The pharmacy industry is currently undergoing a transformational phase marked by a series of dynamic shifts and challenges. One of the most notable changes has been the introduction of 60-day dispensing (60DD), a move that has triggered conversations and re-evaluation across the sector. 60DD combined with inflationary pressures and mounting operating costs are other facets of this complex equation.
However, rather than succumbing to the pressures, pharmacy owners are already taking proactive steps to find innovative solutions that will redefine their operations for the better.
We have been in the heart of the industry for over 15 years, witnessing numerous trials and tribulations that have tested the resilience of the pharmaceutical sector. From the price disclosure challenges in 2007 to the global financial crisis and the recent COVID-19 pandemic, the pharmacy industry has shown remarkable tenacity in the face of adversity.
The key to success has always been the ability to adapt, pivot, and embrace change and therefore we think the industry will face these challenges head on.
Running a thriving pharmacy has consistently hinged on maintaining a highly disciplined pharmacy business model. We are now able to review the 2023 financial year key metrics based on our extensive client’s pharmacy data:
Revenue (excl HVLM): Notably, revenue has experienced a commendable increase of 7.1% from 2022. This aligns with the broader trend of top-line growth we are witnessing across our client base. Some of the growth is due to pharmacies coming out the other end of Covid trading, however most pharmacies are showing continued strong growth. We are seeing more and more pharmacy owners move towards brands that support strong FOS growth.
Gross Profit: It is important to observe that while revenue has surged, gross profit has shown a more modest 3% increase. This suggests a nuanced landscape where pricing is tightening due to competitive forces, combined with the increased cost of goods. Gross profit margins are getting squeezed and pharmacy owners are encouraged to be hyper diligent to monitor their pricing to maintain their margins.
Wages: On the staffing front, wages have risen from 13.2% in 2022 to 14% in 2023 of Revenue excl HVLM. The increase in wages is one area that we have noticed that pharmacies have struggled to control. Whilst the shortage of pharmacists has no doubt put huge pressure on this KPI, it is important to continue to monitor and control tightly whilst rationalising opening hours.
Rent: Despite all the noise about a lot of pharmacies being subjected to CPI increases, our clients rent only increased by 3% on the prior 2022 year. Again, this is an area that needs the appropriate level of focus, and we would always strongly recommend that an industry professional lease negotiator is engaged to manage this fixed cost. We have seen several great outcomes achieved when dealing with landlords through a proactive lease negotiation process.
Interest Expense: The inflationary pressures have had a significant impact on the cost of capital and therefore interest expense has increased dramatically. We encourage our clients to consider a lower leveraging model when acquiring pharmacies to mitigate the impact of rising interest rates.
The continued monitoring of these metrics has never been more important to ensure the pharmacy model is running as effectively as possible.
Moving forward, 60DD is forcing the re-think of the model and there is no doubt a shift towards an advisory model is essential for pharmacy owners, accompanied by the introduction of service charges. Owners should contemplate implementing fees for services like delivery, blood pressure checks, blood sugar testing, dose administration aids etc. Additionally, an expansion of professional services, including vaccinations and consultations, can serve to fortify revenue streams. We are also finding a lot of pharmacy owners are broadening their product lines with compounding and medicinal cannabis products.
Amidst the challenges that pharmacists currently confront, adaptability is emerging as a key virtue. To ensure sustainability in the ever-shifting landscape of industry changes, pharmacists are recognising the need to not only continue to run the business model in the most effective manner but embrace a dynamic approach. This entails exploring innovative ways to diversify revenue streams by offering a range of services, each appropriately valued.
By expanding their offerings and adopting a flexible pricing model, pharmacy owners are not only safeguarding their viability but also stepping confidently into a future where their role remains indispensable. As the industry evolves, so too must the mindset of pharmacists, empowering them to thrive amidst change.