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BUSINESS A PHARMACY NEWS PUBLICATION
NOVEMBER - 2011 ISSUE NO.1
BUSINESS ADVICE FOR AUSTRALIAN COMMUNITY PHARMACY
REMODELLING YOUR PHARMACY EXPERT ADVICE ON HOW YOU CAN IMPROVE YOUR BUSINESS
STORE LAYOUT
MARKETING YOUR BUSINESS
GETTING INTO OWNERSHIP
MANAGING YOUR STOCK
new Blackmores Flexagil® Cream helps your customers relieve their muscle or joint pain naturally.* Available only in pharmacy.
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*Natural active ingredient. Survey of 1006 Australians by Pure Profile commissioned by Blackmores July 2011. Always read the label. Use only as directed. If symptoms persist see a healthcare professional. OHW BLA0012_B_PNDS 10/11
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ALP1266PN_BusinessS.pdf
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After nearly 3 decades, Alphapharm remains Australia’s market leader in generic medicines and is still the #1 supplier to the Pharmaceutical Benefits Scheme.* By almost doubling production capacity at our Carole Park facility to over 4 billion tablets and capsules over the next few years, Alphapharm continues to go from strength to strength. The largest Pharmacy product range* The most unique lines** Launched 12 new products since January 2011 A growing range of S2 and S3 medicines
* PBPA (Pharmaceutical Benefits Pricing Authority Annual Report 2009 – 2010) **As at October 2011; excluding injectibles
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Alphapharm Pty Limited. ABN 93 002 359 739, Level 1, 30 The Bond, 30-34 Hickson Road, Millers Point NSW 2000. Medical Information Line 1800 028 365. www.alphapharm.com.au
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Pharmacy News Team Editor: Chris Brooker T: (02) 9422 2908 E: christopher.brooker@ reedbusiness.com.au Journalists: Nick O’Donoghue T: (02) 9422 2825 E: nicholas.odonoghue@ reedbusiness.com.au
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November 2011
CONTENTS
Kirrilly Burton T: (02) 9422 2874 E: kirrilly.burton@reedbusiness.com.au
In-store marketing
Sub Editor: Andrea Kunz T: (02) 9422 2554 E: andrea.kunz@ reedbusiness.com.au Advertising Account Manager Fiona Duke T: (02) 9422 2721 E: fiona.duke@reedbusiness.com.au Production Production Co-ordinator: Tracy Duff T: (02) 9422 8923 E: tracy.duff@ reedbusiness.com.au
6
Shop layout
10
Franchising
14
Stock management
18
IT/technology
22
Professional services
28
Getting into ownership
32
Graphic Designer Nick Cox T: (02) 9422 2166 E: nick.cox@reedbusiness.com.au Publishing Director: Suzanne Coutinho Circulation & Subscription Inquiries T: (02) 9422 2666 or 1300 360 126 Subscriptions: $200.00(incl GST) a year within Australia. Overseas prices apply. Pharmacy News does not accept responsibility for claims made by manufacturers for their products. www.pharmacynews.com.au Printing GEON 20 Baker St, Broadmeadow NSW 2019 © Copyright 2011 by Reed Business Information ABN 80 132 719 861 Tower 2, 475 Victoria Avenue, Chatswood, NSW 2067 Phone (02)9422 2999 Fax (02)9422 2822
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W
elcome to the inaugural edition of It’s Your Business – a Pharmacy News publication that endeavours to bring you some of the latest information, expert advice and discussion on a range of matters relevant to the business of running a community pharmacy. As you all know, legislative, remunerative, technological and social changes are combining to make pharmacy an ever-changing and more complex business, so having access to up-to-the minute information is vital. In this and future issues, we will provide the latest views of experts on a range of topics.
Leading experts in their respective fields have provided articles on the latest developments or theories on IT, technology or getting into ownership. Our staff writers speak to a range of experts on other relevant areas including stock management and franchising. If there are any topics or issues you think we need to cover, or if you want to comment on the material presented in this issue, please send me your thoughts at: editor@pharmacynews.com. I hope you enjoy the first issue of It’s Your Business, and I trust you will all find something in it that will help you succeed at your own business. Chris
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MARKETING
The right approach to marketing Kirrilly Burton gets the experts' views on how pharmacists can incorporate the new wave of marketing opportunities into their practice.
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he brave new world of tweets, blogs and place check-ins can provoke fear in the average pharmacy owner, grappling with the use of social media platforms for effective online marketing and wondering how these fit in with traditional marketing strategies. Nielsen’s latest 2011 “State of the Media: The Social Media Report,” shows that on a global scale Australians are the number one users of social networks and blogs, spending more time visiting them compared with 10 other global markets.
MORE THAN A FAD With social networking becoming a national pastime, some pharmacy owners might wonder if social media is merely a fad, or if it’s here to stay. Morris Miselowski, a business futurist, says social media is simply the most modern of communication tools, and it’s not a fad. “Social media allows you to listen to your community – to hear their concerns and hear what they are talking about,” he says. “There are people out there who champion what they do and can spread your message. But you can work with them through social media to spread your message and progress your business.” The secret is giving customers access to a volume of health information and support which they can then utilise and research by themselves, he says. “For your business’s benefit and for the benefit of your customers, it is useful to find and list sources of
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MARKETING
health information and support. People are increasingly looking for this kind of advice so that they can then research in their own time,” Mr Miselowski says.
bUIlDING YOUR ONlINE PREsENcE In the wake of the digital media boom, can pharmacy owners still compete if they aren’t technologically savvy? Fortunately, John Gearing, Executive Director of Pharmacy4u Limited, believes a lack of knowledge is not a barrier, unless a pharmacy wants to build a website from the ground up. “It is much simpler to use an existing service like Pharmacy4u where just about everything is done for you,” he says. However, he warns that setting up a website is the easy part, it’s what you do with it that is the hard part. “This is no field of dreams – there is no ‘build it and they will come’ - it has to be part of the pharmacy’s core business strategy,” he says. The primary reason for a business to become involved in any online capability is to drive increased store traffic and revenue through enhanced customer offerings, according to Mr Gearing. “Driving traffic to a website is important, but it’s secondary to us-
ing the website as a tool to drive store traffic and revenue.” Specifically, a multi-channel business model is ideal for pharmacies, allowing customers to shop either online or in-store. US figures from Jupiter Research show online-influenced retail sales accounted for 45 per cent of total retail sales in 2010. A pharmacy’s online presence should focus on providing a better or more convenient service for existing local customers and encourage new customers to try online shopping, he said. “The order from home or work and pick-up in-store model gives the pharmacy the opportunity to offer a premium service. When script ordering capability is included, the days of having to wait around in a pharmacy for service are over.” Online shopping trends indicate that convenience is the major driver, whilst price ranks about the fourth most important issue, so there is no reason to offer higher discounts online, he said. “Staff can greatly assist by explaining a premium online service offer, or by pointing to various online only offers and services.” he says.
sOcIAl MEDIA OPTIONs It’s difficult to know which social media platforms will target your customers best, with so many social media options available and more emerging, such as Tumblr.
