PKF Australia

Accountants and Business Advisers

Times are changing for Pharmacy owners

Times are changing for Pharmacy owners

Posted 03 Apr 13 by Andrew Beattie

Community pharmacies have enjoyed, and expected, comfortable profitability for a long time due to being a somewhat exclusive and protected industry. The assumption was, you purchase a pharmacy and make money. Forget whether you have the ability to run the business or not - it hasn't mattered.

For the best part of two decades the community pharmacist has benefited from significant barriers:

  • Location rules that restricted a new pharmacy entering an area where an existing pharmacy operated
  • Government subsidies on product sales via the pharmaceutical benefits scheme (PBS) that provided a competitive advantage to general retailers
  • Multitudes of products exclusive to community pharmacies
  • Pharmacy ownership restricted to registered pharmacists.

With the significant changes that the industry has experienced in recent years and with the likelihood of more to come, this comfort afforded by these barriers is no longer guaranteed.

So what has changed?

  • PBS reforms by the federal government resulting in a reduction in turnover for community pharmacies and in many cases a direct impact on gross margin
  • The softening of location rules potentially resulting in more pharmacies operating in an area and in turn loss of market share for the community pharmacist
  • The growing presence of the discount pharmacy model that has led to many independents (and some banner groups) operating a part service, part discounter model. This confuses the pharmacy's market, their staff and overall affects their profitability
  • Manufacturers going direct to market, bypassing wholesalers, often resulting in less favourable trading terms for community pharmacists
  • More products traditionally sold through the community pharmacy being made available in large supermarkets adding pressure to pricing and ultimately gross margin for community pharmacists.

Traditionally, with very few competitive forces, complacency has crept in to many pharmacy businesses. Coupled with a lack of emphasis on business management in the education of pharmacists, many community pharmacy owners don't understand basic business principles and in turn don't know what to do as the industry comes out of the 'protection zone'.

The point I make is that this industry has experienced very little change for many years and in recent times has had its core shaken. Many pharmacy owners want to, and need to, react but don't know how. You could do as you have always done - hope for all of this change to pass and pray that you don't become a statistic, or you can meet this change head on.

In order to deal with the changing pharmacy landscape, it is imperative to have timely, accurate and organised information about your business available to you when you need it. You need to have the right attitude and you need to concentrate on only the things that you can influence. You must be able to answer these vital questions:

  • Do you have a strategic plan?
  • If you are in a multi owner pharmacy do you all agree on your strategic plan and direction?
  • Do you have a cash flow forecast and does it account for all of your incomings and outgoings or just your profit and loss?
  • Are your financial statements available to you a few weeks after the end of month?
  • Do you know what the key drivers of your pharmacy are and do you review them regularly?
  • Do you truly know if your pharmacy is stocked with the right product for your demographic?

This is only the tip of the iceberg. However, if you cannot answer these questions confidently it is time to do something about the way you manage your business and your future.

Our comprehensive advisory service for pharmacy

We offer a complete accounting and business advisory service for pharmacy owners - whatever stage of the business cycle you are in, however many pharmacies you may own and wherever your location, our specialist pharmacy team can assist. We can help our clients to not only be good pharmacists, but also have a thriving viable business.

Whether you are about to start a business, looking to grow, planning to sell, or trying to keep up with your dynamic industry, you require the support of experienced advisers that specialise in partnering with pharmacy owners and operators to maximise business success.

For more information about the comprehensive range of business advisory services we can deliver, please contact one of our Pharmacy specialists.


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