The shape of things to come


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What might the pandemic recovery period look like for community pharmacy? Mal Scrymgeour and Bruce Annabel take a glimpse into the future 

Speculating about the recovery we might expect after COVID-19 is an interesting, but largely pointless debate. What is certain is that whatever form of recovery we have will potentially exist in several different shapes.

We think the major options are:

  • V shape—a sharp decline, followed by a quick rebound. Our view is that this is unlikely.
  • U shape—a sharp decline, followed by an undetermined period where we operate at a lower level, before recovering. The U shape often overstates the speed of a recovery. Typically, the right hand up right (recovery) is much flatter and gentler than a U might indicate. Typically, it is a slower improvement. This is also sometimes known as a J curve.
  • W shape—also known as an S shape. This recovery has a couple of false starts, things improve, drop off relatively dramatically then improve again. You add resources then take them away. It is a tough one to manage.
  • L shape—this shape is the least favourable shape because effectively you do not recover. The business simply either goes along at a new substantially lower level, or the new level is below the breakeven line and there is no recovery, there is just failure.

Our view is that we are most likely to have a U shape, with a flatter, slower improvement than the letter U might suggest.

Make no mistake, retail is in for the biggest change it has had in many, many decades. Almost regardless of the shape of the recovery, the actions you need to undertake do not change. The shape will vary depending on how fast and effectively you adopt the fundamental messages conveyed below.

The dust now seems to have settled after the extremely difficult period that we termed the ‘Response’ phase. We have begun the ‘Recovery’ phase. Here are our top 10 thoughts:

1. Professional service
Patients demanded a high standard of pharmacist professional service advice during the peak which has largely continued although in a less chaotic way. Our clients practicing the pharmacist-out-the-front model did well and some even found it professionally rewarding apart from the odd difficult person. The current situation may represent a new level of proactive service quality that patients have become accustomed to.

2. Flu vaccinations
Pharmacies have been inundated with patients in record numbers seeking flu vaccinations. While there is a significant financial benefit, the key message is vindication of the regard people have for pharmacists as health service professionals and the highly convenient nature of pharmacy. Receiving a vaccination is such a personal interaction it can only add to the trust and credibility of the professional service pharmacist. ‘Crisis is a time to build great brands.’

Because COVID-19 recovery will take some years, the likelihood is patients will continue accessing pharmacy’s vaccination services.

3. Enhancing patient convenience
Patients and customers, particularly ‘at risk’ older people, really took to delivery services as a safe way of getting their medications and other relevant health items including sanitiser, masks, scheduled medications and vitamins. Most pharmacies in our experience ramped up their delivery infrastructure, instead of outsourcing, comfortable in the knowledge a person well known to them handed the medications to the patient.

We believe this form of accentuated convenience is likely to remain. And augmented by the ‘click and deliver’ online platforms some pharmacies have developed which also usually permits ‘click and collect’ for those willing to come in.

The downside of such a brilliant service is less foot traffic into the bricks and mortar pharmacy, hence potentially less exposure to other lines a pharmacy carries.

4. Telehealth
GPs and many of their patients have embraced telehealth like never before instead of face to face. While GP remuneration is a Medicare-only rebate, it is very efficient and apparently patients like it meaning that service mode is likely to remain. And scripts issued can, at the patient’s option, be emailed to a pharmacy of choice. This service again obviates the need for a patient to visit the pharmacy should they have the dispensed item(s) delivered to their home.

For pharmacy, being able to provide selected medication management services via telehealth enhances convenience of engaging with that pharmacy and allows pharmacists to continue delivering the services. Again, the patient physically visiting the pharmacy is unnecessary.

Telehealth is here to stay in both GP and pharmacy situations requiring pharmacy owners to build meaningful relationships with GPs and patients.

5. Location
During the panic-inspired sales spike of late March and early April, just about every pharmacy did very well. Now that the tide has pulled back it has revealed many struggling shopping centre pharmacies who need help from landlords with rent deferral and government support.

As a result of fewer retailers, in general, landlords will see significant rent reversions and serious declines in leasing spreads. There will be declines in tenants, rental incomes and asset valuations. The old rules of landlords securing a fixed gross rent will change as pharmacies need the flexibility to move their costs as things change.