TIPS FOR GETTING WEB SAVVY Marketing guru Dean Parker shares five tips to help make your business website strategy work. 1. Your text should be punchy, interesting and speak directly to your customers. It must tell them why they need your product/service and clearly highlight the benefits. 2. Make it even easier for customers to contact you by having a contact link on each page of your website. To maximise its effectiveness, place contact links close to your product/service benefits text. 3. Updated and benefit-focused text will help gain customers’ interest. However, your website still needs to work hard to get them to contact you. Add a “hook” or incentive for customers to call. A website promotion will also help you monitor the number of leads generated. 4. Update your website regularly so that existing clients are induced to click on and see what’s new. 5. Include your website address on all your business letterhead, e-mails and promotional material. Clients aren’t going to visit if they don’t know it exists. Dean Parker is senior marketing consultant with Four P’s Marketing Solutions. Visit: www.fourps.com.au.
IT’S YOUR BUSINESS |NOVEMBER 2011 | 7
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“People shop and learn in a whole new way compared to just a few years ago, so marketers need to adapt or risk extinction,” – Brian Halligan, co-author of “Inbound Marketing” and chief executive officer of Hubspot.
Morris Miselowski says businesses are increasingly using Facebook as a place to send their customers. In place of a URL to send you to their website, many companies are now advertising their Facebook page. Facebook does your marketing for you, he says. “Everyone there has chosen to hear your message and will spread it for you.You can send them instant information like videos.” Mr Gearing also believes Facebook is the ideal social media tool for disease state management support. For example, patients with diabetes could be directed to a Facebook page for information on diabetes or a question and answer dialogue between patients and pharmacists. “Facebook is very simple to set up. It requires an ongoing commitment to support, but well handled, could provide a great health solutions service,” he says. In contrast, Twitter is more useful for flash messages such as ‘deal of the day’ marketing offers. Blogs which can provide auto-posting capabilities onto Facebook, Twitter and LinkedIn, are becoming increasingly powerful as simple marketing tools and the “glue that sticks all this together,” Mr Gearing says. However, he warns that blogs must be relevant to be widely read, and should be published daily to sustain the reader’s interest. YouTube is also a simple option for pharmacy owners who possess the skills to create video messages.
MAILOUTS: Direct marketing still has a place.
effective way to interact with customers. “Using an online database means you can market to your customers as often as you wish for almost no cost.” “Unlimited numbers of emails can be sent for a very small fee. If your database includes a mobile phone number, SMS messages can also be sent for a slightly greater, but still minimal cost. These communications can include HTML links that go directly back to a particular page or product on a website.” Unlike letterbox drops, pharmacy owners can also measure the response to electronic marketing campaigns. However, embracing online marketing is not a panacea and the most important factor remains the message, not the medium. “If the message is not relevant to the recipient, the result will Direct marketing still viable be poor and therein lies the skill of great marketing,” Mr Gearing Even in the era of social media, direct marketing still has its place and A D _ Pto N Mr I YGearing B P H A“has N Oalways V _ 1 and 1 . will p dalways” f P abegthe e most 1 2 6 / concluded. 1 0 / 1 1 ,u 2 : 4 0 P M according
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8 | IT’S YOUR BUSINESS | NOVEMBER 2011
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Store Layout
A design for success Pharmacy layout – how can you use your store design to increase customer satisfaction and maximise profits? Sheree Mutton investigates.
Layout and deSign are cruciaL
h
aving an attractive and productive store design, with clear signage, will help draw customers into your pharmacy, promote a smooth traffic flow and give you a competitive edge. Pharmacy layout begins with allocating floor space for merchandise, cash registers, professional services and the dispensary, while ensuring there is adequate space for a smooth traffic flow that is practical and reflects shopping behaviours. An effective store layout is one that utilises the space available to return the highest profit possible, without compromising the customer’s experience. Hilary Kahn, the executive director of content and strategy for FeelGood Guide – a company that specialises in transforming pharmacies into highly valued health destinations - says there has never been a more important time to perfect your store layout and develop a better shopping experience for customers. “The pharmacy market is becoming increasingly more competitive, with larger chains and supermarkets competing for customers,” she says. “Customers want an easy shopping experience. If they can’t see the product, they won’t buy it – it’s very logical.” FeelGood Guide encourages pharmacies to give customers control over what they should be buying, rather than putting pressure on staff to sell.
deSigning a new Store Layout When designing and executing your pharmacy layout, it is important for the finished look to reflect a professional image. Effective design and implementation will help you to concentrate more on your customers and less on re-stocking your shelves. Kahn says to start always with a clean slate. “Don’t ever tweak. Always start from scratch with your store layout.” Greta Lilley, the managing director of retail design company, Thomson Lilley, says pharmacy owners should hire a professional business with a proven track record in pharmacy design. “It’s about understanding the space and how people shop, and developing a store layout that moves people through the pharmacy without them knowing,” she says. “Pharmacy is completely different to any other retail experience, so you need to hire a reputable agency.”
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STORE LAYOUT
Sections within your pharmacy (1) Dispensary For most pharmacies, the dispensary is not only the section where staff spend most of their time, but it is also the busiest area that generates the most profit. “You really need to think about traffic flow when you are developing a design for your dispensary,” Hilary Kahn says. When designing the aesthetics of the dispensary, pharmacy owners and managers must ensure there is a system established to deal with heavy traffic flow, pharmacy regulations are met and the pharmacist has enough room to dispense prescriptions. Having too little work space may result in mistakes and a dispensary with a very limited capacity that is unable to process a large volume of prescriptions. Kahn suggests splitting the ‘in’ and ‘out’ counters. “Use them to manipulate traffic,” she says. Pharmacy owners must also incorporate any legal requirements into their store layout, including the effective supervision of pharmacy-only medicines and proper ergonomic planning to avoid staff injury or collisions. (2) Over the counter products Most pharmacies employ a store layout that groups together similar products in wall bays or categories with signage to help direct customers to the section of the pharmacy that contains their desired product. To help you decide on how large or small a section should be and where it should be positioned within the pharmacy, think about the demographics of the store. “Use your demographics to help you determine the size of your categories and their location,” Kahn says. “If you are based in a family-oriented area, make sure you have a large baby section and focus on family planning products.” While grouping products in categories makes them easier to find for staff and customers, it may not always be the best in maximising profit. Encouraging companion selling through crossmerchandising from different departments is one way to increase your sales. “Group merchandise that belongs together like your pain products and first-aid,” Kahn says. “This will help you increase the amount of items your customer is buying in each transaction.” Cross-merchandising will also increase customer satisfaction as you are offering a complete solution to your customers. When designing your store, aisles should be wide enough so people can pass one another. Pharmacies should develop a layout that doesn’t restrict customers from going in different directions, because this may limit exposure to particular products. Kahn says she has been to a number of pharmacies that focus their
“ To help you decide on how large or small a section should be and where it should be positioned within the pharmacy, think about the demographics of the store. ” IT’S YOUR BUSINESS | NOVEMBER 2011 | 11
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STORE LAYOUT tunity for a creative merchandise display to attract customers. “Pharmacies should invest in eye-catching , visual merchandise to create a good shop-front.” Window displays should be changed regularly and based on seasons, trends, media reports and your demographic.
The design elements of your store Invest in good lighting because this can make all the difference in the appearance of your pharmacy. Effective lighting can also be used to draw the attention of customers to more profitable categories like perfumes and skincare. When choosing the flooring of your pharmacy, make your decision is based on practicality and durability. Pharmacies are busy places, so consider the time it will take to clean and maintain your flooring. “In times of financial difficulty it’s not the best idea to spend a lot of money on items that will not help you maximise profits,” Kahn says. “Most customers are also aware of expensive fit-outs and tend to assume they will be paying for it at the register.”
