Increasing profitability through the front-end and operations

LAS VEGAS — With the average independent generating 95% of their revenue through the pharmacy, and only 5% across the higher-margin front-end, diversifying revenue streams is one strategy to help pharmacists sustain their profitability in an environment that continues to be challenged by declining reimbursement models.

As an example of what a best-in-class front-end operation looks like, AmerisourceBergen featured a 5,000-sq.-ft. mock-up of Harry Race Pharmacy, the 2014 Good Neighbor Pharmacy’s Pharmacy of the Year winner, on the ThoughtSpot 2015 show floor. “What we want to do is to show our customers what a state of the art pharmacy looks like,” Christine Lane, Good Neighbor Pharmacy Vice President, told Drug Store News. “It’s really an effort to show [our independents] how we can help them.”

“It also ties really well into our pharmacy transformation services, where we look at a pharmacy holistically from their operations, their prescription business to the floor layout, the paint, their exterior signage, really every single detail about the pharmacy and work to improve on it. We completely overhaul the business and put a fresh face on it, but also maintain that pharmacy’s individuality,” Lane said. AmerisourceBergen is the first wholesaler to offer this kind of program in the marketplace.

Front-end can be a significant profit driver for independent pharmacies, especially across five key OTC categories — cough-cold-allergy, digestive, vitamins and supplements, pain relief and home health care, noted Greg Hanlon, Director of Client Engagement at Retail Insights, during a ThoughtSpot 2015 continuing education course titled “The Best Defense is a Good Offense: Making the Most of the Pharmacy Front-End.”

Creating synergistic adjacencies between front-end categories can be a significant component in driving front-end sales. “How do you get customers who are indexing high in food and beverage purchases to buy a pain reliever or vitamin?” Hanlon asked. “How do you get that incremental item in the basket to drive those additional sales?” he asked.

“We’ve done some focus groups lately where a consumer is walking through a store thinking about products, and which room in the house they fit into,” added Rick Bergin, Executive Vice President Retail Insights. “I need some soap. That goes into the bathroom. What else do I need that goes into the bathroom?”

Retail Insights provides performance dashboards that help Good Neighbor Pharmacy members ascertain their performance of any given category against a peer group. It’s a tool that can help operators better refine their front-end mix.

And Good Neighbor Pharmacy members can further help differentiate themselves by category through Good Neighbor Pharmacy’s Temporary Price Reduction program, which allows independent pharmacies to access manufacturer promotional dollars the chains do. Good Neighbor Pharmacy remains price competitive, as price reductions are subsidized by supplier partners. “Through TPR we’ve seen a 36% increase in unit sales last year to this year, so it’s a significant change,” Lane said.

Another tool Good Neighbor Pharmacy members have at their disposal to improve business performance across both the back-bench and front-end are business coaches — they’re like personal trainers in that they’re generally interested in seeing independent pharmacies succeed, but not afraid to push an owner/operator toward greater success, noted Jennifer Zilka, Director of AmerisourceBergen’s business coaching program. “Business coaching really was borne of the need that our pharmacists expressed to us,” she said. “Typically pharmacists are clinically focused, and anywhere Good Neighbor Pharmacy can help them focus on the health of their business, so they can focus on the health of their patients, we’ve learned that they’re quite appreciative of that.”

Inventory and labor are two of the greatest expenses for independent operators, Zilka noted. “Those are two huge expenses. A lot of pharmacies operate feeling that they’re fixed, but they’re actually variable,” she said. “Margins continue to decline and they have to operate as efficiently as possible.”

On average, coached stores realize a 5% increase in sales-per-employee and increase their inventory by 1.4 turns.