Chain drugstores: Strategic tool for business expansion
(By Pharm. Steve Okoronkwo)
Nigeria’s healthcare system is undergoing rapid changes. The pharmaceutical industry is equally transforming to conform to these changes. According to John Strong (2011), the changing nature of pharmaceuticals, innovations in products and services and rising competition from new entrants and channels have prompted fundamental rethinking on strategy.
Pharmacy is a hybrid profession. It is a unique profession that shares almost, in equal proportions, the characteristics of a profession and a business. Little wonder, Denzin and Metlin (1968), say that Pharmacy has been identified as an occupation that may struggle to reconcile what has been argued to be the disparate aim of commercial profitability and professional altruism; while Lord Wilberforce in the Dickson’s case (1968) described Pharmacy as a trading profession.
The ownership and operating structures of retail pharmacy vary from one country to another. The United States is the most liberal, with pharmacists being employed by retail chain drug stores. In Canada, pharmacists own drug stores and it appears there are no restrictions on the number of establishments. Also, the organisational form this ownership takes is quite liberal. Europe operates a free market approach in which ownership can be separated from operations.
In Nigeria, the regulation guiding the ownership and operation of retail pharmacies is everything but liberal. Ownership and operation of retail drugstores in Nigeria is the exclusive preserve of the pharmacists. Although one can say that there has been some slight shift from this uncompromising stance in recent times, the justification for this rather rigid approach to ownership of retail pharmacies is however based on the constraints to the regulatory oversight by the government due to lack of enforcement staff, adequate finance, or the regulatory and judicial framework that exists in developed countries (Strong,2011).
Understanding chain drugstores
Retail pharmacies or drugstores have traditionally been run as independent pharmacies. An independent pharmacy is a retail drugstore that is not directly affiliated with any chain of pharmacies and is not owned or operated by a publicly traded company. Independent pharmacies are pharmacist-owned, privately-held businesses in varying practice settings. They include single-store operations, multiple-store locations and supermarket pharmacy operation.
Traditionally, retailing is local in nature and requires the knowledge of the needs and habits of a specific community. Community pharmacists took the advantage of regulatory and operational standards that were generally accompanied by restriction on ownership, entry and competition and established in various localities. With economic growth and advancement in medicine, pharmacies were able to take advantage of this environment and build profitable enclaves with limited competition. Pharmacies competed mostly on location, convenience and by claiming to provide better quality in practice.
However, with rising standards of living around the world, cost and productivity have become secondary concerns. Also, with globalisation of popular culture and development in technology, independent pharmacies which have held their own over the past decades are being driven out of business with the proliferation of chain drug stores. Another factor driving chain store retailing is the fact that some leading retailers are approaching saturation in their dominant market.
Chain drugstore is a group of retail outlets owned by one firm, with outlets nationwide or worldwide. Before being considered a chain, stores must meet the following conditions.
- The business or company must operate a number of local retail establishments, usually not less than four, in different geographical locations.
- The stores must have similar architecture.
III. The design and layout of the stores must be similar.
- The stores must have the same choice of products.
- The stores must have a central head office/management.
In Nigeria, only few pharmacies can conveniently meet these criteria. We have ready examples such as Healthplus and Medplusin Lagos and, perhaps, Paxs Pharmacy in Onitsha.
Chain drugstores and business expansion
While chain stores can be viewed by many as the inevitable result of market forces, it is as well a competitive strategic tool that can be employed in retail business to drive expansion. Strategy is a choice on how to compete; competitive advantage drives from immediate fast-thinking responsiveness to market changes- which is what chain drugstore model represents.
Three generic strategies have been identified in the marketplace (Porter, 1980). These are:
- Focused (niche) strategy: This strategy targets a specific market intensively- usually a limited but highly profitable market with high entry barriers. Most retail drugstores or pharmacies in Nigeria adopt this strategy. It is common to find many community pharmacies providing pharmaceutical care services within a particular locality. These retail or community pharmacies make much profit from consultations, even when sales may be low. However, the major limitation of this mainstream approach is that the pharmacy, as well as the practice, is built around the pharmacist-owner. The pharmacy can hardly survive without the owner because patients’ and customers’ patronage and loyalty is to the particular pharmacist and not the pharmacy.Another drawback is that success in a particular location cannot guarantee success in sister outlets,since the pharmacist can only practice in a place at any particular time, and the pharmacy or drugstore does not enjoy any brand loyalty. Finally, market liberalisation and economic growth have transformed retailing from being a profit-driver to a traffic-driver. Hence, as appealing as creating a niche in practice by practicing pharmaceutical care is, focus strategy isunlikely to lead to market expansion because it does not take a population-outlook to marketing.