Integrating professional services THE RIGHT LOOK: The finished design should reflect your professional image.
attention on stock and not how it will impact traffic flow. “There was one pharmacy I visited where staff and customers had to walk in single file,” she said. “Customers and staff don’t want to feel trapped in a cluttered environment.” Shelves shouldn’t be too high and best-selling products should always be kept at eye view. “Make sure your customers can see over the gondolas,” Lilley says. “If they are too high, your store will give an impression of being a supermarket, not a pharmacy.” Gondolas can be useful selling tools in pharmacies because you can use them for sale items and sales representatives will often use them for promotions. However, Lilley says to be aware of these promotions because they are “driven by suppliers and may not offer the best opportunity to drive sales for your pharmacy”. (3) Cash register(s) The positioning of the cash register(s) is very important to the layout and security of the pharmacy. Most pharmacies will have these situated either at the rear of the pharmacy, near the dispensary, or at the front of the store to increase security. Mid-floor cash units can also work well, but seek advice from your store designer. (4) Exterior of the pharmacy and windows It’s important to use any windows of your store to their full potential. This means displaying sales, specials and promotions to help attract customers into the pharmacy. Lilley says the exterior of a pharmacy provides the biggest oppor12 | IT’S YOUR BUSINESS | NOVEMBER 2011
Allocating space for professional services helps differentiate your pharmacy from competitors such as larger chain stores and encourages you to build a better relationship with your customers. “If you integrate professional services into your pharmacy well they become a real strength of the business,” Kahn says. “Have well-established areas for consultations, clinics, naturopathy and counselling. Programs like the Tony Ferguson weight loss program is a great example of how the integration of professional services can help build a business. They have professional spaces that are strongly marketed.” Kos Sclavos, national president of the Pharmacy Guild of Australia, encourages pharmacies to think about the six Pharmacy Practice Incentives (PPI) when executing their new store layout. “Pharmacy has traditionally not used internal store signage to promote professional services in the pharmacy. It is such a great opportunity,” he says. “Use store newsletters and signs. PPI’s should be promoted e.g. signage that a Dose Administration Aids service exists in the pharmacy.” Other services pharmacies could integrate into their store layout include a needle and syringe program or bins for the return of unwanted medicines (RUM) as part of Community Services Support.
Evaluate the store layout The overall image of your pharmacy and the layout should work together to attract customers and encourage them to purchase your products. Once your layout is complete, managers should evaluate its effectiveness in terms of traffic flow, floor space, lighting, window displays and security. A poor store layout can result in a range of problems for customers, staff and owners. Customers are quick to judge pharmacies based on their appearance, so if your pharmacy looks cluttered, confusing or untidy, they will move on to another store or supermarket to purchase their product. Each pharmacy should look at their unique selling opportunities when developing their store layout, integrate their professional services with appropriate space and signage and always evaluate how effective it is for staff, customers and sales. u
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FRancHisinG
Franchising Franchising isn’t a new concept in pharmacy, but in recent years it has gathered pace, Graeme Smith investigates.
t
he loosely arranged wholesaler marketing groups are now giving way to a more rigid franchise model. Alongside this has been a growth in smaller pharmacist owned franchises – many of them in the discount space. Feras Karem established the Pharmacy4less franchise in 2007. Having owned bannered, independent and franchised pharmacies in the past, he and his pharmacist brother pooled the knowledge acquired over that time and applied it to their own franchise. “We had exposure to the franchise model with Priceline but what made us really start franchising was that we were part of the Chemworld group, and when it folded we decided to start our own model. We opened our first store in Jesmond [NSW] and then in Hornsby [north of Sydney]. We grew it through the network of our own stores and then began franchising the model.” Sydney-based pharmacist Brendan O’Loughlin owns three pharmacies, one of which he decided to make a franchise. O’Loughlin chose the Cincotta Discount Chemist franchise which grew out of the original, highly successful, Cincotta Chemist pharmacy in Merrylands, south west of Sydney. According to O’Loughlin, the power of the franchise lies in its formality: “There’s a discipline that comes from signing a legal agreement.You will abide by all these rules that the franchise has.You will do certain things and the franchise will do certain things. Which is a lot more formal than the old group arrangements. It gives the franchise a lot more control over things like ranging, pricing and catalogues.” “With a franchise everything is spelt out,” Feras Karem said.
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section name FRANCHISING
“The agreement document is normally quite lengthy. It details what is expected of the pharmacist and what is expected of the franchisor. Once everyone understands what is expected compliance becomes a whole lot easier. You can’t ask me to be compliant if I don’t know what i’m aiming for. The reason a lot of those groups are not compliant is because they haven’t set out what compliance is”.
BRAND PROTECTION Pharmacy broker and financier Frank Sirianni believes wholesalers have seen franchising as a way to protect their retail brands: “They want to put a more solid framework around their brands. Historically they were run a bit like a cooperative - all for one and anyone could come and go as they pleased. “I think some of these marketing groups have morphed into franchising because of the fact that they really didn’t have the ability to protect themselves – they wanted to protect the intellectual property and define who owned what. The jury is still out whether or not this has added to the process.” Different franchises suit different types of locations and both O’Loughlin and Karem agree that potential franchisees should think carefully before taking the plunge. “You should be asking lots of questions. What are my expectations? What do I have to do to comply? Do I like what I’m doing to be compliant? Do I have the right size of pharmacy to be part of the model? Do I have the right demographic and do you see the customer in my area as being a shopper for that type of model?” Karem said. “We picked the business before we picked the franchise,” O’Loughlin said. “The location and size were different to my other stores so it was a matter of AD_ P I MB P H A N O Vand _ 1size, 1 .and p dknowing f Pa ge knowing theN local demographic
Franchising tips • Find a franchise that fits with your own philosophy. • Find a franchise that makes sense for your pharmacy’s footprint. • Find a franchise that fits with your pharmacy’s demographic. • Is the customer in your area a shopper for that type of model? • Will you be working in the business or are you a hands off owner? • Are you prepared to surrender some independence? • Are you willing to have faith in the model you’ve chosen? • Not all owners make good franchisees; you may be better off as an independent. 1
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“The franchises invest heavily in their brands and so compliance and discipline by their franchisees is vital if they are to protect that investment.”
we had to be a destination store. We went through the process of looking at the franchises and groups available, looking for the one that would best suit the pharmacy.”
DEMOGRAPHICS VITAL Feras Karem said that getting the right demographic fit is vital. “If you look at Pharmacy4less, Priceline and In2health, in my mind there are clear distinctions between the three. In2health is a small footprint high gross profit pharmacy. It’s convenient to shop in and may be attached to a medical centre. Pharmacy4less is a model that works on high volume and lower margins. You need a certain amount of footprint to be able to do that in the right demographic, whereas the Priceline model works best in places like the city where the consumer is health and beauty conscious.” “I look at Priceline,’” O’Loughlin said, “and its target audience is women between 20 and 40, so
16 | IT’S YOUR BUSINESS | NOVEMBER 2011
you’ve got to have a pharmacy where the demographics are right for that. The franchises will be doing the same sort of analysis of your local area. They have good resources in that kind of demographic analysis.” Sirianni said that not all franchises were entirely retail focused. “Ask yourself, what’s the market offer and what are the characteristics of the market you seek to serve? There are, for example, some professional franchises out there that are not entirely retail oriented and which are focussed on the delivery of professional services.” The franchises invest heavily in their brands and so compliance and discipline by their franchisees is vital if they are to protect that investment. “People forget that when you join a franchise, the franchise is also joining you,” Karem said. “Because they’re giving you their brand. Eventually how you operate will reflect on the franchise– so we like to pick our friends carefully!”
