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Australian Journal of Pharmacy : June 2005
Finance_june05.qxd 10/05/2005 12:01 PM Page 462 financial planning panies were beginning to act like brand manufacturers—complaining to the government about the impact on their market strategy and that they felt they were being unfairly targeted. The government has embraced the generic market, and rightly so. Now they are moving to grab their share of the ‘discounts’ that have been in the market place. The impact on pharmacy will be direct, and it is a question of what the dollars will be. Competition on the co-payment will be another nail putting holes in pharmacy’s bottom line. A leading pharmacy discounter recently gave an interesting insight—when other pharmacies start discounting they immediately draw attention to price—and that suits their (the discounter’s) market positioning to a tee. If price becomes the differentiator, then customers will look for the cheapest price. If you are processing 150 scripts a day, then $1 per script in lost revenue will take around $50,000 off your bottom line. Can you achieve cost savings or revenue increases in other areas to restore this lost profit? What should pharmacists be doing? In a recent seminar that I ran for pharmacy assistants from three pharmacies, many of them felt encouraged when they realised that their area of the pharmacy— the front of shop—is the area where staff had most control over pricing and profitability and could have most impact on a pharmacy’s bottom line. Until then, they all had the feeling that the dispensary was the hub of the pharmacy, and that their job didn’t matter. Times have changed, and did so long ago. The dispensary is obviously important to the business but now pharmacists should be leveraging off their dispensary to provide more health solutions out of the front of shop. I recently heard Hilary Kahn say that she has identified 23 major categories in pharmacy that can be developed into healthcare solutions, and only two of these are in the dispensary. Something can and should be done with the 75 per cent of space that is currently only producing 30 per cent of revenue on average. By creating solutions that are directed at customer health outcomes the pharmacy is engaging the customer and meeting a need, and not just selling a product. By engaging the customer’s needs, you immediately seek to create a relationship that will manifest itself in repeat visits and sale of a range of products, instead of impulse buys of single items. Another angle— what would I like to be doing? Ask your pharmacy assistants and pharmacists—‘If you worked in an ideal health solution outlet, why would customers come to your outlet, and what would you be providing?’ Then pinch yourself and look around your pharmacy. So how can you get to that place that you would like to be in? If the pharmacy is to evoke this concept throughout the entire tradable area, then all staff and not just the pharmacist will need to be able to impart the necessary knowledge and services. Having the right products does not mean that those products will go out the door. You need to invest in the product knowledge and selling skills of your staff. Dare to be different Make your pharmacy a business where staff know that you value their level of achievement, and are willing to help them improve themselves so that this can be increased. Product knowledge needs to have depth and breadth. Selling skills can be taught; staff aren’t just born with them. Why is my job important? The next thing to do is to help your staff understand how the pharmacy operates. What is stock turn? What is mark-up? What expenses have to be paid out of a sale? Most sales staff see the discount that Mrs Jones asks for and think it is nothing when compared to the selling price, and so they give it to her. In that seminar I mentioned earlier, we talked about a $16.50 product and the impact of a 5 per cent discount. The cost of goods doesn’t 462 THE AUSTRALIAN JOURNAL OF PHARMACY VOL.86 JUNE 2005 change, the wages and rent don’t and so the discount comes off the bottom line. And if net profit is 10 per cent of turnover, then a 5 per cent discount on the selling price has just halved the bottom line. So yes Alice, your job is very important. In most pharmacies, front of shop is hovering around 30 per cent of turnover or less. Which area has room for improvement? Front of shop does. And so the list goes—pricing, mark-ups, marketing, profitability. It is in all of these areas where impact on the bottom line can be improved. It is here that pharmacy staff can make a difference. Should I buy a pharmacy now? Good question. But it seems that waiting for pharmacy prices to come down is like waiting for Sydney real estate prices to fall. They appear to but then take off again. Who knows where pharmacy prices will end up? The key is that you don’t pay too much. And it would take an entirely separate article to deal with the issues in this topic! But you can pay too much and if you do, then every dollar you lose off the bottom line will leave you with less dollars to pay off bank loans and tax bills. Just recently we have seen a $200,000 reduction in the asking price of a pharmacy, achieved through careful examination of the material provided. The Survival Kit Pharmacy is not about to disappear. But the landscape is changing, and very rapidly. Pharmacists need to get back to basics in some areas and to make a leap of faith in others. Prudent acquisition, stock management, staff investment, strategic development and vision—a mixed bag of tricks but all of which are needed to take pharmacists into the future. The time on the White Rabbit’s oversized pocket watch is ticking away, so it’s time to step into the Looking Glass— and head into the future. Peter Saccasan is director of Pharmacy Services at Saccasan Bailey Partners. Peter can be contacted at (02) 8220 1700 or email email@example.com. s