Mt Hawthorn Community Pharmacy: matching service with price

The prestigious Guild Pharmacy of the Year Award is set to be announced at next week’s APP2016 conference on the Gold Coast: in this series, AJP profiles the finalists

At a time when many pharmacies are dropping their prices, John Cao at Mount Hawthorn Community Pharmacy in Western Australia raised his prices and offers high service levels to realise success.

It’s his experience in discount pharmacy that Cao, regional business manager at Mt Hawthorn Community Pharmacy, credits with his success in increasing prices and offering a high service pharmacy model.

With the retail section of the Mt Hawthorn pharmacy performing poorly because of competition from discounters, PBS reform hitting the dispensary hard and the gradual loss of elderly customers who filled a lot of prescriptions, Cao knew he had to make some bold changes.

“We bought the business about two years ago, and back then it was heavily dispensary-weighted, probably a 65-35 split,” Cao says.

“We were doing really well with growing script numbers, generic profitability was good, everything was rosy.

“Then we started getting involved in discounting to attract customers. We attracted more customers and did more scripts. And then PBS reform hit, and a lot of patients started passing away, and script numbers started to drop for the first time ever.

“It wasn’t a case of less customers, but we lost profitable dispensary customers.”

Cao made the decision to take the pharmacy, which has now been named winner of the Business Management category in Guild Pharmacy of the Year 2015, in a completely new direction.

“We increased our prices significantly,” he told Business Class. “We deleted a lot of low-margin lines and started training the staff on how to sell solutions. They became more highly focused. Ultimately we lost on scripts, but a lot of younger people started coming in.

“Now, we’re weighted 50-50, and retail is performing better.

“My background was actually being involved in a discount chemist before Mt Hawthorn, and it was there that I learned a lot about retailing. The discounter’s split was the other way around – 60-40 weighted towards the front of shop – and so I learned how to merchandise effectively and how to promote effectively.

“I learned a lot of skills there. It definitely shaped me because before that, I was very heavily professional-based and I didn’t know how to do the retail side.”

Cao says he translated his skills from the discounter to the Mt Hawthorn pharmacy, which he describes as “a big learning curve”.

The change of tactic has also been helped by the changing demographic in the area, which is 10 minutes away from the centre of Perth.

“The people replacing a lot of our elderly customers are affluent families, and that’s allowed us to bump up our prices a bit without too much pushback. There’s a lot of young professionals, and they’re time-poor, so they come into the pharmacy wanting solutions and not to have their time wasted.

“They don’t have a lot of price sensitivity, and are happy to pay as long as the service is good.”

The baby section was moved to the front of the store, replacing the vitamin section, which was moved to the back; Cao also made the store more attractive to new parents by increasing the size of the walkways enough to allow two trolleys or prams to pass each other in the aisle.

“Baby products have increased significantly in sales, and vitamins work better at the back anyway, where a pharmacist can discuss them and add value,” says Cao.

“I love that you can build a real relationship bond with families when they’re most needing someone, when their baby is new and they’re nervous. They come to you for everything, they tell others at mothers’ groups: ‘I couldn’t get this formula, but this pharmacy found it for me’.

“I’ve always liked the baby demographic. Even though it’s low-margin, the customers you get out of it are customers you’ll retain for years if not life.”

While it focuses more on solutions and advice, the pharmacy is also moving carefully into the provision of professional services, with an aim of producing a financial return in the long term.

“If you want to implement something you can’t just turn it on and have it work,” Cao explains.

As well as training pharmacists in flu vaccination and implementing EasyClinics, the pharmacy purchased a Cobas machine to screen for diabetes and provide breakdowns of blood lipids – “so anyone over the age of 40, we can tell them their total cardiovascular risk.

“If we’re going to do a health check, we’re going to do the best health check – I don’t want to be a me-too! And people are happy to pay for them.”

The pharmacy has advertised these tests on a sandwich board out the front, with prices listed like a café menu.

Cao says pharmacists shouldn’t be afraid to increase their prices if they are offering good value for money.

“The leverage and payoff of improved pricing are high,” he says. “Compare, for example, the profit implications of a 1% increase in volume and a 1% increase in price. For a company with average economics, improving unit volume by 1% yields a 3.3% increase in operating profit, assuming no decrease in price.

“But, a 1% improvement in price, assuming no loss of volume, increases operating profit by 11.1%. Improvements in price typically have three to four times the effect on profitability as proportionate increases in volume.”

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