Franchise opportunities in the pharmacy business

By PAUL GRIMALDI
Friday, October 27, 2006
The consolidation of the drugstore industry pushed hundreds of independent pharmacies out of business during the last 20 years.

Unable to fight off bigger competitors, many pharmacists running neighborhood shops closed their businesses or sold their prescription files to one chain or another.

But some independent pharmacists continued on, competing against the big chains just as business owners do in other retail sectors.

The independents dispense 1.6 billion prescriptions annually, about 42 percent of all prescriptions, according to the National Community Pharmacists Associations in Alexandria, Va.

But independent-minded people in some retail sectors _ such as the restaurant, automotive and hotel industries _ have an alternative to going it alone that hasn't always been a viable option for pharmacists: franchising.

Franchise networks give otherwise independent businesses the power of volume. They can buy inventory in bulk, combine back-office functions and share advertising costs.

If you want to run a coffee shop, you can open a Dunkin' Donuts or a Honey Dew Donuts franchise.

Like getting your hands greasy? You can open an AAMCO Transmissions garage.

You're a fitness nut? Try Curves, to round up customers.

Like animals? You can be best friend to man's best friend by owning a Pet Butler unit.

But as their industry consolidated, pharmacists haven't had many options for joining a franchise.

The Brooks drugstore chain started as the subsidiary of Canadian drugstore franchiser The Jean Coutu Group. But Brooks never adopted the model here.

There are two active drugstore franchise operators in the United States: Health Mart and Medicine Shoppe International Inc. Both are owned by health-services corporations. McKesson Corp. owns Health Mart; Cardinal Health Inc. owns Medicine Shoppe.

"It's in McKesson's best interests to maintain the strength of the independent," said David Whalley, whose Newport (R.I.) Prescription Center became a Health Mart affiliate shortly after he opened his business 23 years ago.

This year, a decade after acquiring Health Mart as part of a purchase of another company, McKesson began bulking up the drugstore franchise operation. The company expects to have more than 600 franchises by the end of the year, up from just over 200 last year.

In a phone interview from McKesson's San Francisco headquarters, Health Mart executives talked about the initiative, which added 140 units in an August campaign.

"Our vision is that Health Mart can drive the thinking and the implementation of a new care model," said Stefan Linn, senior vice president of marketing for Health Mart. "As we look at the health-care marketplace _ where that's going is pharmaceutical care is going to become more complex."

Independents, he said, can provide personalized services that help people manage their medications and help them navigate the health-care system.

"If you think of that model, what is the strength? It's that relationship with their patients," Linn said. "Having that personal relationship really helps customers get the best care."

Health Mart offers services the independents need to compete with the chains: store-opening programs, operations manuals and training, store design and layout formats, automated drug-dispensing units, profit analysis, financing, merchandising _ and marketing muscle.

Health Mart can push franchisees into the lists of choices for managed-care providers, driving business to the doors of otherwise marginalized small businesses, he said.