The Power of Pharmacy Franchising

The Power of Pharmacy Franchising
Independents Say Insurance Is the Main Benefit of Affiliation

By Dana Hedgpeth
Washington Post Staff Writer
Monday, January 10, 2000; Page F05

A group of independent pharmacists is about to enter into a collaboration its members hope will give them some new power in the industry as they try to compete against gigantic chains.

The concept, however, is nothing new: franchising.

Care Drug Centers Inc. in Landover is likely to include more than half of the estimated 55 pharmacists in Maryland, the District and Virginia that were in an existing loosely-knit buying group. The legal details and contracts will be ironed out in the next month.

Each pharmacy will remain independent, but industry experts say their affiliation with Care will help the pharmacists reduce their advertising costs and get better pricing on drugs from vendors.

"We're trying to make neighborhood pharmacies stronger," said Gerry Serody, president of Care's board of directors. "We'll be a franchise entity somewhat like McDonald's, in that if you're part of us, you can't buy buns from Burger King.

"We don't want to own these businesses," he said. "We want them to incorporate under the Care umbrella that allows them to make more money."

Independent pharmacies have been facing increasing pressure to survive in the retail prescription drug industry. They are typically getting less for reimbursements from managed-care companies, even as medicine costs rise. That leaves them with shrinking margins, said Serody.

Bigger drugstore chains are often more appealing for insurance companies to deal with because of their volume. That can prompt the larger stores to buy the smaller, independent pharmacies -- or the independents to just close their doors.

In the last decade, the number of independent pharmacies has gone from the mid-30,000s to 25,000 nationwide, according to the National Community Pharmacists Association in Alexandria. The number has stabilized in the last few years, experts said, but they stress that more needs to be done if the independents are to survive in the long term.

While there are are two other, larger pharmacy franchise groups in the country -- Medicap of Des Moines and Medicine Shoppe International of St. Louis -- drug industry experts said the Care group will be unique because it will be run by pharmacists. The Care group worked with a Leesburg consulting firm over the last two years to develop the plan.

"It will be initiated by the pharmacists themselves, which will mean their interests will be better served," said Ken Whittemore of the pharmacists association.

Under the agreement, the pharmacists will have to pay an initial fee and agree to terms under which the consortium will buy drugs. The membership fee has yet to be determined, but it will be cheaper for founding members.

The Care group would also have common back-office services pharmacies can use in hiring, accounting and payroll, and it will take care of lease negotiations for each store. Eventually, it would train young pharmacist graduates and help them start their own stores.

"The advantage the chains have is they have one central headquarters that does all that little stuff," said Ed Dillon, a pharmacist who owns Grubbs Care Pharmacy in Northeast Washington. "When I sit down to do my payroll, I use an old-fashioned calculator."

The loosely-knit buying group had found it hard to get individual pharmacists to buy from one vendor, or to get them all accustomed to using the same advertising symbols.

"We would ask them to buy from a certain vendor, but we couldn't tell them," Serody said. "That made vendors less eager to do business with them."

Pharmacists say buying drugs through the franchise group could save each of them as much as 5 percent a month. A typical pharmacy orders $100,000 worth of drugs a month, Serody said.

"There's no way I can approach any vender to get the kind of pricing as an individual that I will be able to get with a franchise agreement where we negotiate with one national vender," Serody said.

Insurance companies typically don't like to deal with smaller entities, several pharmacists said, leaving the pharmacists with smaller reimbursements. Serody, who has been a pharmacist for 40 years and has owned Landmark Professional Pharmacy in Alexandria for 26 years, said he will get leverage in the market that he hasn't had before.

"As an independent, we may or may not be eligible for insurance plans," Serody said. "We think as a single entity, we will be more attractive to insurance companies so they would include us in their plans."

Dillon said he thinks leverage with insurance companies will be the major benefit of the franchise.

"If we go to Prudential, they really don't want to have 1,000 different contracts with 1,000 different pharmacies," he said. "It's a lot easier to send one bill to one place, say like CVS, so we tried to do the same thing."

Dillon said he fills 350 prescriptions a day at his pharmacy, compared with 100 a day a few years ago. But he said he still feels threatened. His store at the corner of Fourth and East Capitol streets is surrounded by four CVS stores within walking distance.

"Fifty percent of my customers drive by at least one other drugstore to get to me," Dillon said. He offers them individualized attention, something many pharmacists said they don't want to lose in their businesses.

"It's nothing fancy, nothing unique that we have here," he said. "We have computers, Internet, phone and fax machines, just like everybody else, but when you come in and have a question I come out and talk to you."

A Look at . . .

Care Drug Centers Inc.

Founded: 1999

Headquarters: Landover

President: Gerry Serody

Business: Franchiser of about 55 independent pharmacies in the Washington area.

Goal: Save 5 percent on wholesale prescription drug purchases by banding pharmacies together in one buying group.