Being successful in community pharmacy is all about managing, and improving, your performance regardless of the external forces
There is a myth that lightning never strikes in one place twice. The fact is lightning can, and often does, strike the same place repeatedly—especially if it’s a tall and isolated object. For example, on average, the Empire State Building is hit about 25 times per year.
Roy Sullivan wasn’t a tall isolated object, but he does have the unfortunate distinction of being struck seven times by lightning. Roy, who was a Park Ranger in the American state of Virginia, survived each occasion.
On average, the chances of getting hit by lightning during an 80-year life is 15,000: 1. You can increase the chances by working outside in a place where there are many lightning strikes, just as Roy did. Or you can be somewhere where there is a lower chance and reduce the risk of being struck by lightning. The chance of being hit by lightning is all about managing averages.
Retail is no different, it is about averages and working out how to improve them.
As the pandemic subsides in 2022 and a different world emerges, owners and pharmacists need to begin planning to deal with, and make the most of, the emerging opportunities. That includes focusing on retail measures that improve the averages.
The income generation ‘engine room’ is the place to start, the measures are:
- Patient visit growth—those who transacted.
- Prescription items processed growth.
- Gross Profit dollars per script (Script GP$ divided by scripts items dispensed).
- Services performed and income generated.
- Non script/retail sale per patient, importantly known as ‘average retail sale’.
We suggest monitoring these five KPIs at least monthly along with the MAT (Moving Annual Total).
The great majority of pharmacies keep an eye on script items processed, sales growth and sometimes services delivered (e.g. MedsChecks and DAAs) often accompanied by a slavish focus on buying deals and cost control, particularly wages. In other words, little or no attention is paid to four of the fundamental income drivers of patient health outcomes and profitability.
Confusing the issue
When we ask pharmacy owners or managers what their average retail sale is they have no idea and after consulting their POS system say it’s something over $20 per patient. However, that number is simply how much customers who bought a non-script item spent on retail items. Therefore, the figure quoted excludes dispensary only patients thus making the number somewhat meaningless.
To demonstrate our point, if a pharmacy serves 200 dispensary/script patients in a day, one of whom spent, say, $40 on three non-script items, the POS would report an average sale of $40. The average may look terrific, but it was hardly a good day for the retail section with total sales of $40!
Some continue to use the Hilary Kahn definition of total cash received divided by all customers who transacted. She introduced it decades ago to focus owners’ attention on measuring more than script numbers, buying and cost control.
It was a great start. It was simple to calculate although, because cash included script patient contributions, the KPI as an indicator of the average retail sale was of lesser use.
We define the average retail sale as non-script sales divided by every person who transacted with a pharmacy during a given period. ‘Non-script’ sales include OTC medicines and everything else in the front of pharmacy departments, i.e. retail sales divided by total patient transaction numbers for the period.
The advantages of our measure include:
- It’s the true ‘average retail sale’ because it includes every person who engaged/transacted.
- Indicates the relevance of the non-dispensary offer that occupies 80% of the space and stock investment.
- A reflection of whether the pharmacy has what patients want/need.
- Can be segmented into health-related and sundries components.
- Indicates the level of interaction between the dispensary and retail health departments.
- Measured daily or even just weekly, it can be used as an ‘input’ driver of KPIs such as sales, GP$$ and net profit. Growing the average retail health sale is the most effective way of reducing the wages/income %, instead of simply cost cutting.
- There is a myriad of influencers that can be brought to bear.
The downside is that the KPI isn’t automatically provided by POS systems —requiring owners and managers to work it out, although it is a very simple calculation.
Pitcher Pharmacy Services began defining this approach to the average retail sale more than 25 years ago and has been collecting and reporting it ever since. Those who actively work with it are doing well.
The table is a summary selection of the average sale broken into its two components (health and sundries), retail sales growth and retail GP% for the last two financial years.
Av. retail sale
Retail sales growth
Banner A: 2019
Banner B: 2019
All pharmacies: 2019
The reasons why innovator pharmacies outperformed the rest was because:
- Merchandise mix is very heavily skewed towards health-related departments.
- Patients are more anxious and health aware—purchasing a lot of health‑related lines and many preferred buying sundries elsewhere and via online.
- Innovator pharmacies placed pharmacists at the front helping patients, solving problems and providing assurance.
- The focus was not on product price promotions. The 2021 data, when available, will tell us whether the trend continued, although anecdotally we understand it has.
- Location remains the critical success factor followed by the innovator ‘purpose’ of improving patient health, changing the discussion away from price.
The secret ingredient
The secret to success for the innovator pharmacies was working on growing average retail ‘health’ sale per patient, instead of just trying to sell more stuff based on stocking items required by suppliers, deals or banners. In so doing, they grew the overall average retail sale per patient. The five key influencers being:
- Mix: Ensure the merchandise mix aligns with the purpose of improving patient health.
- Sales focus: Cut back on sundries because they have low sales, deliver poor margins and often obliterate presentation of the health departments.
- Stock intensity: Carry more of what patients want/need particularly during the pandemic and avoid banner/supplier product push merchandise.
- Avoid discounting. Make the conversation about health solutions/advice, not price and selling sundries other people make money from.
- Engagement: Patients engage with pharmacists, instead of assistants, at all times, who offer professional service and give people great reasons to return.
We have found pharmacies following these initiatives enjoyed a lift in their average non script health-related product sale per patient, higher margins, which in turn grew the total average sale and the bottom line. It isn’t hard or technical.
You can improve your average retail sale and you can do it multiple times by undertaking the different actions we have outlined above. You can continually improve the measures and prove to yourself that, on average, lightning does indeed strike the same place twice.