Lachlan Ballinger shares several levers that pharmacy owners can ‘pull’ to assist trading performance during challenging economic conditions
The Covid-19 pandemic will have a direct and lasting impact on businesses of all sizes. While the full effects of the pandemic are yet to be seen, the uncertainty of shifting restrictions and snap lockdowns are resulting in an incredibly challenging time for small business owners, including pharmacy owners.
Over the past few months, we have seen majority of our pharmacy clients trading well, despite the snap lockdowns and other challenges that Covid-19 presents. However, while some stores have been minimally impacted, there are many stores around the country who have experienced a significant downturn – predominantly those in shopping centres, CBDs or high tourist areas where footfall traffic drops. While script sales may be down marginally, it is the retail/front-of-shop side of the business that has been hit hardest.
It is important to note that even strong performing stores are not immune to the various impacts of Covid-19. We have clients who had to close their stores for up to a week for deep cleaning, etc due to having one Covid-positive customer in store. Subsequent following weeks saw a downturn of up to 30% in sales. It is imperative that all pharmacy owners understand what they can do to help their business weather the challenges of Covid-19 if they are impacted at some point.
We have identified several levers that pharmacy owners can ‘pull’ to assist trading performance during challenging economic conditions. There are three main levers – reduce outgoings, increase incomings and business continuance measures. We explore each of these levers in more detail below.
Lever One: Reduce Outgoings
It may sound simple, but one of the first things you need to look at as a business owner is reducing your expenses/outgoings where possible. In the current environment the following may be worth reviewing:
For the first time in a long time, our clients are experiencing a positive outcome in their discussions with landlords. Landlords appreciate that business is hurting due to the impact of Covid-19 and so have been much more receptive to reducing rent and adding the shortfall to the end of the lease period. We encourage our clients, where possible, to have these robust conversations with landlords and to reduce rent in line with the downturn in sales i.e., 30% down on sales, then pay 70% of your rental amount.
Wages are the largest expense in a pharmacy and need to be managed tightly and the current environment is no different. We recommend managing wages in line with the reduction in sales where possible. This may include implementing practical measures such as adjusting opening hours in certain locations where it is justified or reducing staff during quiet periods.
During these tumultuous times, the banks have been extremely supportive of the pharmacy industry. We have successfully assisted a number of our clients to convert their lending facilities to interest only thus assisting cash flow. We recommend maintaining a level engagement with your financiers during this time to ensure they understand your position and are able to provide support where necessary.
Lastly, stock management has never been more critical. We encourage our clients to manage stock holdings closely in line with sales categories that are performing and reduce lines that are not moving. The right stock mix and intensity will not only improve turnover but in turn have a positive impact on cash flow.
Lever Two: Increase Incomings
While pulling lever one and reducing your outgoings is crucial, it is just as imperative to look at ways to increase your incomings. Following are a number of items worth reviewing:
E-scripts and embracing technology
One of the biggest changes to the healthcare industry since Covid-19, has been the rapid introduction of telehealth and e-scripts. By utilising e-scripts and using technology that enables the facilitation of e-scripts, you can manage the customer experience remotely and reduce in-store contact via click & collect or click & delivery. With customers in lockdown, the need for contact free services and delivery style services is increased.
Another huge opportunity for revenue diversification is providing Covid-19 vaccinations. Now that the pharmacy network has been tasked with assisting with the roll out and a strong focus on getting our population vaccinated, this is a great opportunity for community pharmacy. Obviously, the process needs to be managed carefully and make commercial sense with the delivery of the vaccine but bringing more people in to your pharmacy can result in other sales and new customer opportunities.
Implementing a strategy based on differentiating yourself from your competitors is another key area for focus to attract customers to your store. Specialisation in a certain category helps to position you as the ‘go to’ provider in your area. For example, look at focusing on naturopathy, compounding, sleep apnoea etc as a point of differentiation.
Business support payments
Both State and Federal Governments are providing Covid-19 financial support for business and individuals. We are across the different grants and payments and have successfully assisted our clients to firstly determine their eligibility and the receive the payment of such support payments.
Lever Three: Business Continuance
The third lever is focused on protecting the pharmacy.
Undertaking business planning during these times is paramount. Preparing financial projections to understand your cash flow of the pharmacy is imperative to control your business model and make informed decisions about your business. Cash flow forecasting allows you to conduct scenario analysis (such as a pandemic outbreak) and what this impact may have on your cash flow position.
Dealing with a pandemic produces many challenges including impacting the health of your own employees. Where possible, splitting of shifts amongst staff members, so that in the instance a customer or staff member have Covid-19, your whole workforce is not forced into quarantine. This tactic may not work for every pharmacy owner or store; however, we have a number of clients with multiple stores where rotating staff between stores and implementing split shifts has been beneficial.
Providing education and support to your customers during this time is warranted and will be rewarded with loyalty. The support can be in store but also via your marketing channels during this time to let customers know you are still there. If you have social media accounts – increasing the frequency of your posts is a cost-effective way of communicating.
Despite these challenging times, the pharmacy industry is still a robust industry. But pharmacy owners do need to adjust and alter their business operations and strategies accordingly. Implementation of one or more of the recommendations above could be the difference between seeing your pharmacy thrive, rather than just survive.
Written by Lachlan Ballinger, Managing Director, Yield Advisory
Yield advisory is an Accounting and Advisory firm that specialises in the pharmacy industry with a nationwide client base.