Retail News Breaks
Regional chains find new ways to stay in the game
February 4th, 2013
NEW YORK – Regional drug chains that fill the right niche can not only survive, but thrive. That's the message of successful small pharmacy chains nationwide, many of whom are gathered here for the National Association of Chain Drug Stores Regional Chain Conference.
In North Carolina Kerr Drug “continues to work on a patient-centric service model to offset the commoditization of the prescription,” says president and chief executive officer Tony Civello. “This is a transition we have actively developed and pursued for over a decade. These services will reap benefits for pharmacy providers in a health care system that now — and in the future — recognizes quality and not quantity.”
Restricted networks and margin erosion for generic drugs require all pharmacy providers to operate efficiently, and intensely manage expenses, adds Civello. “At Kerr Drug this is not an idle exercise.”
Sioux Falls, S.D.-based Lewis Drugs has stepped beyond the traditional bounds of retailing by cultivating relationships in its markets with health care systems, says president and CEO Mark Griffin.
The latest result of those partnerships is Sanford Health’s plans to build a 24,000-square-foot clinic attached to Lewis’ store in southwestern Sioux Falls. Half the building will be for family medicine, and the other half will be for pediatrics and will house the Sanford pediatric residency continuity clinic.
The announcement of the planned clinic came in 2012, which happened to mark Lewis’ 70th anniversary and was a banner year for the chain. The retailer posted gains in both the front end and the pharmacy, notes Griffin. The positive trends continued in January, he says.
One of Lewis’ strengths is having 10 stores that average over 40,000 square feet. The large units sell, in addition to the standard drug store mix, all manner of general merchandise and grocery, from food, wine and liquor to outdoor living items. In spring and summer an extensive assortment of horticulture products is offered in greenhouses adjacent to the stores.
Chainwide, Lewis’ reliance on the front end for about half of its sales has been a safety net during the downturn, says Griffin. “Sometimes both the front end and pharmacy are up, but sometimes if one’s flat the other is up, so it’s good to have that fallback when times are challenging.”
One cloud on Lewis’ horizon is health care reform, he says. “They haven’t figured out much about it in Washington, so how are we supposed to figure it out? That’s a concern.”
Regional chains, like their large counterparts, are trying to envision how the industry will look, adds Griffin, calling uncertainty over the Affordable Care Act’s implementation “troubling.”
Mark Panzer, president and CEO of Pharmaca Integrative Pharmacy, says the most vexing issue is how deep reimbursement cuts will be. “As the government becomes our biggest payer we’ve now got an 800-pound gorilla we’re going to be wrestling with, as well as three big PBMs. As a regional chain our struggle is to deal with those reimbursement pressures and still develop new revenue streams and more margin to be a viable business.”
Pharmaca has driven sales by being “the Whole Foods of the chain drug industry,” he says, targeting upscale consumers with natural/organic products and integrative health care with practitioners including naturopathic doctors, herbalists and estheticians.
“Our practitioner model is our point of difference,” says Panzer. “Everyone is adding health advisors, but there’s a big difference between a health advisor and the licensed health practitioners that staff our stores.”
Also separating Pharmaca from the pack: its compounding services, which are done on a one-on-one basis with the patient, in conjunction with a physician.
“Anybody can compound,” Panzer said. “But compounding is not taking something out of a bottle, putting a sticker on it and giving it to a patient. The pharmacists are engaged with the patient because they have to consult the physician, work with the patient and in some cases adjust the strength over and over. Whether it’s hormone replacement therapy or reconstituting tablets in a different form, it’s a unique service we provide, and we’re good at it.”
In pursuit of new revenue streams, Pharmaca, like other chains is looking at initiatives ranging from immunizations to medication therapy management (MTM). With immunization availability now widespread, the question is how to optimize the service, says Panzer. Likewise the issue with MTM is in taking it “to the next level,” he says.
In the beauty area, Pharmaca continues to expand services, upgrade its departments and maintain the presence of estheticians. And the chain’s emphasis on natural and organic beauty care continues to drive sales.
“We have to continually be innovative with our product mix and services,” comments Panzer. “An independent or regional chain has to be especially innovative with its mix, staffing, services and overall model. We need to continually provide a superior environment and experience for the customer and are working hard to innovate in the natural and organic area. We are better than most when it comes to bringing new lines to market, like Primavera, Cowgirl and Suki.”
The upshot is that Pharmaca’s same-store sales gains have hovered around 10%, sometimes tripling those of the megachains. Its average market basket is double that of the national chains, and its sales per square foot are substantially higher. “Our attention to service levels is industry leading,” says Panzer.
While the uncertainties of the health care landscape are a looming challenge for all pharmacy operators, in Miami Navarro Discount Pharmacy has prospered by leveraging its legacy of serving the Hispanic market for 51 years.
“This added knowledge has allowed us to create a unique assortment of products that customers have come to depend on,” says Cristy Leon-Rivero, vice president of marketing. “We are also constantly talking with customers and conducting focus groups on an ongoing basis, which provides essential feedback.”
One distinctive outgrowth of that process — and customer demand — is the creation of Vida Mia, the first extensive private label product line with bilingual labeling. Distributed by Navarro's Magellan Distribution Solutions unit, Vida Mia is now being sold on a wholesale basis to retailers in markets across the United States and the Caribbean, although Navarro was the first chain to offer it.
The multi-category line encompasses everything from appliances and kitchen gadgets to food products, beauty care, baby care, personal care and over-the-counter remedies and home health equipment, all with bi-lingual labeling.
While Vida Mia is reaching Hispanic consumers all over the country and beyond, so is Navarro through its we site, Navarro.com.
“E-commerce has allowed Navarro to expand its footprint beyond the territory we cover with our 32 brick-and-mortar stores to other areas of the U.S.,” says Leon-Rivero. “Navarro.com offers a full product assortment of nearly everything sold in the store, and it’s performing well.”
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