Just for a bit of fun after last month’s article trying to track down the landlord who was on a wine tasting tour in Tuscany, I thought we might hand out some awards. So, if ‘pharmacy’ had its ‘night of nights’ and awards were given to different aspects of your business in the eyes of current buyers, these would be the categories and the recipients of those awards.
In other words what buyers are looking for now and how they might break down your business with the view of considering purchasing it. The first award category is:
The most popular pharmacy sales range for the last 12 months goes to pharmacies that have a sales range is from $1.5m to $2.1m. This range is usually targeted by first or second pharmacy buyers. Coming in second is sales below $1.5m and third would be sales above the $2.1m mark. There are buyers in each range above the currently most popular ranges stated here.
The most popular pharmacy location goes to pharmacies on a healthy shopping strip with doctors close by to support a healthy script trade. Second is a busy medical centre away from the main shopping strip. This way more scripts are retained by that pharmacy in the medical centre. The third most popular location goes to the small shopping development with a good anchor tenant and around 12 small retailers in an isolated environment.
The most popular Gross Profit range depends on the nature of the pharmacy and the market it trades amongst other pharmacies and retailers. There is of course many factors that affect GP, however if we remove methadone sales and specialized sales. Then we allowed for alterations in the opening and closing stock to determine the true GP in a pharmacy the winner would be in the range between 30% to 32%. Naturally the higher the GP the better, but don’t forget we are looking at it through the eyes of a buyer and what they can do with a business or can they maintain high GP levels upon a purchase.
The most popular rental paid award doesn’t exist, because no one likes paying rent. However if we did the obvious answer is those that pay the least rent compared to sales. I’m always impressed with some rentals paid by some pharmacies on the strip in country towns. They can be as low as or lower than 1% of sales. The real winner of this award is pharmacies that can keep their renal below 3.5% of sales. Not so easy to do these days so the second place goes to pharmacies that pay rent between 3.5% to 5.5%. These businesses have probably been through rent reviews and face steady CPI increases along the way. In my opinion any rental above 7% means your business should be still growing faster that the rental increases and it will reduce downwards over time or its not keeping pace with the landlords expectations. Major shopping centers often charge rents around 7% of sales. High traffic volume and strong sales usually support this rental.
Substitution rate award has become one of the most popular awards and again the higher the better. However, I think the award goes to the pharmacy that has a substitution rate of around 75% to 80%. To me this means there is room for improvement for the buyer and the current owner has done a good job converting customers over time and customers are comfortable with the change. If the percentage is well below the 75% make it can mean the owner has not pushed the issue, or the customers don’t want the change. This can still be an opportunity for the buyer and it might be an easier road than anticipated.
The most popular nursing homes arrangements award goes to those that have long term relationships that are close to the pharmacy and is unlikely to change. The second part of this is that the Nursing home respects the pharmacy and does not abuse the relationship. The cost of running a nursing home account needs to be carefully considered and there are pharmacies these days that specialize in this area. The winner of this award is the pharmacy that can get all the above right and not let these sales become much more that 5% of the sales of the pharmacy.
The most popular Methadone client’s award has become another popular award to off-set the rising costs in pharmacy today. It’s a bit like the Nursing home award whereby the clients need to know the rules and the pharmacy needs to respect them as any other customer. This lends itself to creating a balance between the regular customers and methadone customers to make sure all customers have a good experience in the pharmacy. In my view the winner is the pharmacy that has approximately 30 methadone customers. Remember every pharmacy is different and some can accommodate more methadone clients and some less. Buyers will consider what focus is on the program and decide accordingly.
The most popular wages paid award could be the award rate, but it’s not. Some pharmacies run a bit fat on wages because the owner is not always present and he / she prefer the customer focus whilst they are not in the store. Other owners see it as a major expense that can be cut back and this could also be costly if customers have bad experiences and don’t come back. So the winners hear are pharmacies that have wages to sales ratios around the 13% to 13.5% and are not trading extended hours to any great degree. Medical centers can come in well below this mark as it is a question of space in the business and the focus of that business. Extended hours pharmacies have their own award and that goes to pharmacies that can maintain wages up to 15%. Wages above this indicates things are not as controlled as they should be or the business is growing fast.
It’s a bit of fun to look over these results and compare your business to some of the percentages in the award categories. It might alert you to an element of your business that needs some attention. A good agent can work through these issues and present the business to the market explaining how you operate your business as opposed to how it needs to be represented to the market to maximize your investment in pharmacy.