- Overall cost-leadership strategy: This involves offering products or services at the lowest cost. Emphasis may not usually be on quality. This strategy is a very difficult one to operate because success requires volume. Cost-leadership players are usually very few in every country. In Nigeria, Boluke Pharmacy in Lagos is a well-known example of a cost-leader.
- Differentiation strategy: Differentiation entails competing on the basis of value added to customers (quality, service, differentiation). This strategy requires creative flair, research capability and strong marketing. Research has shown that patients and customers choose their pharmacymost often because of location/convenience and brand/chain. It is only about 20 percent of the customers that report lowest price as the reason for shopping most often at a particular pharmacy (Strong, 2011).
While pharmacists in Nigeria may have done well in location selection and competitive pricing, majority have paid little or no attention to the concept of chain drugstores and branding. It is very important to note that knowledge/trust is not a primary driver of shopping behaviour in pharmacies/drugstores. However, the trust and reputation which pharmacies enjoy generally as compared to other retail stores is because of the nature of pharmacy as a profession.
Given the obvious limitation of focus and cost leadership strategies, community pharmacies in responding to new market demands are adopting the chain-storepharmacy model as a differentiation tool to create and deliver value to customers as well as convert payments to profit. Market expansion is the natural and probable result of chain drugstores because of its inherent ability to attract the following market advantages:
i. Large network of channels
Chain drugstores aremodels of community pharmacy practice that can enable pharmacists extend their public health services to rural communities. This large network of stores can as well be seen as a means of delivering pharmaceutical services on a population basis as against the individualised approach in addressing the problem of preventing illness.It is also very important to mention that chain stores are heavily reliant on information technology for management. The focus on technology has shifted from automation as used in most single store operations to internal system integration.
ii. Economies of scale
Chain drugstores can order merchandise in much larger quantities than stand-alone retailers,making it possible for chain stores to offer greater selection of products at lower prices than independent competitors who do not have the same supply advantage. Product sourcing in chain stores isalso more centrally coordinated and chain retailers have sufficient volume to commission manufacturing which has removed the cost of middlemen in the distribution channel from manufacturer to the retailer.
iii. Brand familiarity/equity
Chain store has the same architectural design and store layout that help build its brand and enable customers to identify with the particular store. Branding is a major differentiation tool by chain drug stores. Without branding, competition will be solely on price. Branding enables companies to actively influence the demand side of the equation by encouraging customers to base their purchase decision on factors other than price. Marketing is a battle of perceptions and chain stores create impressionable brands which enrich our lives.
Chain Drugstores and Promotion of Public health
Public health function is by stratification. The micro level is from the perspective of a health professional whose primary role is not in public health but who is performing some public health functions; while the macro level derives from the perspective of a health professional whose primary role is public health (Johnson, 2008). The pharmacist’s role in public health has mostly been at the micro level.
The lack of awareness of the role of pharmacists in public health can be attributed to the niche strategy which they mostly adopt in practice. This unfortunate position of pharmacists is clearly evident in the United States where pharmacists are not defined as health care providers under the state and federal laws.
Brazier(2001) captures the situation of pharmacists in public health succinctly thus: The pharmacist’s work reaches out to the entire community. The impact of his or her practice affects us all, but when pharmacists do their job properly we barely even notice its importance. Gallup polls have shown pharmacist as highly trusted professionals and thatPharmacy,as a hybrid profession is greatly admired, though pharmacists are the least appreciated in terms of their contribution to public health.
Chain drugstores/pharmacies are opening new vistas to the perception of pharmacists as public health providers. Pharmacists’ role in public health is about the delivery of pharmaceutical services on a population basis as against the nicheapproach in health promotion. In the United States, the National Association of Chain Drug Stores fills over 2.7 billion prescriptions annually, which is more than 72 percent of annual prescriptions in the United States. The overall economic impact of all retail stores with pharmacies transcends their over USD 1 trillion in annual sales.
Associates, inc. on behalf of the Cape Cod Commission
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