Recently at our Medici Capital Pharmacy Dinners held throughout Australia, I told the audience that ‘the future is in your hands’.
That is, pharmacists and pharmacy owners must take ownership of, or responsibility for, their future and not rely on someone else doing it for them.
In the past, we could rely on the market or other forces to provide a safety net for all pharmacists and pharmacists. Have these days gone? Perhaps.
Here are my views on seven key drivers for pharmacy and pharmacy ownership for the next 5–10 years.
As we approach the New Year, and halfway point in the Community Pharmacy Agreements, it is an appropriate moment to consider these drivers, determine a strategy which is appropriate for you, and (most importantly) take action.
1. Consumer and Patient
Have you noticed the recent changes in the way people communicate? Social media, smart phones and web-enablement of many services are impacting on all of us.
While my comments are general in nature, they apply to most, if not all, community pharmacies.
The impact will vary depending on your specialty practice, reliance on prescriptions, and underlying business model.
However, for all pharmacies the consumer or patient is fully engaged in the process, and empowered. The genie is truly out of the bottle. They are able to validate information as well as check prices and alternate products/services. For some, they will do this while in your pharmacy!
Patient engagement, communication and information are now critical for pharmacies. Patients expect this from all businesses they engage with.
These issues are hardly new; however, patients are expecting a broader and deeper engagement with you and your pharmacy.
This engagement, driven by the empowerment of access, is for products, services and information. These patients will move to pharmacies and services that provide suitable online services if you choose to ignore the opportunity.
How has your pharmacy changed in the last 5–10 years?
For many, the answer to this rhetorical question is perhaps ‘not at all’. For others, the level of change has been significant.
Disruptive use of technology and new market approaches will see small, young, and nimble operators with innovative ideas seize the market.
We can no longer rely on 1950s-based service models (including the PBS) as the basis for the sustainability of community pharmacy.
While this is related to the previous point, my focus here is on innovation in your pharmacy.
Aside from the innovations forced upon you by your computer supplier, the Government, or your brand, what’s changed in the way you do business in the last 10 years?
I suspect for most pharmacies little has changed. Perhaps, and more importantly, from the consumer’s perspective little has visibly changed.
You will need to take direct action and innovate. Whether this will be based on ‘crowd funded and sourced’ Research and Development, or pioneering new and non-retail based pharmacy services, as a business owner you need to take responsibility for driving innovation.
Perhaps you, or as part of a network, will create cloud-based software and services, making information universally available and enabling your pharmacy to sell directly to consumers on their smart phones and tablets.
How will you innovate and adapt?
While an exciting prospect, innovations come with costs and risks. It is important to understand your business, its market offer, and yourself before trying to establish the next world-beating innovation or developing a new frontier for pharmacy.
The obvious opportunities include:
- robotics and automation
- automated fulfilment
- services and communications for remote and isolated patients
- new and specialised operating platforms.
These are examples only; however, you will need to directly, or as part of a syndicated solution, fund your own R&D and innovation.
Longer lives, the rise of women and emerging wealth.
Much has been said about the ageing population driving the sustainability of pharmacy. However, we also need to consider the impact of this phenomenon on your staff/team and the continued feminisation of the profession.
A final point relates to the continued move away from Government-funded programs to user-pays programs.
With greater longevity, many pharmacy patients will be self-funded retirees.
Ultimately, pharmacy is a people business; both in regard to the patients or consumers, and your staff or workforce. There are a number of global forces at play here. These include:
- the ageing population, as well as the increasing proportion of people over 60
- increased female workforce participation
- other than cost of goods sold, between 35 and 50% of most pharmacies’ gross profit dollars are currently directed to wages costs (excluding on-costs like Superannuation and Workers Compensation). We are a HR, or people business. Managing our investment and this powerful resource is critical to business success.
- creating a compelling future for pharmacists and team. It has become apparent that many young pharmacists are leaving the profession or becoming disillusioned. While a designated career path may be critical here, it’s not just about wages.
Another population phenomenon is increased rates of obesity (and related diseases).
Also, in the current and foreseeable future, fiscal climate, governments will increasingly seek to reduce their health expenditure spend.
Conversely, increasing wealth and independent funding by longer-living patients, will lead to alternate and direct user-pays models of service.
Such user-paid services will be more demanding and seek providers who offer quality, efficiency and low-cost solutions.
We can’t live without them!
Ongoing and continued reform. Government reform is dictated by the economic and financial climate, as well as the global trends in pharmacy. Our long-term viability as a nation requires economic and social reform.
Although touched on in the previous ‘drivers’, Government reforms (including PBS reforms) are part of the spectrum of economic reforms.
Global capital flows to countries which have adopted the required tough reforms.
Pharmacy’s sustainability is a function of our relevance and engagement with the consumer, not the Government. The Government will engage with us if, and as long as, our services remain relevant to the consumer.
5. Pharmacy Ownership
We are facing a generation cliff with many pharmacy owners being well in excess of 60 years of age.
Access to capital and management capabilities are critical to the survival and sustainability of independent pharmacy.
Medici Capital is hosting a Pharmacy Ownership Ready Conference which will cover buying and funding a pharmacy purchase (as well as partnership).
The conference is being held on 4–6 February 2018 on the Gold Coast. For further information or to register your interest, email email@example.com.
6. Cost Structures & Returns
All pharmacies are different and, accordingly, so too are their costs and returns.
Structural differences exist in the costs and returns for the different pharmacy models that operate in the Australian pharmacy landscape.
For example, some business models are able to achieve labour and occupancy costs well below 30% of gross profit dollars, whereas for most pharmacies these two costs represent in excess of 55% of gross profit dollars. Do these two models compete on a level playing field?
Alongside this, pharmacies need to move to relate services and costs. Can you provide a lower cost service tailored to the patient’s management and service needs?
The unexpected consequence of the ongoing PBS Reforms, coupled with the current pharmacy landscape is that the Pharmacy Network may be under threat.
Conversely, now is the time to rethink your location, pharmacy operating model, and new delivery platforms.
The network, which is the key aspect of community pharmacy, is valued by both the government and the community.
The network includes a broad distribution of smaller community, rural, and isolated pharmacies which are heavily reliant on prescriptions and the PBS.
A reduction in prices and margins, as well as related professional services fees, will challenge the viability of these smaller pharmacies which form the broader distribution of the network.
The larger pharmacies, and those less reliant on prescriptions and the PBS, are more likely to survive the changes.
If we value the network, effort will be required to factor in incentives or support mechanisms for ongoing maintenance of the network throughout Australia.
Action you should take – Questions for you and your advisory network to discuss
The message: take action now! In light of the above seven drivers, ask yourself:
- Am I, and is my pharmacy engaging enough with the empowered consumer?
- How am I innovating, and can I innovate?
- Can we change our business model to enable greater engagement of staff, ageing consumers and the broader population?
- What non-PBS remunerated professional services can we introduce?
- What actions can we take to harness these drivers?
The future is in your hands.
I believe that enormous opportunities are available to pharmacy, but you need a strategy, and you need to action that strategy to create a sound future for yourself.
Many of you have commenced the journey and are doing well, but others will need to start — now!
What do you think about this topic? Email your comments to firstname.lastname@example.org or call Medici Capital on (03) 9853 7933 for further information or to discuss the results.
Medici Capital are industry leaders in pharmacy valuation and management consulting. Helping pharmacists achieve their goals medici.com.au.