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COMMON VALUES For O’Loughlin, the franchisee and franchisor must hold common values for it to work - just as in any other relationship. “It becomes a bit like marriage. As a pharmacist you’ve got to understand what the franchise is trying to do. And you have to want to be part of that”. “If you have a pharmacy that doesn’t suit that brand then it’s better that you don’t join. If you don’t necessarily agree with the values that that brand espouses, it’s going to be as hard as it would be in a marriage where you don’t have common values.” Frank Sirianni believes franchises may offer some owners peace of mind. “We’re in a very tough retail and general consumer market and these franchises represent a safety blanket for many people. The PBS reform agenda has been just so rapid that pharmacists have not been able to do much more than focus on that. So they have to delegate the marketing and branding.” How do you get the most out of the relationship? To an extent you must surrender your ego, or
as Sirianni puts it, “have faith in the process.” “The people that do worst in franchises tend to be people who don’t accept that others may have greater knowledge. They don’t delegate responsibility to the franchise.”
A FREEDOM BOOST Brendan O’Loughlin believes that a franchise can offer freedom to focus on patient care: “With some of the big phar macies, there’s a lot to running them. There’s a whole process, for example, behind product selection. The franchises hire people from outside pharmacy with specific skills which individual pharmacists may not have in these sorts of areas.” Feras Karem believes that the individual can still be a strong community phar macist within a franchise model. “Ever y dispensar y has its own character. You don’t want to throw the baby out with the bathwater when you put a phar macy into a franchise. We want to be adding something to the business.” u
It’s your
BUSINESS
It’s your
BUSINESS A PHARMACY NEWS PUBLICATION
NOVEMBER - 2011 ISSUE NO.1
BUSINESS ADVICE FOR AUSTRALIAN COMMUNITY PHARMACY
Business Advice for AustrAliAn community phArmAcy
REMODELLING
Providing Australian pharmacists with the latest information and expert opinion on issues affecting the daily operation and success of community pharmacy.
YOUR PHARMACY EXPERT ADVICE ON HOW YOU CAN IMPROVE YOUR BUSINESS IN THE NEW ERA OF PHARMACY
Don’t miss out Book your spot now in the March issue
STORE LAYOUT
MARKETING YOUR BUSINESS
GETTING INTO OWNERSHIP
MANAGING YOUR STOCK
Booking Deadline: Monday 30th January Copies of the March issue will also be available from the Pharmacy News stand at the APP2012 Conference
To book your adverTising please conTacT:
Fiona Duke 02 9422 2721
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IT’S YOUR BUSINESS | NOVEMBER 2011 | 17
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STOCK MANAGEMENT
Time to take stock of your business With the emergence of exclusive supply services for PBS products and growing competition from non-pharmacy retailers in the sale of open lines, the need for good stock management has never been greater, writes Nick O’Donoghue.
18 | IT’S YOUR BUSINESS | NOVEMBER 2011
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STOCK MANAGEMENT
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tock management is a growing issue within community pharmacy, with pressure to ensure stores meet customer needs rather than passing on business to another pharmacy. The introduction of the Pfizer Direct distribution system (managed by logistics company DHL) in February heightened the importance of stock management. Pharmacies are no longer able to rely on the free next day delivery services of the Community Service Obligation (CSO) wholesalers. Instead, pharmacy owners have had to manage their supplies of Pfizer PBS-listed products to avoid incurring delivery fees for six or more deliveries a month, an issue Saul Resnick, DHL’s
MAINTAINING STOCK While there has been a considerable amount of negativity towards the Pfizer Direct model, Dipak Sanghvi, former Pharmacy Guild of Australia Victoria branch president, insisted the issue should not be a problem for pharmacists, as they are responsible for maintaining their stocks and can avoid being charged delivery fees for ordering six or more shipments a month. “Phar macists are paid for keeping the products in their store... so if they run out of some products obviously they have to get them urgently, [and] they’ll have to bear the cost of it to an extent,” he said. “If you carry your stock properly you
“Stock management is about more than keeping on top of what is behind the dispensary and focussing on the front of shop retail offer” vice president of Life Sciences and Healthcare Australia, believes they are adapting quickly to. “Most pharmacies have adjusted well to the change and most are managing their stock well so they do not need more than five shipments a month,” Mr Resnick said. AD_ P NI Y BP HANOV _ 1 1 1 9 . p d f
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CUT DEAD WOOD However, stock management is about more than keeping on top of what is behind the dispensary 2 : 4 6
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Stock Control: Knowing which categories customers are looking for is a key to stock management.
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and focussing on the front of shop retail offer. Knowing what categories of products your customers are looking for from a pharmacy is a key element of stock management, according to Hilary Khan, a pharmacy retail expert. “Improving sales by manipulating traffic around your pharmacy assumes your retail offer meets you marker needs and compels your customers to buy,” she said. “Even more fundamentally, it assumes you have sufficient customers, or even the one you do have will be there tomorrow. It assumes that the decisions you make support your analysis of the gaps that exist in your market and your ability to service these gaps.” Controversially, Bruce Annabel, a pharmacy business analysis has recom-
mended cutting open-line products and focusing on Pharmacy Only products.
LINE PRUNING Emphasising the benefits of abandoning open-lines, Mr Annabel noted the success Artarmon (Sydney) pharmacist, Nick Logan, has had since he decided to dispose of a lot of non-pharmacy stock after a 2007 refit and had reaped the benefits of not having to compete with the likes of Coles and Woolworths on hair care products and unscheduled products. “They got rid of a lot of the open lines, the haircare products, all the general skincare products. The therapeutic lines they kept and bulked up,” Mr Annabel said. “By increasing the quality of the merchandise offer they improved the service.” This is an idea Ms Khan supports, if the goal of a pharmacy is to focus on health.
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“It’s time to take a long, hard look at why customers might visit your pharmacy, and what you offer and stand for over and above the discount competion” Hilary Kahn, pharmacy retail expert
“If the end game is to position the pharmacy clearly as a key provider of health in the local community, then specialisation needs to be apparent to all customers,” she said. “You need to ‘look the part’ with particular specialisations. Deeply specialise in two or three areas and consumers will seek you out and use other parts of your store as well.” For Mr Logan, cutting the “dead wood” increased the space of this small store and within a year the store returned significant growth. “My experience is that I had limited space, so I couldn’t carry a massive retail offer and the more I looked into what was performing in the business, it became very apparent that with my limited space each item had to justify its position on the shelf. “We basically went through and removed everything that wasn’t perfor ming up to standard, that didn’t have a sellthrough rate and a margin that justified its position and what we ended up with was basically a health or iented store,” he said. “It became apparent that if we had a good health offer, the good margins that we were getting in the front of shop were S2 and S3, and that we should position ourselves and promote ourselves as a health product and advice centre.” In the first full financial year after the 2007 refit, after which he cut underperforming stock, turnover growth did not increase massively, but for the 2008/09 financial year Mr Logan said net profit increased by 37 per cent.
