Cover Story - Chains keeping fingers crossed


Business Outlook 2003: Chains



Chains keeping fingers crossed

Despite the bleak economy that refuses to release its grip on the nation, according to the Drug Topics Business Outlook survey, the majority of chain pharmacy executives should be pleased when they close the books on 2002.

About four out of 10 (41%) responding chain executives said they expect 2002 to be a good year, 34% said it will be very good, and 10% said 2002 will be excellent. A gloomier 14% said the year will be fair, and none said they expect the year to turn out poorly. Chains cheered over an increase in their prescription volume, a greater number of approved generics, and the aging population with its attendant demand for drugs for boosting their business. In keeping with last year's complaints, the majority of chain executives named lower reimbursements as their biggest downer. The economy/local unemployment and mail-order pharmacy were also mentioned as negative factors that have affected, or will affect, business this year.

When asked to compare their company's expected 2002 net profits with net profits achieved in 2001, 48% of chain brass expect profits to increase, 15% expect a decrease, and 37% believe profits will remain the same as last year. On average, those expecting a decrease in profits are estimating a 7% decline, while those expecting an increase pegged the hike at 16%.


When it comes to the R.Ph. shortage, the picture is still looking dismal. More than nine out of 10 (96%) respondents believe there is a shortage of pharmacists, compared with 93% who reported last year that R.Ph.s were hard to find. Of those respondents who noticed a shortage this year, 75% said the paucity is somewhat severe, 22% said it is extremely severe, and 3% think it is not at all severe. And it looks like there's no letup in sight: Three-quarters of the responding chain executives anticipate difficulty in finding pharmacists in their area of the country during 2003.

When asked about the number of pharmacists working in their pharmacy for 2003, 74% of the respondents said they expect to count the same number of white coats, 4% expect to see fewer R.Ph.s, and 22% anticipate welcoming more pharmacists.

Bringing home the bacon

Chain pharmacists are likely to bring home a fatter slab of bacon next year, as more than nine out of 10 chain executives said R.Ph. salaries are going up. On average, the expected increase is 7%.

Just as pharmacists are in demand in chains, so are technicians. When asked about the number of technicians in their pharmacy for 2003, more than half (54%) of respondents said they are expecting an increase, 46% of the respondents stated they expect the number of their technicians to remain the same, and no respondents foresee a decrease. Those expecting an increase are estimating an addition of eight techs on average.

New construction

The next time you see a construction crew breaking ground, don't be surprised if it's a pharmacy going up. More than half (54%) of chains reported that they expect to open new stores in 2003. The average number of new stores per organization is six. Freestanding buildings appear to be the most popular choice. Fifty-one percent of chain executives who are planning to extend their store counts said their new outlets are slated to open in a freestanding building.

Looking ahead

Executives looking in their crystal ball are forecasting 2003 to be a less successful business year than 2002. Twenty-one percent said it will be fair, 54% said it will be good, less than one-quarter (23%) said it will be very good, and only 1% said it will be excellent.

In 2001, chain executives predicted that in 2002 15% of drugstore business would come from cash customers, 19% of business would be derived from Medicaid, 63% would be brought in from third- party plans, and 3% would be culled from other sources. In this year's survey, chain executives said that when 2002 winds up, 14% of business will have come from cash customers, 19% from Medicaid, 65% from third-party plans, and 2% from other sources. Chain execs' forecast for 2003 looks pretty much the same: they see 12% of business coming from cash customers, 20% from Medicaid, 66% from third-party plans, and 2% derived from other sources.

When it comes to technology, chains are not standing on the sidelines. Six out of 10 chain pharmacies are currently wired. Of those that have a Web site, 26% sell products on-line, with the majority selling a variety of products such as OTCs, Rxs, and sundries.

A little more than half of the respondents (55%) that do have a Web site allow their customers to refill their Rxs on-line.

Of those respondents whose pharmacies don't have a Web site, one-third said they plan to launch one within the next year. Almost two-thirds of the respondents have in-store access to the Internet. Of those that do not have Internet access, 81% said they plan to add it in 2003.

Chains haven't scrambled to add the capability of accepting Rxs sent directly to their computers. Only a little over one-quarter of respondents currently accept prescriptions sent that way. That may all change in 2003. Of those who don't accept such Rxs, half said they would do so in 2003.

Chains were busy getting automated this year. Forty-three percent of chains said they employ automated dispensing technology, up from 19% of chain executives who said they had automated dispensing systems in 2001. Of the respondents who haven't yet taken the automation plunge, 21% said they plan to do so in 2003.

Chains are still shying away from central filling operations. Although last year, nine out of 10 chain executives said their chains do not have such a system, 26% said they'd add one in 2002. But 2002 results show that chains didn't keep their word on their central fill promise. Only 4% have a central filling operation. Of those that don't have this feature, 12% plan to add one in 2003.

Hottest pharmacy issues

What pharmacy headlines grabbed the most attention in 2002 according to chain executives? The Medicare drug benefit issue was named by 44% of respondents as the top choice, followed by the Health Insurance Portability & Accountability Act's privacy and marketing rules, and then the pharmacist shortage.

When asked what individual did the most for pharmacy in 2002, the name of National Association of Chain Drug Stores' leader Craig Fuller came up most often for his stance on the Medicare drug benefit proposal.

Chain executives were also pleased with the way in which pharmacy association leaders represented their interests this past year. A hefty 80% of respondents gave a thumbs-up to these leaders' efforts. One chain executive praised pharmacy association leaders for having "blocked Bush's prescription drug card plan." Another exec asserted, "Our pharmacy association in Virginia did a stellar job this year. NACDS performs well on a national scale." On the other hand, one executive scolded pharmacy association leaders for being "too reactionary and not proactive." Another respondent blamed pharmacy association leaders for "not being aggressive enough in mounting a challenge to third parties."

Looking ahead

Which issues will have the greatest financial impact on chains in 2003? A whopping 94% of respondents said prescription discount cards will have a negative impact, 4% said they will have no impact, and 1% predicted a positive impact.

An overwhelming 87% said compliance with HIPAA rules will have a negative impact, 9% said this issue will not have an impact, and 4% predicted a positive impact.

Thirty-six percent of respondents identified wholesaler mergers as having a negative impact, 44% said this issue will have no impact, and 20% saw a positive impact.

Roadblocks ahead

When asked to predict their biggest challenges in the days ahead, 35% of chain executives expect compliance with HIPAA to represent their biggest challenge, 35% cited cutbacks in Medicaid reimbursement as a future stumbling block, and 18% named pharmacist shortages as an obstacle. Competition from other chains was identified by 4% of chain executives, while 7% said they expect to face some other type of challenge next year.

Finally, chain execs were asked to reveal their expectations of how their company stock will fare next year. After the 66% of respondents whose companies are not publicly traded are subtracted, 22% of the remaining respondents said they expect their stock to go up, none foresee a drop, and 12% are unsure.

Sandra Levy


Chain forecast for 2003 in three key business areas

Remain the same
Remain the same
Remain the same



Where chain drugstores' business is coming from

Cash customers
Private third-party plans


Sandra Levy. Cover Story - Chains keeping fingers crossed.

Drug Topics


Related Videos
Related Content
© 2024 MJH Life Sciences

All rights reserved.