KnowledgeDriven.com, Danny Nelson, Director of Business Coaching, AmerisourceBergen
Though prescription sales account for as much as 95 percent of a typical independent pharmacy’s annual revenue, the average margins on front-end merchandise are 15 percent higher than the margins on prescription sales.1
Despite such large margins, independent pharmacies either don’t have the time or the knowledge to grow the front end of their stores. Some pharmacies don’t know where to start, are unfamiliar with the latest retail techniques and tools, don’t think their employees have the capacity or knowledge to execute or think the front end simply sells itself. It doesn’t.
Community pharmacies have an opportunity to grow, differentiate and shine above chains, mass retailers and supermarket pharmacies offering one-stop convenience, variety and lower prices. This stems from the community pharmacy’s unique position to deliver a delightful patient experience as both a retailer and a pillar in the community. But to be an effective retailer, independent pharmacies need to think like a retailer.
Seven Retailing Rules That Deliver
1. See your store the way a patient does. A pharmacy has one chance to make a first impression. Before a patient enters the store (likely through the main entrance), what message does the exterior convey? Whether a fresh coat of paint on the front door or updated seasonal window displays, the outside of a pharmacy sets the patient expectation for what they can find inside. When a patient first enters, the store can never be too clean nor the merchandise too organized. Dusty shelves, as well as soiled packaging and carpet make for poor first impressions. Up-to-date fliers and brochures, well-placed displays and non-pharmacy staffers available to greet and help patients as they enter are key to a successful front end. According to J.D. Power’s 2016 U.S. Pharmacy Study on customer satisfaction ratings, friendly and informed non-pharmacy staff is a major factor to increasing front-end profitability.2
2. Use planograms to take the guesswork out of merchandising. Planograms, which create a visual description and drawing of a shelf layout, are a proven resource retailers have used for years. They can show a retailer where and how to place and arrange products. If a shopper gives one section their attention for a brief moment, a well-executed planogram might be the key to an extra sale. For example, a young mother who rushes in to buy a cold remedy for her sick child might eye another item for her chronic allergies. A planogram in the children’s health category that combines cold and allergy, digestive and pain products might stimulate another purchase.3 A recent performance evaluation of a 17-store pilot program in the Dallas market showed an optimized front-end planogram was responsible for a 5 percent increase in unit sales.4
3. The best retailers know how to turn product. Donating or writing off dated inventory is a common practice that reduces a pharmacy’s return on investment, but this isn’t always the only option. Sometimes, marking down prices, freshening packaging or changing the way it is presented is all you need to move the merchandise. A pharmacy owner also needs to be more attentive to items that move fast, such as toys that are impulse buys for kids or cosmetics for adults. Those items go in and out of fashion and demand quick changes. Placement is also important to turning product quickly. For instance, surveys show placing common household grocery and cleaning supplies near the pharmacy area increases sales.
4. Companion sales boost revenues and profits. The J.D. Power study showed as many as 60 percent of customers surveyed who used health and wellness services such as immunizations, lifestyle advice and education, and vision and hearing tests, and bought prescription treatments for common illnesses said they also bought other nonprescription, health-related merchandise at the pharmacy. According to Hamacher Resource Group, if you divide your merchandise into three segments—health, beauty and wellness—health is typically the top performing category with regard to sales and profits. This includes over-the-counter (OTC) medications such as cold and allergy, pain relief and digestive health.5 Meanwhile, eye and ear care within the wellness category provide a pharmacy the highest gross margin. Pharmacists can raise awareness of these companion wellness and health products with in-store ads and promotions, which can be a relatively inexpensive and effective way to increase sales.
5. Trust extends beyond the drug counter. When a pharmacist is uncomfortable with recommending a complementary product or doesn’t take the time to suggest an OTC product, they’re actually doing the patient a disservice by not making sure her or she is getting everything needed. For example, if a patient arrives with a bout of poison oak and a prescription for prednisone, the pharmacy is not addressing a patient’s whole health needs by not offering complementary topical solutions. Such products that improve outcomes build trust between the patient and pharmacist. J.D. Power research shows that when a pharmacist makes a suggestion, a patient is three times more likely to buy the companion product.6
6. Mine the point-of-sale (POS) data and use dashboards. POS cash registers collect, track and analyze the sales data that pharmacies need to review on a regular basis. Reports can track retail dollars per unit, gross margin (in dollars or percentage) or profit per acquisition cost. Using this data, pharmacists can pinpoint a product that will move faster with a temporary price reduction or, conversely, discover a product that isn’t moving and is taking up valuable shelf space. While this might sound overwhelming, if a pharmacy owner simply spends a few minutes each week studying his or her patients’ purchasing trends, they can discern a lot of potentially valuable information. A dashboard in conjunction with a POS device is a powerful tool to expose under- and over-performing areas. For example, a pharmacy can use such a dashboard to discover trends in year-over-year sales of durable medical equipment (DME), which, based on results, should motivate the pharmacy to take action, such as expanding the product line, implementing better displays, or reducing DME inventory to free up space for other products.
7. Train, empower and engage the entire team. Training front-end staff, often the most overlooked resource within community pharmacies, is of the utmost importance. Owners wear many hats and can’t be every place at once, so this requires them to delegate their tasks. This means training all staff to know store layouts, products, dress codes and their roles in the success of the business. Weekly meetings and innovative tactics to incentivize employees to sell should also be part of the mix. For instance, one creative way to increase private label sales is through gamification. Encourage employees by creating scoreboards that show the leading salesperson and have a prize at the end of each month.
In the end, the front end provides a great opportunity for pharmacies to increase profits while improving the patient experience. If someone physically puts an item in a patient’s hand, they’re more likely to buy it. Combining this personal touch with the aforementioned strategies is essential for a pharmacy to thrive.
2 Source: J.D. Power 2016 U.S. Pharmacy Study
3 Helping Pharmacies Gain Profit With Planograms. (2015, November 18). Retrieved November 9, 2016, from Pharma Mirror, http://www.pharmamirror.com/pharmaceutical-articles/helping-pharmacies-gain-profit-with-planograms
4 Johnsen, M. (2016, August 9). Nightengale Focuses on Delivering Value to Independent Pharmacy in New Role. Retrieved November 9, 2016, from Drug Store News, http://www.drugstorenews.com/article/nightengale-focuses-delivering-value-independent-pharmacy-new-role
5 Moyer, M. (2016, October 21). Health, Beauty, and Wellness Items—Where Should You Focus Your Efforts? Retrieved November 9, 2016, from Hamacher Resource Group, http://hamacher.com/health-beauty-and-wellness-items-where-should-you-focus-your-efforts