Category management Knowing what your key needs are is essential to stocking the right products, according to Ms Khan. “‘Stick to your knitting’ may be a cliché, but
pharmacy is about health, wellbeing and wellness,” she said. “The huge volumes of script numbers with their associated turnover compared with front of store over the counter sales or ‘health dollars per script’ suggests that there needs to be a lot of thinking given to what reasoning sits behind the request for specific script items. “Ask yourself why a customer needs the scripts they come in for and what you can offer beyond that script item... what convenient solution does the customer need here? “The reason can’t be met with one addon, but it can be met a with a solution of products – things to take and do to deal with all the needs that underpin the request.” While supermarkets and discounters are a threat to independent pharmacy, Ms Khan said it was important for pharmacists to play to their strengths and focus on their mission – to improve patient health. “Every retail segment worries about the erosion of their business through supermarketers and discounter,” she said. “It’s time to take a long, hard look at why customers might visit your pharmacy, and what you offer and stand for over and above the discount competion. “I believe that if the horizon doesn’t shift to ‘mission’, and stays firmly rooted in products held by and presented as they would be in a supermarket, the future could be bleak,” she said. “Because other, bigger pharmacies now also occupy two crucial ‘est’ positions, bigest and cheap-est.” “Community pharmacy must become easiest solution driven, servicing customer missions in particular categories.” u
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Pharmacy IT to reach the clouds It is an exciting time in Pharmacy IT at the moment, writes Alex Mitchell.
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n my opinion, everyone is very aware of the expansion of uses for pharmacy data over the last five years, and this has made possible further changes to the industry. Electronic scripts are kicking off, which is obviously important in the context of the PCEHR (Personally Controlled Electronic Health Record). While BT (British Telecom) have the PCEHR operational in the UK and Singapore, Australia is now moving with Telstra and Accenture.
dAtA ACCeSSibility Data from the pharmacy is now more accessible and as a result there are many more uses for it. This is true for both dispensing and point of sale (POS) and has created a real undercurrent movement in pharmacy concerning the value of data. Are pharmacists seeing fair value from the data that so much of the industry sees as critical?
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On the positive side, data being more readily available has resulted in many new services for retail pharmacy and their patients. Pharmacy is seeing a spike in the quality of business reporting. There would be very few pharmacy owners and managers who do not regularly use business management reports that include data from both their systems and another system. I have said many times, “it is the addition of third party information in reports that creates the most value.” Now more than ever; imagination is the limit, not the technology. Pharmacists have always offered a level of medicine management and medicines compliance services but this was limited by the time they could commit to the task. Easy access to dispensing data means the pharmacist can now assist a wide range of patients. The latest, and the smartest example I have seen is a program called “TOP” (Treatment Optimisation Platform), a program run by pharmacists in store that assists with patient management. Among the
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innovative things it can do is to provide patients with a co-ordinated compliance message, using any combination of SMS, email or recorded voice over the phone. Many smart phone Apps can provide information already available but the delivery of information through the phone is often more convenient, including Rx Sig Codes, controlled drug schedules as well as resources that help with patient education.
nEW WoRLD: it developments are changing the face of pharmacy.
enteRing ‘tHe Cloud’ Outside the immediate sphere of pharmacy we have the NBN which could revolutionise the world of clinical and remote IT. I see Cloud technology moving to deliver new services to retail pharmacy and all its business partners. ‘The Cloud’ provides two main benefits, the first is that it can increase or decrease “on demand” the computing power available for whatever you are doing and it can also provide Software as a Service (SaaS) delivered over the internet. For me, ‘the Cloud’ is the number one factor that will affect pharmacy in the next five years. There are current examples of computer services where the tasks are being shared between local computers and dedicated server banks via the internet. One obvious example is customer loyalty systems. Loyalty points are calculated, shopping preferences are analysed and promotion and marketing decisions are implemented, all using remote servers. Businesses use SaaS when they don’t want to purchase the software, but want it available whenever it’s needed. Accounting software is an example of SaaS currently being offered but not yet commonplace in pharmacy. MYOB offers a SaaS version of their software with the take up growing every month. I see a future where POS and dispensing systems are hosted securely in ‘the Cloud’, with the dispensing systems linked to an electronic script exchange and the PCEHR. Because the software can now be accessed over the internet, staff using wireless devices could consult or educate customers anywhere in the store. Add a scanner to a wireless device and sales can be pre-processed to avoid till congestion.
loyAlty enSuRed Pharmacy loyalty cards will become usable in the greater personal health sphere, such as vitamin stores, sporting clubs and gyms. A more detailed picture of customers and a more comprehensive offering of points and benefits then becomes possible. All this information will enable pharmacists to service and A D _ their P N Icustomers YBPHA N O Vbut _ 1the 1 2trick 4 . will p d be f toPremain a ge 1 support better, grounded and not use technology for technology’s sake. I would
like to recount a tale told to me by a florist customer and friend of mine, to illustrate the difference between information and technology. The business is a florist in the Eastern Suburbs of Sydney who used information brilliantly. This florist kept a written record of every order she ever did, referenced in a diary listed by day of delivery. My friend was very impressed to receive a call, along the lines of “Hi, Mr Jones. Last year you ordered a dozen roses for your wife Karen for your anniversary. As your anniversary is next week, would you like to choose something different this year?” The florist’s use of information was well within the privacy expectations of her customers. It had little downside because it was a timely offer that no one would be offended by and in the case of my friend who told the story, it saved him from forgetting the anniversary all together. This was a great use of information but not technology. The florist’s success was mostly about what was actually in the message, who it was communicated to and when it was delivered. There are many ways for a pharmacy to communicate better with both patients and customers but remember that using technology should be the tool, not the goal. u 2Alex 6 / Mitchell 1 0 / 1 is1 a, Director 2 : 3of4 Intellipharm, PM a data collection and
reporting company that has operated in pharmacy for over 10 years.
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THE FUTURE OF YOUR DISPENSING The latest in pharmacy automation technology, by Jana Pratico, consulting pharmacist/solution consultant WA/SA for Willach.
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s the industry is moving towards higher levels of professional health care, pharmacists offshore and in Australia are embracing automation to improve customer service, quality of medication management, and safety, as well as operational efficiencies and staff satisfaction. However, others still aren’t sure about the benefits and return on investment (ROI) of this new technology. Pharmacy is well positioned to transform itself from a product-oriented to a patient-oriented profession. Automation can be a great tool to help pharmacists complete this shift by providing benefits such as increased accuracy, less clutter, more control and most importantly, more time enabling, more job satisfaction, less stress and higher levels of health care and customer satisfaction and retention.
Systems available Currently, there are two types of robotic systems available: 1. Machines that fill scripts by the ‘unit doses’ method – this type of automation is used widely in the US and for the script handling for Dose Administration Aids and nursing homes. 2. Machines that dispense complete medication packages – this type is typically used in community pharmacy and hospitals to replace manual stocking of packages and picking packages from shelves. There are two types of systems that handle complete medication package storage and dispensing: A D _ P N I M B P H A N O V _ 1 1 . p d f 1. Channel P a g e storage 1 2systems 1 / 1 0 / 1 1 , 3 : 0 8 PM
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2. Random/Chaotic storage systems Channel storage systems are increasingly being installed into community pharmacies in Australia due to their smaller size and quicker delivery speed. Random storage robotics are considered more suited to the hospital environment because they are able to store a larger number of medication packages.
