have a future in this industry?
Independent pharmacy still generates more than 90% of its profits from prescription volume, while your chain competitors are 10-15% less with a greater focus on OTC and retail. The blended gross margin for the industry is also over 27%, but when you look at independents by themselves, the gross margin drops to around 22%. Again, the reason for this, the big boys are building profits outside of prescription volume.
Although there are declines, according to the survey done by NCPA, the average pharmacy dropped in RX volume by 1.2%. Although some of you may have seen greater declines, the industry average shows that although it was a decline, it was certainly not a steep one.
Industry-wide, from 2011-2016, we lost around 1,000 independents — but we still outnumber Walgreens and CVS combined, and here at Datascan we can tell you there are many brand new stores popping up all over the country.
Personally, I have been in a few industries since I was in college. I have friends and family that own companies from all different walks of life –from builders to a financial software trading system, a custom home automation company to insurance agencies — and they ALL have struggles. Every single business owner I know has their share of concerns from where the industry is going, competition, costs of doing business increasing, litigation, and the list goes on and on. So none of us are alone –we are far from it. Any truly successful business owner will tell you that one of the ways they have built a great business and kept it profitable was by reinventing themselves and the way they do business every few years. Anyone who thinks they are going to build a business and run it the same way for the next few decades will likely have marginal success at best.
We plan to expand more on the ideas below in the near future – but for now, let’s talk about some of the things that can build margins and profits back into your pharmacy –before you give up! After working for yourself all of these years, the last thing you want to do is go work for someone else – when they tell you to work.
DISCLAIMER: Anything worth doing, is never easy, and great rewards typically come with great challenges. You may look at many of the ideas we present in this article as overwhelming, challenging, or “easier said than done” — but there are many pharmacies out there that are doing these things and seeing great results. If your plan is long-term —then the work will be worth it.
Prescriptions: Profit margins are down. How can we increase our volume?
- Capture those refills. Get patients on automatic refill so they don’t need to call or stop in
- For patients with multiple maintenance medications, get them on medication synchronization to ensure they have 1 pick up or delivery date per month.
- Use automatic communication tools to lower restock rates and notify patients when prescriptions were not picked up.
- Auto communicate with patients about refills due as they are more likely to refill these medications
- Offer refill conveniences to patients such as a mobile refills application or an IVR they can call into quickly at any hour to request a refill.
What about expanding our patient count — Let’s set ourselves apart from the chains:
- Promote locally and offer incentives to get patients in such as immunizations, free delivery, custom compounding, and special orders.
- Build relationships with local doctors — create marketing materials on how you can work together to build better outcomes for these patients through programs like med sync, auto refills, unique compounding, MTM, delivery service, maintenance medication adherence programs, and so on. If you can help mutual patients stay out of hospitals and nursing facilities it’s a win-win for both of you.
- Promote your pharmacy in local Facebook groups for your community and other social media. And get involved locally. Hosting special events such as “come see Santa” at Christmas time tied into sales really do help.
Expand your business outside of Prescriptions:
- Cater to your demographic in your surrounding area. Build out a front end area that will drive traffic. Higher-end income —more unique and expensive gifts, cosmetics, etc not easily found, and certainly not in your local chain. Lower-income –50% off greeting cards, educate through local marketing —shop your local chain, and see what products you are cheaper on. Most people assume because they buy in bulk they have better pricing —most times that is not true!
- Offer immunization services
- Compounding that is promoted through local doctors –the chains are not doing this—and it does not have to be sterile compounding. Yes, the margins are not what they were –but they are still better than your average RX profit in most cases!
- DME sales? Rentals? Many pharmacies build upon their DME and do very well.
- Track what your customers are buying –if you have those that are only getting their prescriptions, offer them coupons. Speak to them –ask if you’re missing anything in the store that they are buying at a chain pharmacy or similar. You may find valuable information on how to better fill your shelf space.
- Educate your employees—your pharmacy staff can recommend OTC products to patients that may help with their medication therapies. For example, a patient picking up a prescription for an antibiotic may need OTC cough and cold remedies as well.
Look beyond the market you are serving today:
- Whether you are in retail, LTC, compounding, specialty, etc –have you considered any of the markets you are not serving. For example, if you are primarily retail, have you looked into accreditation for specialty? Or consider trying to get some LTC accounts for homes in your area that may be underserved? Getting out from behind that pharmacy counter and networking as well as researching the potential for any of these alternatives could pay off big in the long run.
- I was surprised to learn that many of our clients are only working with 1 or 2 wholesalers– That’s insane! You need leverage — the ability to shop across vendors, across product lines and for GPI or generic equivalents for deals! If you are getting screwed from the PBM’s and have little to no control over it, at least have control over what you’re purchasing! Clients can use the technology we have built into our software to help them shop when ordering, or some use third party companies. One client recently told me he can save thousands monthly just being diligent about what he buys, and from whom.
Do more, with less:
It’s 2018. Technology – YES – TECHNOLOGY has grown in leaps and bounds in the last 5 years alone. We find the majority of our clients are not even using a fraction of the features and tools built into the system that are there to help you automate processes so you do not need more employees, help you streamline your workflow, and better organize the pharmacy so you can free up staff for other projects. They are features that literally help to fill more prescriptions, and stay on top of patients with chronic conditions, which directly translates into building star ratings and adherence. Datascan does offer free optimization training in the pharmacy software system to show you how to get more from the technology you are already paying for!
We understand that many of you are getting beyond frustrated, some of you even depressed at the landscape of pharmacy. We all need to be a part of the fight in progress by organizations like PSSNY, and NCPA. Our industry has endured so many major changes in the last 40-50 years and if you look back and remember, many of us wondered if the end was near back then (like when the chains started growing immensely in the ’90s). I have been in client stores that have transformed and become so profitable for the owners that they took some of those profits and opened up other locations and have done the same. Tunnel vision is not an option if we all want to survive. Doing things status quo is not an option if we want to thrive. This is a journey we all need to make together.