A few months ago, I offered a bit of a pep talk to those of us in independent community pharmacy. Yes, times are challenging, I said, but there is still a pile of money to be made in running a drugstore — the annual profit of one chain (we'll call it Chain A), for example, works out to an average of a little over $235,000 per store — and those of us running our own pharmacies have an unquestioned advantage in providing the customer convenience the big chains only pretend to offer. (If you don't believe me, call your nearest chain pharmacy right now. I'll bet you today’s proceeds that you'll be able to read the whole thing before you can get a pharmacist on the line.)
However, I didn't get a chance to talk about the main reason we have this advantage, the key that allows us to outperform the big boys in customer satisfaction. It can be summed up in four words: We don't have cancer.
Here’s an example of what I mean. Let's say that Chain B manages to stun Wall Street with the most spectacular quarterly financial results in the history of American business, a profit of $100 trillion, more money than is currently in every cash drawer, ATM, and bank branch in the United States. No one is quite sure how Chain B did it, but after much initial skepticism, financial analysts determine that this incredible success is indeed due to the company's innovative new business model.
Chances are, the first thing that would happen is that the CEO takes full credit and give himself a substantial raise. Second, the bean counters inform him that the consensus estimate for next quarter's profit is now $120 trillion.
The entire organization then goes to work, but despite everyone's best efforts, the next quarter's profit comes in at $110 trillion. Despite the fact that this is the second-largest profit ever recorded by a corporation, Wall Street is very disappointed. To make things worse, the numbers people have decided that the outlook for the next quarter is even more grim, with the best estimates calling for only $95 trillion to be left over after all the bills are paid.
Panic now ensues. After receiving a large bonus from the corporate compensation committee, the CEO now implements a program of austerity. Salaries are frozen across the board. Hours are cut in every pharmacy, leading to exhausted, overworked staff and a decline in the customer experience. “Unfortunate,” the corporate brass will think, “but we have to pull out all the stops to hit that $95 trillion number.”
Ninety-four trillion, a sum that only a year before would have been absolutely incredible, now represents catastrophe. Despite the fact that trillions of dollars are flowing through company coffers, the company is no longer growing, and shareholders are not happy. Pressure starts to build to spin off Chain B's PBM. Short of that, everyone realizes that something — anything — must be done to restore profit growth.
Anything that is, except eliminating the CEO’s bonus.
You and me
Now let's look at a local community pharmacy that manages to match Chain A's store average of a $235,000 annual profit. This makes the owner pretty happy, as that amount of money can provide her with a nice living. She's even happier when her accountant says it's reasonable to expect a $250,000 profit in the year to come. But there’s just one thing.
That owner notices that her increased business comes with a bit of a cost. Longer lines, more time on hold for callers, less time to spend with her patients. She runs some numbers and figures that changing one of her clerks and a pharmacy technician from part-time to full time would result in that profit number dropping to $240,000. So then …
… She makes the change, costing herself $10,000 in profit growth. Her name is on the store, after all, and she takes pride in the work she does, making some things more important than maximum profit. Somehow she'll just have to get by on $240,000.
As the old saying goes, growth for growth's sake is the ideology of the cancer cell.
Now you understand why I say that our hypothetical store owner, like most independent pharmacies, does not have cancer. The prognosis for the big and ever-growing pharmacy chains, though, is not nearly so good.