Robotics installed Although there are no official figures available, it is estimated that there are about 8000 automatic dispensers operating throughout Europe and they have become almost a commodity in pharmacies with a certain script volume. According to market analyst Frost & Sullivan, the pharmacy automation market is undergoing a growth spurt throughout Europe and is expected to more than double by 2016.The successes of these pioneers attracted other players who have since entered the marketplace, but the fundamental concepts of chaotic versus channel robots have remained. Today, there are now about 120 machines installed in Australia, of which 90 have been integrated by the market leader in pharmacy dispensary solutions, Willach. Their robotic product line is CONSIS®. A D _ I M B WI L N O V _ 1 1 . p d f
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Automation: Freeing time for pharmacists and patients.
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Fast forward your dispensing. More space. More time. More profit.
Our new dispensary layout looks and feels very professional. Our Consis robot is a major contributor to achieving the high standards of professional patient care that we provide.” Lisa Benton, co-owner, Orana Mall Dubbo, Pharmacy of the Year 2011 Australia
“After years of research I opted for Willach. While we were designing our new pharmacy, Willach gave us outstanding support throughout the whole process. We love our Consis robot.“
Automate your dispensary today. Come visit our new showroom in Richmond or one of our 90 reference sites in Australia.
Peter Buckley, owner, Peter Buckley Pharmacy, Pharmacy of the Year 2011 UK
Call or email us for a free dispensary design consultation. 03 9429 8222 info@willach.com.au www.willach.com.au IT’S YOUR BUSINESS | NOVEMBER 2011 | 25
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Horses for courses
Change Management
Most machines on the market today will reliably pick and transport medication packages to where they are needed. Some vendors offer systems which not only pick but also store, label and even sell the medications automatically or semi-automatically. While channel machines are a lot quicker in picking and replenishing medication, more compact and less complex to operate, chaotic dispensers are usually better suited to pharmacies with a wide range of medications, a lot of split-packs or the wish to keep almost all of their products inside the machine. However, phar macists should be aware that even the biggest machine will not automate all their medication – some chaotic machines for example do not store round packages such as bottles, and robots will generally not store items that are too heavy, bulky or dangerous.
The human capital component of robotic dispensing implementations should not be underestimated. Early engagement of staff can help detect challenges and opportunities, reduce resistance to change and encourage staff to embrace the new technology and workflow. The complete dispensary team should be engaged in the training and education prior to implementation to ensure a smooth integration. It is also recommended to appoint a “robot champion” in the team. Professional project management, expertise in pharmacy dispensary design and workflow as well as Go live assistance should be provided by the robotic supplier. Furthermore, it is essential that the supplier offers a broad and reliable technical support network.
Summary When it comes down to choosing the right automated dispensing solution for your pharmacy, much will depend on the health care system of your country, which usually determines your type of market
BENEFITS FOR YOUR BUSINESS
“Channel storage systems are increasingly being installed into community pharmacies in Australia”
SAFETY • Reduction in dispensing errors as medication is scanned and automatically dispensed.
• More safety for patients due to fewer medication dispensing errors. • Greater trust and confidence in business.
WORKFLOW • New workflow releases pharmacists from the dispensary for direct patient care supporting the Professional Service Model. • Higher staff satisfaction.
• Higher quality of service received. • Direct advice from a trained health professional; better opportunity to ask specific questions etc.
EFFICIENCIES • Optimal space utilisation, no more clutter. • Faster replenishing and dispensing of medication. • More time to offer additional products and services.
• More in depth consultation time with their pharmacist (medication compliance etc.) • Reduced waiting and queuing. • Broader range of professional services to choose from.
FINANCIAL • Reduced stock holding, better cash flow, stock reports on demand. • Improved stock rotation. • Reduction in expired stock wastage. • Increased profits from additional products and services. • Increased customer loyalty. CORPORATE IMAGE • Professional layout and product presentation. • Positions pharmacy as “first choice” and pioneer in customer mindset. • Competitive edge
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BENEFITS FOR YOUR CUSTOMERS
• Higher cost/benefit ratio.
• Greater customer satisfaction as well as improved overall experience.
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environment. Also, it is important to ask yourself, what the main challenge is that you want robotics to solve for you.This will indicate which system will be most beneficial for your pharmacy. For example, if “time” is your major challenge and you are doing a lot of scripts picking the quicker machine would be the better option. All robots on the market will give you the benefits of accuracy and enhanced efficiencies. However, before investing in any type of automation concept, you should ask yourself: • What is my main challenge that I am looking to solve with robotics? • How will the machine fit into my workflow and change daily work process for my staff? • P N H 1ow 5 9will 1 _the H Probot _ r deliver e s i zdrugs e . ptodwork f Pstations? a ge 1 1 5 / 0 8 / 1
• How quickly will it stock and dispense my drugs? • What technical support will I receive after installation? Also it is important to consider, that a professional workflow is never designed around any machine. Instead, automation should help complement your visions to achieve your goals today and in the future. u Willach is the market leader in Europe and Australia with regard to professional storage and dispensing equipment for medicines. Willach provides system solutions for the conventional and fully automated storage of medicine packages: for any type or size of 1 , pharmacy. 3 : 2 1 PM
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PPI/ PAID SErVICES
Professional ser vices – going beyond the dispensary Breaking out of the dispensary and into the brave new world of professional services can offer a community pharmacy a range of opportunities, writes Nick O’Donoghue.
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harmacy leaders and experts say getting serious about delivering optimal professional services is the best, and possibly only, way for the profession to successfully tackle the challenges it currently faces. Planning is central to developing and implementing successful and sustainable professional services in pharmacy. No two community pharmacies are the same and the key is to know the needs of you local area before committing to provide specific professional services, said John Bronger, former Pharmacy Guild of Australia national president. “There’s no point in having the best babies club around, nursing assistants and a whole load of programs associated with babies and young children if there are not many in your area,” he said.
