By now you will have started receiving your PBS reimbursement minus the on-line fee. Most of you will not have felt the decrease because the opportunity of substituting generics in the dispensary continues to support the net profit.
However, with the outcome of price disclosure set to affect the net profit of pharmacy in the coming years, I think we will see a shift in the landscape of community pharmacies.
No longer will community pharmacy be able to occupy large expensive locations with huge investments in what I call general merchandise ranges such as hair care, cosmetics, fragrance and the like, most of which customers are already buying elsewhere (eg discount department stores, on-line etc).
I think we will see a shift from pharmacies with mid-sized pharmacies of say 250 sqm to 350 sqm to smaller format stores offering deep healthcare solutions to customers in say 200 sqm and big box warehouse offers where range and price dominate over service levels. The profit of course will be derived in very different ways – as opposed to the current position of the dispensary producing most if not all of the profit in pharmacy.
The space that community pharmacy currently occupies costs on average 9 times more than it does to hold the stock in the space. Therefore, the return that is generated out of the space is paramount. A typical pharmacy with a 70:30 split in income generally has the inverse of the space allocated (i.e. 70% allocated to retail). How much of this retail space is making a net profit? None when you exclude the schedules and medicines area, based on the information we collect through the JR Spacelink category management tool.
To understand how much space the pharmacy needs, you must consider the following:
- Who is the customer;
- Why will they come; and
- What will they experience and buy when they come?
Continue challenging yourself with what is and is not selling in the pharmacy. Just because some customers’ buy it, does it justify the space it is in?
To measure the return on the space, you must have the data. Understand which categories are the top performers and why. I can guess they are the cough/cold, analgesics, other scheduled lines and vitamins. How do the other 20 or 30 categories compare? Some will have too much space for the sales and some will not have enough investment in stock.
Ultimately the question you may have to ask is do you have enough or too much space in the whole pharmacy? Only the data will tell you. Without this information, the shifting space of pharmacy may be swamped by the rising tide of external forces.
by Norman Thurecht – Partner JR Pharmacy Services