Like a bat out of hell


Things won’t return to the old ‘normal’, so pharmacies have to innovate and be clever to thrive as restrictions lift, say Bruce Annabel and Mal Scrymgeour

When the coronavirus potentially first leaked out of an undercooked bat in a relatively obscure city in regional China, no one thought much of it. Businesses kept ambling along quite happily minding their own business.

It seems unbelievable that what may have originated from one event has resulted in airlines, cruise ship companies and many retail businesses going broke around the world. It has gone on to change almost every paradigm we’ve known.

The result is that most of us will end up changing the habits of a lifetime, because the option of not changing isn’t on the list of options we have in front of us. 

Creating our future

With the forthcoming recession, breaking old ingrained practice habits to help create the changes we need to make is vital. Owners must address failed or ailing business models. That means hard conversations with banner owners.

The upside is that making decisions and acting quickly allows pharmacy owners to take the opportunities that are sitting around.

As Winston Churchill famously said, “Those who fail to learn from history are condemned to repeat it”. Use this change and turmoil in your favour. Take control and create your future.

It isn’t over

With restrictions easing, and a new ‘steady as she goes’ five-year community pharmacy agreement beginning, many people think that the business of pharmacy will go back to the way it was.

This is a flawed assumption which we outlined in last month’s AJP, ‘The shape of things to come’. The recovery you experience will depend very heavily on how well you do (or don’t) embrace the 10 critical points we outlined.

Businesses that are financially challenged may not survive this period—it may be the most difficult our economy and pharmacy has ever experienced. Anyone who is less than 50 years of age hasn’t had to deal with the impact of a recession, with the last significant one occurring between 1989 and 1991 when interest rates hit 20%.

The 2020/21 year we’re about to have will be different because it resulted from government policies instituted to contain and manage a pandemic, placing us in a position where the broader economy has begun re-opening, but…

Sugar coated illusion

The economy, including directly or indirectly your pharmacy, is being propped up by the sugar hit of the borrowed funds governments are injecting into business and people’s pockets. There’s no doubt the support, while essential, gives a false sense of security. When the sugar hit ends, the headaches begin. We will all feel the reality of the recession.

Evidence of what may be coming is found in April ABS data showing retail sales falling 17.7% ($16bn) and debit card and credit card transactions falling 10% and 33% respectively (per Reserve Bank) during the same month despite the flight away from cash.

The fourth quarter of this calendar year will be very tough and it will probably continue through into next year. The message is clear: do not be complacent and continue as usual. The questions you must ask yourself is “am I maintaining or innovating in meeting the forthcoming challenges?” and “do I have enough working capital and manageable debt levels to get through?”.

Recovery yes, but different

In our view a fast V-shaped economic recovery (referred to by the PM as “snap back”) is unlikely, although better than the forecasters originally expected.

We believe the recovery will not be a return to business models, revenue and profitability that existed previously. Instead expect lower levels of activity characterised by very different customer/patient behaviours and expectations, changed work habits, fewer small businesses, higher unemployment, probably lower population growth and alterations in the competitive landscape.

Past recessions have taught us that consumers become more conservative, reducing their discretionary spending on retail sundries (and when they do buy these items they seek ‘more spread for their spend’ that competitors offer best), while maintaining spending in priority areas such as health. These include prescriptions, medicines and retail health items that provide a stable base income/activity level for pharmacies. With these must come advice, services and the professional help people need.

Therefore, yes, we’re at the beginning of the recovery but we won’t recover to the pre-virus level, at least not for a long time, and even then, it will be different.

To shape what that will resemble for you, last month we listed the 10 most important innovation opportunities that every pharmacy can take advantage of. Some of our clients have already embraced these, placing their pharmacies in an enviable position—survival and to emerge strongly into a weakened market as others fall away.

If that’s not you, there isn’t much time left, probably only a matter of months, before the sugar coating wears off. So, we suggest, rather than try and do everything poorly, badly or not at all, focus instead on those that can give you the best chance of getting through.

Three to thrive objectives:

1. Patients
Keep your existing patients coming and grow your patient base. This will help offset those you will lose and gives your new customers compelling reasons to return. During what seems to be an eon ago that factor was price, but is no longer, unless you operate a dominant hard discounter with super low costs.

Location and convenience remain for traditional community pharmacy the ‘hygiene’ patient visit factor, but alone that is no longer enough. During the peak of the virus, price went out the door and was replaced by being in stock of what patients needed and getting professional help they wanted.

2. Productivity
Lift productivity of your investment in people, merchandise and that very expensive floor space.

3. Average sale
Build average health sale, which can be leveraged by including services income.

Three to thrive innovations:

1. Merchandise mix
Severely rationalise the retail FMCG sundries as these will be purchased predominantly in other channels as people seek value. Replace these items with expanded medicines and retail health department lines. Your overall stock investment won’t change much but it will turn faster and deliver higher margin $$ and %.

2. Pricing
Now you have the right merchandise mix realise that many of these are often recommended as part of a health solution requiring professional advice. Unlike GPs who can charge fees, the only way you will be paid is by building in the appropriate margin.

Those innovator pharmacies referred to earlier have done this long ago. Certain banner groups have smashed the returns for owners via unnecessarily heavy price discounting. Take charge of your business and address your pricing because a retail GP% of 30% to 35% is not good enough, instead aim at 40%+.

The same applies to the dispensary where with the recommended government pricing model margins of 40% (ex-high cost drug sales) or a little less should be earned. Start now and work your way carefully through this vital initiative.

3. Health experience
One of our very successful clients uses a brilliant mantra with pharmacist owners, managers and employees—

“We help our patients, not sell to customers”. It’s a great one liner we recommend. These are not merely empty words. It’s success requires breaking the toughest habit of all, which is—the pharmacist role moves from processor/technician out of the dispensary to ‘help patients’ by engaging and connecting, handing out dispensed scripts after checking, solving issues with proactive advice and performing professional services. And to achieve this the role of the assistant changes markedly to technician and support/administration allowing pharmacists to ‘help our patients’.

The last of the three points above is THE most important of all because in solving problems and delivering highly valued services, you’ve given patients great reasons to return and tell their friends.

It may have all started with a bat out of hell, but if you get it right and leverage the three points above, you’ll have a good chance of surviving this recession. Even if you don’t get them all right, two out of three ain’t bad.

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2 Comments

  1. Paul Sapardanis
    19/07/2020

    Everyone please read this especially point 2. Your banner gets a rebate on everything you buy from them. They don’t care what you sell it for as long as you buy as much as you can, in fact the less you make and therefore the cheaper you sell it for the more you sell and therefore thr more you buy and the greater the rebate to head office. All you are is a pawn to them

    • TALL POPPY
      19/07/2020

      I been saying that for years mate. Has anyone listened? This is only part of why the profession has literally fallen apart compared to 20 years ago. Seek the Truth! Good luck.

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