Home' Australian Pharmacist : Australian Pharmacist Nov 2013 Contents 38
Australian Pharmacist November 2013 I ©Pharmaceutical Society of Australia Ltd.
pharmacy is making record profits
per script and will continue climbing
until 30 November 2013 before the
‘ The difficulties that some owners are
having at the moment and in recent times
don’t actually come from dispensary
profitability. That’s not the fundamental
problem – but it will be from 1 December
2013 with the first atorvastatin cut and
some others! That will be followed by the
second atorvastatin and first rosuvastatin
cuts 1 October 2014 that may lead to
difficulties for many next year assuming
Ranbaxy’s appeal is not successful and the
Nexium patent continues until 2015.
‘ When you look at the numbers in the
latest federal budget the majority of
growth in the forecasts are mainly in
specialty medicines which are largely
supplied in hospitals, whereas the very
big cuts in the budget forecasts and
subsequent budget updates are in the
general and concession area which is
really where community pharmacy has
done well in the past,’ Mr Annabel said.
What needs to change?
When asked what specifically community
pharmacies needed to change,
Mr Annabel said that when you look
at the data for most pharmacies 90%
or more of net profit comes from the
dispensary. ‘ That’s net profit before
interest drawings and loan repayments
– or EBIT. And it means the impact on
EBIT of small changes in dispensary
profitability will be magnified.
However, he said that the first thing
owners need to address before they
even think about that [profit] is, if their
business model is flawed maybe their
strategic model and their market position
models are flawed as well, which has been
my argument for many, many years.
‘Pharmacy has been surviving over
the past five or six years on the back
of supplier discounts. That has meant
they haven’t had to address the
‘Looking at market position as a starting
point – how they position themselves
in the general market place to attract
consumers/customers – in our across
the board client base data for last year
the total customer numbers fell by 1.2%.
And yet Chemist Warehouse continues to
grow customer numbers.
‘So how do pharmacies attract customers?
How do they start to get customers back?
‘ This concept of growth is critical to
pharmacy. To me the fundamental test
of growth is – are you growing your
customer numbers? Are you growing your
script numbers? And are you growing
your average retail sale per customer?
So how do they get growth? We know
how Chemist Warehouse gets its growth
– by being cheap or cheapest and having
the widest range of products. That’s pretty
simple and we all understand that.
Pharmacies needs to think about how can
they react to that without resorting to
heavy price cutting in order to generate
customers because at the moment they’re
losing customers not only to Chemist
Warehouse and supermarkets but also to
online, mostly domestic online but also
some offshore online.
We’re not just talking about
pharmaceuticals here, we’re talking about
the medicines area, and we’re talking
about a lot of OTC lines, and things like
fragrance and cosmetics and other open
‘ We’re also losing a lot of business to the
supermarkets which have ramped up
their health and beauty offer,’ he said
Pharmacies therefore need to think about
how they generate customer and script
Mr Annabel said that the first thing they
need to do is look at their competitive
model as at the moment they compete
largely on convenience.
‘In other words they expect the
consumers to walk through the door
with their script in hand to have it filled.
There’s always been this unwritten
rule in pharmacy that customers will
He said a lot of pharmacy owners have
reacted to this lack of growth by joining
buying and banner groups. However,
banner groups are largely about pushing
product and therefore it is about price
promotion – going hard on certain lines
and driving consumer traffic based on
product at a price.
‘Pharmacies are still across the board
more expensive than Chemist Warehouse,
so is that a sustainable model? – I don’t
think so! And I think some banners have
worked this out hence the development
of member services opportunities’
His suggested alternative is to change
the market positioning model to focus
on ‘better before cheap’ which is about
offering a differentiated high quality
service and services throughout the
‘Focus on the quality of your offer rather
than being cheap because when the
discounts get cut these discounting
strategies are really going to be exposed
badly. ‘ The starting point of this market
position to me is focussing on customer
health outcomes rather than product and
discounting. That’s the first thing to do,’
Mr Annabel said.
“FOCUS ON THE QUALITY OF YOUR OFFER
RATHER THAN BEING CHEAP BECAUSE WHEN
THE DISCOUNTS GET CUT THESE DISCOUNTING
STRATEGIES ARE REALLY GOING TO BE
EXPOSED BADLY. THE STARTING POINT OF THIS
MARKET POSITION TO ME IS FOCUSSING ON
CUSTOMER HEALTH OUTCOMES RATHER THAN
PRODUCT AND DISCOUNTING. THAT’S THE
FIRST THING TO DO.”
– Bruce Annabel, Pharmacy business consultant
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