The drugstore of the future: Form to follow function

March 19, 2007

Wonder what the drugstore of the future will look like? Look no further than the business plan of the future. If compounding is key, look for a compounding area front and center. If profits flow from professional services, think individual cubicles, conversation centers, and consulting rooms. If pharmacy is one department of many, merchandising displays will dominate.

"Form follows function," said independent pharmacy design consultant Wayne M. Caverly, president of Efficient Pharmacy Solutions in St. Lazare, Quebec, near Montreal. "Whatever changes occur in the nature of the people we serve, how we serve them, and the mix of services and products we provide will dictate the way our pharmacies are put together," he said. "Store design has changed dramatically in the past 100 years, but form is always dictated by the functions that generate the highest profits."

Caverly and other store design experts see a spectrum of drugstore types evolving. The spectrum will be anchored on two different business models. One model is a retail merchandising operation. Pharmacy is focused on dispensing, and the front end continues to dominate.

In the merchandising model, the front end accounts for about 60% of sales, said Stefan Linn, president of Health Mart, a franchise operation owned by McKesson. That is comparable to today's financial profile.

Under the health store model, the front end accounts for between 10% and 20% of sales. "Various formats can work," Linn said. "The dispensing pharmacy with a strong front end is a terrific format in certain types of markets. At the same time, we are seeing stores focused on professional services. It is a different business proposition and a very strong one."

Business first

As government and other third-party payers continue to squeeze margins, large retailers-the Targets, Wal-Marts, and grocery chains-are less affected than pharmacy chains and independents. They have more flexibility to adjust margins in other departments to make up for shrinking pharmacy profits.

"Lower margins cause pharmacies, drugstores, to look for other areas," explained Steve Lawrence, senior VP of retail pharmacy marketing for Cardinal Health. Cardinal owns the Medicine Shoppe franchise. "Do you expand the front end to become more of a retailer? Or do you expand health services in areas like durable medical equipment, specialty care?"

Drugstores that go the retailing route face tough competition from retail specialists, Lawrence said. The more likely road to success is expanded health-related services and products. Pharmacies are finding niches from specialty drugs to mail order to consultant services and more.

The precise mix of services and products depends on local needs. One example is a clinical drugstore with disease management programs and related health products. "That is quite different from a drugstore that offers gifts, candy, and sundries, or a retail-oriented store that has a closed-door pharmacy attached," Lawrence said. "There is no single store design that fits everybody and there never will be. You have to meet your customers' needs."

Chain choices

Chain giant Walgreens is looking to emphasize the drugstore side of its future. "We are looking for ways to reinforce the healthcare retailer message for our front-end sections," said company spokesman Michael Polzin.