Front-End Mix Allows Pharmacies to Control Costs, Boost Bottom Line

Local community pharmacies appreciate their customer bases and are good at showing it. “No single pharmacy chain has more stores than all independents combined, which represent 35% of all retail pharmacies in the US and a $73.7 billion marketplace. At the end of the first quarter of 2020, there were 21,683 independent community pharmacies in the United States,” according to Hamacher Resource Group.¹

In other words, communities value a personal touch and shopping locally. They also have come to rely on the products, quality care, and support that local community pharmacies provide.

Challenges and Solutions

It is no secret that pharmacies face many challenges. Unpredictable bigger-store systems, direct and indirect remuneration fees, payer clawbacks, reimbursements, and sometimes a lack of qualified employees can negatively affect a pharmacy’s bottom line. These issues take a pharmacy’s focus away from what often matters most: providing customer service. By having a patient-first approach and providing a unique mix of products in a pharmacy’s front end that help drive foot traffic, customers will have many reasons to choose a smaller, independent community pharmacy over the competition. To be clear, the front-end mix is the simplest way to control costs and increase a pharmacy storefront’s bottom line.

“The one place in your pharmacy where you have complete control of product mix, merchandising, pricing, and appearance is your front end. Regardless of the size of your front end, it [must] contribute to your bottom line,” according to the National Community Pharmacists Association (NCPA).²

Finding that balance between running a successful pharmacy and a profitable front-end retail space may be the difference between a thriving community pharmacy and one that is struggling to compete. That is why meeting customers’ needs is vital to a community pharmacy’s success. Most pharmacies understand that dispensing prescriptions and being on a first-name basis with patients is not enough to keep customers returning. Providing quality prescription care is just 1 com ponent of the economic equation. Providing vital clinical needs, such as vaccine services, while creating a unique front-end shopping experience are ways independent pharmacies can separate themselves and diversify their revenue streams.

With consumer needs often in constant flux, striking the right balance of health, lifestyle, and wellness products for existing and new customers is vital. Trends are trends for a reason, and maintaining the changing seasonal merchandising selections offered by sophisticated retail operators can be a challenge to duplicate. Some independent pharmacies have the staffing capacity to assist with both the front-end and pharmacy sides of customer service, whereas others must wear many hats, often leaving personalized customer service in the balance. However, there are great ways to ensure that a pharmacy meets the growing demands of its consumer base.

More Profit Sits Up Front

When it comes to front-end sales, measuring a gross profit margin can tell a pharmacy where improvements can be made to stay competitive and keep the requisite foot traffic flowing. One means of measurement is to calculate inventory turns.

“[A] pharmacy’s average turns for its front end is approximately 4, whereas the entire pharmacy operation averages 11.75. Increasing your front-end turns to more than once a quarter will help bal-ance and increase your gross margin,”² according to the NCPA.

One method for keeping track of inventory turns is to use a point of sale (POS) system. A POS system allows a pharmacy to categorize items and quickly determine what turns faster and what might not be moving. For the average 900-square foot front-end space, categories in a POS system may include beauty and health aids, durable medical equipment, gifts, OTC medications, and seasonal items. There are also fine line codes, which is a narrower method of categorizing products, including items such as antacids/laxatives, cold and cough, first aid care, oral care, and skin care.

Maintaining the right product mix and managing inventory help increase front-end turns and ultimately boost profit margins. However, the best benchmark to use when evaluating front-end merchandise perfor-mance is the gross margin return on investment (GMROI). This number calculates the gross profit divided by the average inventory value and provides the best overall view of front-end performance. There are some great options that can help increase GMROI and inventory turns.

Changing Shopping

Matchsquare is an example of a tool that can enhance GMROI and inventory turns.³ MatchSquare is a new online buisness-to-business wholesale marketplace that bridges the gap between local pharmacies, retailers, and niche brands, offering custom-curated, sustainable health, lifestyle, and wellness products for a pharmacy’s front-end space.

With more than 75,000 products, MatchSquare incorporates a vigorous screening and selection process that sources brands that are not always available at major retailers or online, thereby ensuring a unique product mix that is made for and, in some instances, by a local community. In addition, MatchSquare guarantees that each brand earns the MatchSquare M-tag of approval prior to onboarding. This means sourcing brands that are honest, purposeful, and sell well in pharmacies across the United States and that have been properly vetted.

When seasons change, it is often challenging to stay ahead of the competition let alone customer needs.

Along with the opportunity to purchase products individually, MatchSquare includes the option to shop collections. By grouping products for end caps, holiday, and point of purchase in easy-to-shop collections, MatchSquare has simplified the buying process and has made it easier for local pharmacies and small independent retailers to experience increased foot traffic and front-end sales, thereby also increasing inventory turns and ultimately GMROI.

In a fast-changing economic environment where alternative business decisions could establish additional revenue streams, pharmacies should consider looking at creative ways to enhance their front-end stores by stocking shelves with boutique and unique products to help anchor existing customers and increase flow of new ones.

References

1. Independent pharmacy research study. Hamacher Resource Group. January 2021. Accessed October 31, 2022. https://8481167.fs1.hubspotusercontent-na1.net/hubfs/8481167/HRG-IPRS-Report_Jan2021.pdf

2. Jones B. Marketing, merchandising, and making data-driven front-end decisions to overcome pharma-cy’s biggest threats. National Community Pharmacists Association. October 1, 2021. Accessed October 31, 2022. https://ncpa.org/sites/default/files/2022-08/APOCT21_CE.pdf

3. MatchSquare. Accessed October 31, 2022. MatchSquare.com© artinspiring / Adobe Stock

About the Author

Ned Milenkovich, PharmD, JD, is chair of health care practice at Much Shelist PC in Chicago, Illinois.