July ’13

I’m forever blowing bubbles!

So the celtic tiger bubble has burst and we are left sitting dredging at the bottom of the barrel for any left over scraps. Like a lot of properties and other businesses many pharmacies were bought with borrowed money for way too high a price. A good number of these have been holding on by their fingernails for the past year. Already one in four are in a loss making situation. We’ve seen pharmacies in receivership. One multiple that we know of is in hock to NAMA for more that the value of the chain. The next round of cuts will be the final straw for many. A previous Minister often asked about how many pharmacies have closed. The answer will come next year. In my opinion the Minister and the HSE will not leave us alone until 300/400 pharmacies have closed.

Three years ago all we heard about was FEMPI and reference pricing. Many argued that we had too many pharmacies. Now three years later nothing seems to have changed. New pharmacies are still opening. We are still waiting for reference pricing. We still think that there are too many pharmacies. Let’s not forget why we have so many pharmacies in Ireland, including so many uneconomic ones. It is because we are unique in Europe in having no restrictions on new openings. 
It is as if somehow pharmacy was in it’s own bubble exempt from the celtic tiger. While I don’t think that the bubble is expanding as much as before I believe that it is still there. I don’t know how or when the bubble will burst but burst it will. And it will bring many good pharmacies with it. Banks will look at their loan portfolio and decide if the pharmacists who are mortgaged to the hilt can still repay in the light of the latest round of cuts. Many will struggle. But who will survive?

A little tale. The names have been changed to protect the guilty and innocent alike.
Back in February my good wife and myself decided to take some time out and avail of one of the many cut price weekend breaks that fill my In-box every day. It had to be a cut price week end as I’m a poor small independent pharmacist and that’s all I can afford.
As we drove to our destination we took a break for a cup of tea and a bun. We stopped in what used to be a two horse town before the recession but is now is down to one horse and even that now looks like it is on the way to the nearest burger factory. We walked the main drag of this town in search of sustenance and being in the trade I took note of the pharmacies that were located there. We saw five pharmacies, two owned by an Irish chain and three independents. This was a Friday about 12 noon. These were all of a similar size and laid out in such a way so that just by passing you could see all of the interior.
Being the nosey git that I am I made note of the customers. One had 3 customers, one had two and the third had one. Two were empty apart from staff. Which was which? The empty ones were the chains. The one and two customer pharmacies looked standard enough. The busiest was also the smallest. There was one customer at the cosmetics counter, one at the OTC counter and a third one talking to the pharmacist. The pharmacist was a man after my own heart, open collar, cardigan and looking totally at ease. So as the recession bites and this town losses it’s last surviving horse who’ll survive? My money is on the independents.
I may be a paranoid conspiracy theorist (nothing new there) but here’s my take on it.

The chains, both foreign and Irish, medium and large are trying to squeeze out any competition (read small & medium independents.)  This may not be any conscious decision but the effect is the same. Suck up all the available food and kill off the smaller animals by starvation. Yes they will suffer as well but they reckon that they have enough fat to out last the smaller pharmacies.  Kill them off and then have the field for themselves.

They are using cut price models, opening in nearby locations, leapfrogging etc.  The problem with this model is that they are relying on an upturn in the economy to allow them to put up prices and recoup their losses when things get better (if ever).  But then they will be scrapping among themselves.  They will end up like the US model dependent on low standards and high volumes.  

There have been many attempts to claw back market share. Cut price special offers, competing against Tesco and the like may work if properly done in some locations but it takes up precious pharmacist time.  Tesco don’t employ pharmacists to manage their shop floor, why should we?

The way to go for independents in my opinion is to look at other health related niches. M.U.R.s, cholesterol testing, cardiac assessments, health screening and chronic disease management. Establish them now, create a market and put a price on everything.  Sell them and their cost saving potential to VHI and the like. No more free advice!  There has to be an economic price on everything we do.  If the GMS want them for medical card patients then let them come to us. That way we will already know the cost of running them, know the value to payees and most importantly we can still operate them without relying on the GMS. Thanks to the HSE’s manoeuvring flu vaccination is a loss making service.  Yes we did it to get the foot in the door.  But the door has been opened so no more freebies.  We’ve been price takers for too long, We have to start determining the market and setting the price.   Our price model has to change. Taking a mark-up and providing the service for free can’t last. When was the last time that you got a decorator to paint your pharmacy for just the cost of the paint? You paid for the paint and his time putting it up. How many of us dispense the morning after pill OTC for just a straight mark-up? A GP provides a lot of service and very little product for his fee. Tesco provides a lot of product and very little service for their price. Which way do you want to go? Who does the patient/customer have more respect for? It’s a no brainer to me.
Here’s hoping that we are all still here next month, never mind next year.

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