It won’t be easy, but it’s something to consider and may place pharmacy in a better position for once. Our view is that a rental cost correction should be pursued aggressively. Even consider moving to a better, and very likely cheaper, location in the same area.

Many have had no choice but to reduce staff numbers to remain afloat. Some poorly located suburban pharmacies have also struggled. Even some pharmacies near medical centres have been impacted due to the knock-on effect of GP telehealth and deliveries. However, those in suburban neighbourhood precincts near other essential convenience retailers and those in rural settings, have settled back to more normal trading conditions similar to prior years.

Fortunately, as restrictions began to ease last month, shoppers flooded back to shopping centres providing improved foot traffic. An interesting feature we noticed was shopping centre pharmacies doing well have an external exit to the car park and other nearby retailers’ traffic flow.

The message is the formula for locating a successful pharmacy may have markedly changed.

6. Being in stock is the new black
Have you noticed how little attention customers paid to the price during the crisis? Many of those vitriolic attacks on staff occurred when one or more of those items were out of stock. We noticed the attacks were much less in pharmacies that had, with foresight, stocked up with these items (e.g. salbutamol inhalers, hand sanitiser, masks, other PPE, practitioner vitamins and OTC medicines) ahead of the demand spike.

Price as the value driver faded during the crisis, flagging to owners how important it is now and, in the future, to carry the lines and brands people need and trust. This approach is not about taking advantage of patients during a vulnerable time. Nor is it about cynically lifting prices, rather it is an opportunity to get off the discounting downward spiral to fairly reflect the costs of bringing great advice and knowledge to patients. Covering the pharmacy’s overhead structure and the pharmacist professional service often are the pre-requisite of recommending a product solution and remaining in business.

7. Ranging
Meanwhile we found retail sundries sales plummeted in traditional and discounter pharmacies as customer resources were directed away from discretionary spending. In time these sales will come back although, given the recovery has a long way to go, that may not be for quite some time.

Those carrying ranges dominated almost entirely by what patients needed and other retail health categories did extremely well. Importantly, after the tide pulled back those pharmacies sales fell back to normal demand levels and didn’t plummet during April and May. The message here is to do an urgent range review—shrinking what people don’t want and build up more of what they do want.

8. Format size
Larger format floor m2 pharmacies, particularly in shopping centres, have found much of their very expensive floor space occupied by retail sundries lines that customers are no longer buying. That space is now probably surplus to future needs at least in the medium term during the recovery period.

Successful traditional community pharmacies mostly only require 150m2 to 250m2 to operate a successful health focused and professional service business. The COVID crisis has only highlighted the fact many pharmacies should repurpose underperforming space by expanding the health offer, installing larger dispensary service areas and consult rooms.

Some have installed large compounding labs, working with prescribing doctors meeting patient needs that fall through the cracks of pre-packaged medications. Others have explored expanded service offerings such as compression, herbals, wellness, home healthcare, wound care and even mental health counselling.

The era of the smaller format pharmacy is here and those who pivot quickly will benefit the most. Make the hard decisions now.

9. Banners that deliver
Never has there been more pressure on a banner group, or brand, to deliver for their members. The constant stream of product and price catalogues doesn’t differentiate a pharmacy from the rest of the pack and the outstanding, but often never embedded, health clinics need to work.

Having a real website that is all about local, with local delivery and making sustainable differences to patient health are what brands and banners need to deliver. If the benefit isn’t clearly measurable, then business advisors and accountants will make recommendations, if the owner hasn’t already made a decision.

10. Online step-change
E-commerce will grow stronger as a share of total retail. We are now living and working online where strong habits are being formed and entrenched. Every day that goes by, more people will bcome more familiar with it. Expect online to continue growing, it will be a step-change that we won’t walk back from. And don’t forget the opportunity to increase a digital and e-commerce offering for middle-aged or baby boomer customers.

Pharmacy has just entered the beginning of a period of unprecedented upheaval. Now is the time to change, be innovative and think hard about why your business exists. Think about your core beliefs and your patients’ needs.

How well you do this will determine the shape of your recovery. Those who implement the messages and make the fundamental changes required to make meaningful change will likely enjoy the ‘V’ recovery shape. Others will exist with either a W or worst an L.

The decisions you make now will shape your future.

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