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A starting point
“There’s no instant coffee in service,” he said. “People have to realise that creating a new service Home Medication Reviews (HMRs) are a good place to start, Mr Bronger believes, as they create a link with is creating a new business with the business. “Like most businesses, if you’re starting from GPs within a pharmacy’s catchment area and build scratch, it takes about three years to get up and runinter-professional relationships that can help identify ning, so when you set up a new service you won’t get the needs of the community. instant cash success to start with.” “I think the basics [of professional services] are in the HMRs,” he said. “They’re a good spot to start. Having HMRs sets High uptake up a dialogue with the local doctor and then you have More than 4400 pharmacies received start–up incenan inter-professional relationship.” tive payments (Pharmacy Practice Incentives (PPIs)) Stepping beyond HMRs and into other service from the federal government to providesservices in areas including the provision of services which three of the priority areas (Dose Administration Aids, carry Federal Government incentives, such as the Clinical Interventions, and Staged Supply) in the MedsCheck and Diabetes MedsCheck programs 5CPA. included in the Fifth Community Pharmacy AgreeThe total amount for the three start-up payments, ment (5CPA) are also ideal ways of developing a based on the registration uptake, was $8070, with service rather than dispensary driven business, Mr pharmacies receiving $4550 and $1720 for providing Bronger says. clinical interventions and staged supply, while pharmaHowever, he said an analysis of the demographics cies that applied to provide dose administration aids of the needs of the local community will be required got $1800. to assess the value these programs could have for a Welcoming the high level of uptake among comgiven pharmacy. munity pharmacies Kos Sclavos, Pharmacy Guild of “You start off with your basic research and during Australia national president said the PPIs provided the that you may discover you have a lot of a particular opportunity for the profession to show its value to the demographic group, who might not be coming to government: your pharmacy,” he said. “Once you get over 4000, then nearly every Aus“So if you develop a service you can capture or at tralian should have access to a service,” he said. least get your share of that group. “In the early days there were discussions with “There’s no one answer for all pharmacies, it’s a bit pharmacists saying there was a lot of admin, you’ve got like a contingency plan, you [have to] plan continuto be accredited… but we’re in a health environment, ously around your demographics. where we have to prove that we’re better than a call “The Government’s organised the main disease centre or other health professional group. state priorities, so that’s a good guide, have you got “I believe this will give us a very good base to people with those cross-sections in your community?” deliver these programs nationally.” While developing professional services that stretch While encouraging eligible pharmacies to sign-up, beyond the traditional dispensing role of the pharMr Sclavos stressed there would be audits of those macist can boost a pharmacy’s value, Mr Bronger said who claimed the incentives, to ensure they have imAD_ PNI YBPHAN O Vwere _ 1 not 1 2an 9 instant . p d fsource P aofgextra e revenue. 1 2 6 / 1 0 / plemented 1 1 , 2 the : 3PPIs. 8 PM they
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“Obviously you can’t claim these incentives and do nothing,” he said.
Support available With that in mind, the PSA launched its Pharmacy Support Program last year to help pharmacists assess their local demographics and help them to identify opportunities where they could make the most of providing services included in the 5CPA and others. Speaking at the Pharmacy Australia Congress 2011, Grant Kardachi, PSA national president, urged pharmacists to use the program to help build sustainable services. The paid service provides up to six months of business support including analysis of the pharmacist’s local area, business and marketing planning services and financial planning tools to help build the right services. “The PSA has a Pharmacy Support Program and we’ve got field officers out there who are keen to help,” Mr Kardachi said. “It’s really about helping [pharmacists] to get their head around implementing practice change, because if you do it once you can roll out other services in the future.” Since the program was launched at PAC10, Mr Kardachi said the number of people using the service had not been high, “but enough for us to be encouraged that the program is important to keep going.” While pharmacists can pay for support from the PSA’s program, Mr Kardachi stressed the importance of “getting involved with their GP” to build a successful business around professional services. “Let them know what programs you’re running,” he said. “A lot of these programs are about collaboration, and clearly for a lot of programs to be successful you’ve got to have GPs knowing what’s going on, because consumers will go to GPs and talk about issues.” The service was designed to assist pharmacists in overcoming barriers to professional service delivery and provide education and motivation to pharmacy staff about the services.
Standing out Mal Leith, proprietor of the Palms Pharmacy in Coffs Harbour, NSW, has already built a clinically
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The five Professional Practice Incentives Dose Administration Aids (DAAs)
DAAs are a pharmacy service that will assist consumers in the community to better manage their medicines, with the objective of avoiding medication misadventure and associated hospitalisation. This incentive specifically relates to service delivery to patients living within the community [and excludes patients who reside in a government funded Residential Aged Care Facility (RACF) or correctional facilities]. Pharmacies will be paid a periodic incentive payment for meeting the program requirements when delivering DAAs and recording the number of communityliving patients per week receiving DAAs for each eligible claiming period.
Clinical Interventions
A clinical intervention is a professional activity by the pharmacist directed towards improving the quality use of medicines by patients. It may result in a recommendation for a change in the patient’s medication therapy, means of administration or medication-taking behaviour. It does NOT include generic medicine substitution, routine prescription-related counselling or CMI provision. Pharmacies will be paid a periodic incentive for meeting the program requirements when delivering a clinical intervention and recording these interventions using the D.O.C.U.M.E.N.T. classification system for each eligible claiming period. Interventions under the M.E.N. components of the classification system cannot be claimed.
Staged Supply
Staged Supply is the process by which pharmacists supply medicines to consumers in periodic instalments of less than the total required or prescribed quantity at agreed intervals. The service is of particular value to patients with a mental illness, drug dependency or who are otherwise unable to manage their medicines safely. Pharmacies will be paid an annual incentive payment for meeting the program requirements for delivering a Staged Supply service.
Primary Health Care Includes five pharmacy health services: • Diabetes; • Respiratory disease; • Cardiovascular disease; • Mental health conditions; and • Health promotion.
Community Services Support (CSS) Includes five elements focused on medicine safety and harm minimisation: • Needle and Syringe Programs; • Opioid Substitution Programs; • Return Unwanted Medicines (RUM); • Staff Training; and • E-health.
For both primary health care and CSS, pharmacies will be paid an annual incentive for meeting the program requirements and delivering at least two of the five elements. It is expected that the number of elements to be delivered will increase over the 5CPA. Source: Pharmacy Guild of Australia
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“Mal Leith, proprietor of the Palms Pharmacy in Coffs Harbour, NSW believes providing professional services is the key to standing out from other pharmacies”.
orientated dispensary business and believes providing professional services is the key to standing out from other pharmacies in the area. “There are 10 other pharmacies in the Coffs Harbour area, so we don’t have a unique product, but we believe we have a unique service,” he said. Having signed up to all six services, Mr Leith has prioritised DAAs as they dovetail neatly with the pharmacy’s nursing home business. The DAA service is supported by Guildcare software, which prompts the dispensing pharmacist if a patient is eligible to receive the aid. “There is a trigger within the dispensing procedure. If, say, a patient is on more than five medicines the program tells us the patient is eligible for a DAA,” he said. “So then it’s up to us to print out the appropriate documentation and explain the value of compliance with their medicines.” Mr Leith has also embraced the incentive to work with other health professionals, organising regular informal meetings between the three pharmacists at his store, and specialists and doctors in the area. “They talk about their craft and interaction between pharmacy and their domain,” he said. “That has unbelievable attributes for building strong bridges between professions.”
Culture shift
Professional services: They need to be tailored to the demographic of the pharmacy’s location.
Pharmacy analyst, Bruce Annabel, said the PPIs would help create a culture shift in the business. “The PPIs themselves are great, but to maximise the benefit from them, pharmacists should see the PPIs as an opportunity to change from essentially a supply model to a supply and health service model,” he said. Recording actions is essential with the PPIs, according to Mr Annabel. “Community pharmacy can now prove its relevance to the payer – the government,” he said. “They’ve got 90 per cent of pharmacies participating across different locations and demographics. “It’s worth mentioning the critical importance of actually delivering every PPI to its full potential, particularly the Governmentfunded ones. “If pharmacy fails to do so, I would be concerned about the Government reaction and attitude toward future services funding.” u
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GETTING INTO OWNERSHIP
Partnership - A way forward for community pharmacy
Pharmacy ownership can seem a daunting task for young pharmacists, but the answer may lie in looking creatively at partnership arrangements, says leading pharmacy management consultant, Frank Sirianni.
