Wielding care, indie Rx rides out economy

Average annual sales* per pharmacy location *In thousands Source: NCPA Digest

Like small but seaworthy vessels caught in a storm alongside much bigger oceangoing ships, the nation’s independent pharmacies took on some water in the trying times of late 2008 and 2009. But in the face of economic upheaval, continuing attacks on gross margins and daunting competition from ever-larger pharmacy chains, most have ridden out the squalls.

The nation’s nearly 23,000 independents have proven surprisingly resilient in their ability to adapt and survive the challenges of the past 18 months. The National Community Pharmacists Association reported in its 2009 NCPA Digest that average sales at independently owned and operated drug stores stood at $3.9 million, an increase of more than 7%, and that Americans, particularly older patients, continue to turn to the small-scale community pharmacy for personal attention and prescriptions.

“Despite the onset of an economic recession during 2008, pharmacy services were still in demand due to their value in the healthcare delivery system,” NCPA EVP and CEO Bruce Roberts noted. “The digest shows that while other businesses witnessed a precipitous drop-off in revenue during these poor economic times, the determination and patient care skills of independent community pharmacies actually increased demand for their services.”

It goes without saying that operating a mom-and-pop drug store—or even a half-dozen of them under common local ownership—is no cakewalk even in the best of times. “Challenges abound,” Roberts noted, “from declining reimbursement, particularly in the public sector, to an uneven playing field from mail order. But community pharmacies are adapting by running more efficient business operations characterized by sterling customer service. As a result, profit levels appear to be in the process of stabilizing after the large drop that occurred with the implementation of Medicare Part D.”

One key factor in independents’ ability to thrive in the midst of economic chaos and declining prescription margins is the growing level of support from the drug wholesalers that supply community drug stores. The wholesale companies have responded nimbly to the challenges borne by their independent customers by ramping up the marketing, information technology and merchandising support services and expertise they offer to help small-scale operators survive. They also have been adept at encouraging their most loyal and well-managed customers to commit to a higher level of service and a common marketing and merchandising umbrella through franchise arrangements, or “premier” or preferred-customer programs.

With or without that level of backing from their primary vendors, most owner-operated pharmacies are finding the tools they need to ride out the economic doldrums and carve a niche in markets largely dominated by national drug, supermarket and discount-store pharmacy chains. In this special report on the independent pharmacy segment, we’ll look at how 10 of the nation’s top owner-operated store networks face and overcome the challenges now roiling all of retail pharmacy.

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