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Categories that sell well in independent pharmacies

In Brief:

  • Front-end sales have a much higher profit margin than prescriptions.
  • The top categories of health, beauty and wellness products outsell the bottom categories by more than 4:1.
  • Focusing on the right product mix can add thousands of dollars to your pharmacy’s bottom line.

If you’re stressing about the low margins on prescriptions but not paying much attention to sales in your front end, you’re missing a huge potential source of revenue.

“The margins in the prescription area pale in comparison to the potential in the front of the store,” said Dave Wendland, vice president and co-owner of Hamacher Resource Group (HRG), who has more than 20 years of experience in consumer packaged goods.

While the gross margin on prescription sales may be about 23% or lower in an independent pharmacy, the gross margin on front-end sales can be 38%.1 At a chain store the numbers can be even more dramatic. Wendland noted that CVS has a gross margin of 5.1% on pharmacy service, compared with 30.1% on retail sales.2

Out of 23 categories of health, beauty and wellness products, the top 11 categories provide 86.6% of top-line revenue, according to HRG’s Focus on Growth infographics, which detail the categories driving growth at independent pharmacies. While diabetes care is the biggest category, the next top 10 categories account for four times the dollar sales as the bottom 11 categories.

Knowing what sells best and presenting it well to customers can make a huge difference in sales and add thousands of dollars to the bottom line.

The Big 5

Based on national trend data over the past five years, HRG has concluded that independent pharmacies wanting to increase front-end sales should focus on:

  1. Diabetes Care
  2. Cold and Allergy
  3. Skin Care
  4. Baby Care
  5. Oral Care

Following is a closer look at the top categories and how pharmacies can increase sales in each area.

Behind The Numbers

  • Diabetes care — Think broadly. Blood glucose testing is one area where independents outperform chain pharmacies, with 83% of the sales in diabetes coming from testing supplies. Keep popular testing products in stock, but “if you’re in the diabetes category and all you’re doing is meters and strips, you’re missing a lot of opportunity,” Wendland said. Many conditions are rooted in diabetes, including skin irritations, neuropathy, eye problems, digestive issues and more. In addition to placing items related to diabetes care together, highlight products throughout the store, such as marking every sugar-free product with a gold star, making it easy for diabetic patients to navigate your store.
  • Cold and allergy — Plan all year. “Allergies are now a year-round challenge,” Wendland said, and pharmacies should begin preparing for cold and flu season in July or August, and know it may last through May. With many consumers living in multi-generational households, a pharmacy should make it easy to meet the needs of every age group with cold and allergy products. This is the second-most important category.
  • Skin care — Not cosmetics. Skin care sales at independent pharmacies are mostly medicinal or therapeutic treatments, not cosmetics. In this category, brand is among consumers’ top two or three considerations when choosing a product.
  • Baby care Not just for babies. One of the main subcategories here is baby wipes. “I don’t think it’s just baby bottoms” driving the sale of wipes, Wendland said, citing caregivers who use wipes for incontinent adults and people who keep them in their car for a convenient hand cleanup after eating a greasy fast-food meal. Another growth sub-category in baby care is nutritionals and food, which may include probiotics and products with electrolytes.Independent pharmacies don’t have the space, volume or turnover to compete with major retailers on price for diapers, although independents do need to stock some for shoppers’ convenience.
  • Oral care — An education opportunity. The oral care category has seen price increases, which leads to increased dollar sales. Independent pharmacies often see inter-dental care as an important subcategory, including products such as toothache remedies and temporary fillings.Another opportunity is educating patients that “the mouth is the gateway to health,” Wendland said. Manufacturers including Colgate, P&G and GSK “have done a ton of homework,” he said, and created education resources for patients and professionals, such as posters, handouts and continuing education, including YouTube videos. Another option is inviting a periodontist to be part of your health fair.

Nutraceuticals, Probiotics and Hearth Health Ingredients Also on the Rise

As consumers become more proactive about their health, they are seeking personalized health nutrition and natural alternatives to synthetic and genetically modified products. By 2018, this global health movement could drive the market for nutraceuticals (products derived from food sources that are purported to provide extra health benefits, in addition to the basic nutritional value found in foods) to $250 billion, probiotics to $39.6 billion and heart health ingredients to $15.2 billion.3

If you serve a population showing interest in taking charge of their health, discuss their nutritional needs and offer to stock the products they seek.

Setting the stage

Stocking top category items isn’t enough. Staff members should understand why those products are important, where they are located, and how they are arranged, to easily assist customers.

Employees should know the pharmacist’s recommendations in each category, so they can start conversations with customers and then refer them to the pharmacist for consultation. Although the staff member can’t recommend a product, the employee can say, “Our pharmacist usually recommends X in that area, but I’d like you to talk to the pharmacist to find out whether that would work for you.”

Finally, the staff needs to make merchandising those categories a priority. With limited time, they should focus on ensuring the top categories are fully stocked, neatly shelved and always look their best.

“The front end is the stage setting to the experience someone is going to have when they reach the prescription counter,” Wendland observed.

HRG’s Content Library has extensive resources for pharmacists who want to improve their front-end sales. Also see these previous Smart Retailing Rx articles:

Right-Size Departments Every 2 Years

To maximize the value of every square foot in the pharmacy, an owner needs to analyze sales figures. Dave Wendland of Hamacher Resource Group recommends conducting a “space to sales analysis” every two years.

Calculate the sales per square foot for each category. You may find, for example, that sales don’t justify 24 feet of baby care products. HRG studies national data, but each pharmacy should determine what sells best at its locations. “Determine your rock-star categories and build them,” Wendland advised.

He often asks pharmacists, “What have you done to your store lately?” If your pharmacy has the same layout as five years ago, you’re overdue for an update.

If you usually enter through the back door, walk in the front door like customers and take a fresh look at the first impression your pharmacy makes.

 

1 “Profits Up Again for Independent Pharmacy Owners,” Adam J. Fein, Drug Channels, Dec. 2, 2014. LINK and “The Front-End Opportunity,” Hamacher Resource Group, 2014. LINK
2 “CVS Fortifies Its Margins By Selling More Generic Drugs,” Forbes, Aug. 7, 2013. LINK
3 “Global Health Movement Drives Market for Nutraceuticals to $250 bn by 2018; Probiotics to Touch $39.6 bn and Heart Health Ingredients Near $15.2 bn,” PRNewswire-iReach, Nov. 19, 2012. LINK