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n the current environment it may be very difficult for some young pharmacists to buy a pharmacy. This is a result of: • Pharmacy values remaining strong - and they don’t look set to change in the immediate future. • Strong demand still existing for pharmacies, given the limited supply. • Finance becoming increasingly difficult to obtain as banks enforce strict criteria. This leaves limited available options, and partnership as a good alternative for first time owners. As consultants to a large number of pharmacy owners, we find, when the topic of pharmacy partnership is discussed, there seem to be misgivings for many owners. Pharmacy owners are quick to identify the difficulties they and their colleagues have encountered. Most reflect on the fact that they went wrong rather than why they went wrong. We find in the majority of the cases, there are often very good reasons why a partnership went astray and they usually could have been avoided. Also, very few reflect on the positive stories which in our experience are far more common. To use a real example, we recently consulted to a partnership group who were considering bringing on a new partner. They had a negative experience with a partner in the past and were very wary of potential pitfalls. When I asked about the current partnership,
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all partners commented on how well it operated and how it had been a key to their current business success. They were reflecting on the negative experience of a previous partner rather than the great experience they currently had in place. On further enquiry, I learnt that in this particular situation no partnership agreement had ever existed. It became apparent that this was the cause of the historical issue and would have easily been solved by a thorough contract. The fact is, the majority of these situations can be avoided by careful planning prior to a partnership being formed, but more about this later.
MyTHS aND REalITIES Some comments we at Medici Capital have received when consulting to pharmacists include: “These days’ young pharmacists just don’t work hard enough.” We find the majority of the time the opposite is true. Owning and operating a successful pharmacy is a lot harder than it used to be and we are finding first time owners are willing and prepared to contribute the additional effort required. There will be some pharmacists who are not suitable for ownership but this will always be the case whatever the age or industry. We usually find it is a win-win situation that benefits both partners. “I am not going to make it easy for them because I had to do it tough.” The fact is, in the majority of
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cases they will make it easier for you. They might even give you a chance to work on improving your business rather than working in it. We have seen a lot of examples where the drive and enthusiasm of a new partner is just what the business required. “I like things done my way and I like being my own boss.” Have you ever considered that your way might not be the best way? Just because it has been done a certain way for so many years does not mean another way won’t work. Fresh new ideas and enthusiasm might just be what is required to take your business to the next level. “The majority of partners I see do not have the required equity to invest and this will put pressure on the business.” Once again this all comes down to how the partnership is structured and the mechanisms that are put in place. There are ways to protect you against the risk of default of a partner who is highly geared. “It limits my options for sale” – this all depends on how you structure the partnership. It can protect against future downturns by diversifying your investments. It can act as a succession plan.You can slowly release yourself from the business over time.
Key steps for a successful partnership
• Careful consideration of the partnership before it commences. Be upfront and get the issues out in the open. That way you can get an insight into your partner’s objectives. We recommend a facilitation process prior to commencement of the partnership where the pertinent issues are brought to the floor by an independent party. • Get comfortable with each partner’s working styles before you commit. This may mean an employment period is warranted. Whilst an employment period is recommended, you will need to set strict timelines on when to make the decision to enter the partnership. Try to avoid dangling carrots. • Formalise roles upfront and adjust over time if necessary. • Prepare long and short term budgets so each partner knows where the business is headed and what each is striving for. At Medici Capital we believe partnership is a way forward for community phar macy and that the injection of the r ight partner will make your business stronger and more successful in the long ter m. Partnership affords young phar macists a chance to enter ownership and make their own way in community phar macy just as the previous generations have. This can only benefit community phar macy in general. u
Still not convinced? How can you avoid the pitfalls? Below are a number of recommendations which might save you some financial and emotional heartaches in Medici Capital offers a number of services regarding the future: partnership as follows • The number one priority is a well crafted part1. Medici Capital Partnership Register nership agreement. Note, if you’re incorporating, If you are looking for a partnership opportunity or considthe same goes for a shareholder’s agreement. This is ering bringing on a partner, Medici Capital can help. The imperative and will ultimately protect you if things register introduces suitable junior and senior partners who go wrong. When we are contacted by a disgruntled are both interested in entering a practical, feasible and partner, our first question is always “what does your rewarding partnership agreement. partnership agreement say?” You need to engage a 2. Partnership facilitation good lawyer who understands the issues that confront Medici Capital facilitate the proposed partnership through pharmacy. If your lawyer has limited experience in a formal process that ensures the agreements put in place pharmacy consider using an advisor like Medici CapiA D _ P N I Y B P H tal A NtoOwork V _ 1with 1 3 your 3 . plawyer d f and P ato g guide e 1 you2 around 6 / 1 0 / contain 1 1 , all 2 necessary : 4 4 P M and conditions. terms 3. Management consulting services the pitfalls.
We can help you with pharmacy finance & pharmacies for sale BUY A ACY PHARM
Contact our Sales Team today on (03) 9860 3300 or go to www.pharmacyalliance.com.au IT’S YOUR BUSINESS | NOVEMBER 2011 | 33
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Exit plans key for baby-boomer owners Statistics indicate that the number of businesses for sale will reach new heights in the next two years and, with one or two ups and downs, remain high for the next ten years or so, says Simon James of HLB Mann Judd.
E
ven with a large increase in the number of businesses on the market thanks to the retirement of baby-boomers, sound businesses with a good outlook will still be in demand. It is critical for all baby-boomer business owners to be ‘investor –ready’. Those who haven’t already started their succession planning process should be prepared to stay in the business for another two to five years, to give themselves enough time to set up the business in a way that will gain maximum value. Some of the issues business owners must consider include: If an owner is committed to retiring in a particular year then the price can be affected, particularly for a trade sale. Similarly, selling to the family may also mean selling at a time when the market is subdued, as a commitment to handing over the reins and all decision-making will need to be made to avoid dissatisfaction and dispute. One way to share in any future recovery is to have some part of the sale price linked to future business income – but there is also clear risk in this approach.
Succession Plan Succession planning is not a short term activity. Some long term strategies are essential to get maximum value from the sale. This is particularly important if the business sale is to fund the owner’s retirement. Unfortunately, the value of a business is not the amount that an owner wants for retirement; it is the amount that someone else is willing to pay for it. A business with a strong management independent form the owner, good profit record, audited accounts over several years, good financial records and sound marketing plans for the next several years, is clearly much more attractive to a buyer than one that depends entirely on the owner. There are a number of other questions that owners need to consider when selling a business: • How the business will be sold and what are the tax consequences of this? For instance, will premises be included in the sale? What tax liabilities (eg. Capital gains tax) may be triggered and who has to pay?
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SELLING YOUR BUSINESS: A succession plan is critical.
• What is the ongoing involvement of the old owners, if any? Will there be a transition phase where they remain involved in the business for a certain period after the sale? • Have the roles of management, including any family members, been properly defined and agreed? Is any training or professional development or recruitment needed to strengthen the team? • Are plans in place for managing the sales process, including contingencies if it falls through? • Is there a communication plan for contact with ‘stakeholders’ such as employees, clients, financiers and suppliers? It is important to keep the goodwill that has been built up over the years, as it’s often what the new owner is paying most for. • Are changes to existing legal arrangements needed? This should start before any sales negotiations begin so there are no unexpected hold-ups during the sales process. u HLB Mann Judd comprises a number of independent accounting firms.
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