*Data from 175 independent pharmacies subscribed to RPM
Total Retail Sales: +4% vs last year.
While this is positive in today’s competitive environment – it needs to be remembered that 2021 was a year that was heavily disrupted by COVID lockdowns.
Stats NZ reported in December that businesses throughout NZ increased their sales revenues by +14% in the year to September 2022.
1/3 of pharmacies in our data had a retail sales increase of +10% or more in 2022.
There were a small number of pharmacies with a decline of more than -20% sales due to the opening of a significant competitor nearby. Recent history has shown that most businesses regain some of these lost sales after the first year – particularly if they focus on high staff service levels.
Category trends:
Cough & Cold and Allergy sales were +24% Increased demand for these categories was clearly the driver of significant customer traffic growth compared with last year.
The important Health Supplements sales declined slightly -1% in independent pharmacies.
In spite of increased discounting we have helped a number of pharmacies to achieve double-digit growth in natural health by introducing a Hardy’s Health Hub franchise within their store.
Cosmetic sales dropped by -8% continuing their steady decline over the last decade. Many pharmacies discontinued their franchise beauty ranges. This range rationalisation is a smart way to free up capital and shop space which can then be re-allocated to take advantage of new, more profitable opportunities in health services.
Regional trends:
Regional sales figures show that North Island pharmacies retail sales were well above last year. At first glance this looks like a “good news” story for the entire North Island. But don’t forget that this time last year Auckland was only just emerging from over 100 days in lockdown – so a more “normal” trading year in 2022 was expected.
In the last 6 months of 2022 we are seeing South Island pharmacy retail figures increase ahead of last year for the first time since the COVID pandemic started. This reflects the steady improvement in overseas tourism that had impacted heavily on towns and cities throughout the south, especially those in Otago.
Pharmacy Types – bigger isn’t better
Larger retail pharmacies have been hit the hardest. It is no surprise to see that the larger format retail pharmacies (in shopping malls or with significant beauty departments) have experienced tough retail times. Not only did they have the most to lose to the discounters, but shopping habits worldwide have changed to favour more local shopping in suburban shopping locations
Inflation hits costs – but has had little impact on retail pharmacy prices
Annual inflation is sitting at 7% and this puts New Zealand in the middle of the pack globally. These increases are due to global supply chain disruptions, labour market shortages and increased consumer demand as countries loosened their COVID-19 restrictions.
For most small businesses, the impact on higher costs is amplified threefold. So, if your business is incurring inflationary costs of 5%, then typically turnover would need to increase by 15% to maintain the same level of profit. For many small businesses, the only way of achieving this is to increase prices.
Pharmacy retail prices have only increased by +3% vs last year – which suggests that once again, pharmacies are absorbing the impact of inflation by making less profit.
Staff burnout and the great resignation
It is now clear that inflation and staff shortages will continue to impact all New Zealand businesses in 2023. Pharmacy owners are working longer hours and many of those who own multiple pharmacies are reducing hours or closing some sites permanently.
The nationwide unemployment rate is now just 3% (as at September 2022) - the lowest level on record!
Average NZ wages have risen, increasing by 7% per year over both of the last 2 years. This has been triggered by a shortage of supply and as a result of Government initiatives such as increased minimum pay rates and additional sick leave and statutory holidays.
Internationally, the ‘great resignation’ has seen people leave their jobs having reevaluated their priorities, and this trend is impacting us here too. Anecdotally, pharmacy employee turnover has increased as staff eye opportunities elsewhere.
This means employees are considering job satisfaction, and whether they’re happy with their current pay levels. It is more important than ever for employers to take action to retain their staff.
Tips for 2023
None of this is likely to go away in the foreseeable future, so here are some ideas to help with your business planning for 2023.
Review your prices regularly: Put your prices up as costs increase, not annually. Review all product lines and their margins.
Focus on your strengths: Range rationalisation to ditch the products and ranges with a low return-on-investment will simplify your business, particularly if you have staff shortages.
Specialise: Adding more highly specialised staff to deliver extra health services such as vaccinations or consultations is a great way to accentuate your point-of-difference from the discounters.
Determine better ways of purchasing: Put more of your business through preferred suppliers. Automate your buying or streamline who can order within your business and how frequently. Larger, less frequent orders will be more efficient.
Get the team working smarter: Ensure the right people are doing the right things at the right time within your business. Consider outsourcing and using contractors to perform tasks such as deliveries, marketing, merchandising, recruitment, payroll, accounts and cleaning.
Look into automation: Are there new systems, tools or equipment that can increase the output of your staff?
Become an employer of choice: Further to reviewing pay rates, identify what else you can do to help retain staff, whether it be through offering additional training, flexibility, staffroom conditions or other perks. Small things to help the overall culture of your business are often the main driver for people staying.
Get creative with recruitment: Identify and sell the benefits of working for your business. Involve your team in identifying these and consider paying staff a referral bonus if they successfully introduce any new staff.
Start working on your succession plan. One way to lock in a key employee for the long term could be by offering a shareholding or a progressive buy-in plan.
Review your trading hours: A number of pharmacies have reduced their opening hours. You will reduce the pressure on staff by not opening 7 days a week. In suburban or rural locations your local customers will most likely still bring you their business.
Get in touch in 2023 if you would like help with your planning!