2017 Economics of the Independent Pharmacy
Another year in the books, and another year of declines – but why? How are you supposed to survive at this rate –and at what point do you throw in the towel? According to Drug Channels, the average pharmacy owner saw their salary decline by 20% in 2017. Your gross margins are declining --- DIR fees continue to plague your business – so how the HELL are you supposed to believe you have a future in this industry?
Independent pharmacy still generates more than 90% of its profits from prescription volume, while your chain competitors are 10-15% less with a greater focus on OTC and retail. The blended gross margin for the industry is also over 27%, but when you look at independents by themselves, the gross margin drops to around 22%. Again, the reason for this, the big boys are building profits outside of prescription volume.
Although there are declines, according to the survey done by NCPA, the average pharmacy dropped in RX volume by 1.2%. Although some of you may have seen greater declines, the industry average shows that although it was a decline, it was certainly not a steep one. Industry wide, from 2011-2016, we lost around 1,000 independents --- but we still outnumber Walgreens and CVS combined, and here at Datascan we can tell you there are many brand new stores popping up all over the country.
Personally, I have been in a few industries since I was in college. I have friends and family that own companies from all different walks of life –from builders to a financial software trading system, a custom home automation company to insurance agencies --- and they ALL have struggles. Every single business owner I know has their share of concerns from where the industry is going, competition, costs of doing business increasing, litigation and the list goes on and on. So none of us are alone –we are far from it. Any truly successful business owner will tell you that one of the ways they have built a great business and kept it profitable was by reinventing themselves and the way they do business every few years. Anyone who thinks they are going to build a business and run it the same way for the next few decades will likely have marginal success at best.
We plan to expand more on the ideas below in the near future – but for now, let’s talk about some of the things that can build margins and profits back into your pharmacy –before you give up! After working for yourself all of these years, the last thing you want to do is go work for someone else – when they tell you to work.
DISCLAIMER: Anything worth doing, is never easy, and great rewards typically come with great challenges. You may look at many of the ideas we present in this article as overwhelming, challenging, or “easier said than done” --- but there are many pharmacies out there that are doing these things and seeing great results. If your plan is long term ---then the work will be worth it.
Prescriptions: Profit margins are down. How can we increase our volume?
What about expanding our patient count --- Let’s set ourselves apart from the chains:
Expand your business outside of Prescriptions:
Look beyond the market you are serving today:
Do more, with less:
Its 2018. Technology – YES – TECHNOLOGY has grown in leaps and bounds in the last 5 years alone. We find the majority of our clients are not even using a fraction of the features and tools built into the system that are there to help you automate processes so you do not need more employees, help you streamline your workflow and better organize the pharmacy so you can free up staff for other projects. They are features that literally help to fill more prescriptions, and stay on top of patients with chronic conditions, which directly translates into building star ratings and adherence. Datascan does offer free optimization training in the pharmacy software system to show you how to get more from the technology you are already paying for!
We understand that many of you are getting beyond frustrated, some of you even depressed at the landscape of pharmacy. We all need to be a part of the fight in progress by organizations like PSSNY, and NCPA. Our industry has endured so many major changes in the last 40-50 years and if you look back and remember, many of us wondered if the end was near back then (like when the chains started growing immensely in the 90’s). I have been in clients stores that have transformed and become so profitable for the owners that they took some of those profits and opened up other locations and have done the same. Tunnel vision is not an option if we all want to survive. Doing things status quo is not an option if we want to thrive. This is a journey we all need to make together.