A recent Allfin Financial Services survey of Australian pharmacy owners has found that highly profitable pharmacies operate in areas of lower competitive influence, generate higher gross sales, with the biggest differentiating factor being the number of 6CPA Community Dose Administration Aids Managed (DAAs).
Allfin Financial Services Managing Director, Mark Churchill said “we conducted the 2018 Pharmacy Pulse Check survey to gain insight into the financial state of the pharmacy industry and the impact recent industry changes have had on both independent and banner/franchise pharmacy businesses.”
“The survey reported that there are significant influences at work which are driving profitability among Australia’s pharmacies regardless of whether or not they are independents or fall under banner/franchise groups.”
The High Performers
The analysis divided businesses into two groups of similar sample sizes: those performing well (33% or more) and contrasted them against those where performance was below par (29% or less), based on profit margin.
The study found that the profile of a highly successful pharmacy included:
- They are significantly more likely to have multiple stores in their portfolio,
- There are more located in Victoria and in regional areas,
- They operate with a limited number of competitors nearby,
- While the monthly number of MedsChecks claimed by high performers (7.0) is higher than their lower performing counterparts (6.3), the difference is not significant,
- Higher performers are managing a significantly higher number of 6CPA Community DAAs (average of 115 monthly) versus that of the lower performers (average of 73 monthly),
- There’s a correlation between revenue and gross profit. High performers, as well as deriving stronger gross profits are also reporting significantly higher levels of revenue on a yearly basis. ($3.7M versus $2.1M),
- Wages & Rent to Sales ratios have little impact on total gross profitability levels,
- Higher performers are more likely (41%) to have been approached by their bank for revaluations than lower performers (12%) over the past 12 months,
- There are no significant differences between the banking interactions between high and low performers, however high performers are more likely to have been approached by their bank for a revaluation. This is 13% above the average for all pharmacies in the study.
- The financial performance of banner/franchise groups is stronger than independent pharmacies within the survey sample with gross profit percentage and revenues being higher. However, of the factors that we measured, this is not likely to be due to lower wages or rent but in the number of MedsChecks claimed and Community DAA’s managed. Banner/ franchise groups are much more likely to be deriving a higher income via these sources than independents.
- Competition is playing a role in limiting the financial performance of Australian pharmacies. Highest levels of competition are seen in metropolitan areas, in NSW and also those situated in shopping centres. Pharmacy businesses facing less competition are able to generate better profit margins despite lower revenues. Higher competition does not however impact a pharmacies ability to derive revenue from 6CPA funding.
- Businesses that are performing well, and see this continuing in future are making the most of their ability to claim available 6CPA, Clinical Interventions and Community Dose Administrations Aids funding. While not performing a significantly higher number of MedsChecks, the income that these pharmacies are deriving from 6CPA sources does set them apart from other businesses.
- Increases in merchant fees have been felt by all businesses, with on average (47%) saying that these had risen in the last 12 months. Of those who had seen a rise, half (50%) indicate the rise being under $100 per month. Fee increases have been noted by a higher number of lower performing businesses – those with lower gross profit figures and a poor future outlook for their business.
“There is presently an alarmingly low trend of pharmacy owners utilising MedsChecks and other government initiatives” said Mark Churchill.
“With the results of the survey indicating a clear profile of a successful pharmacy owner, it essential that pharmacy owners make the most of their ability to claim 6CPA funding to lead the way in the industry” he said.
Within the sample, there was good representation across the country and of single and multiple pharmacy owners.
For more information on our survey, contact our team here