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Focus on growing items - not cheaper wholesale prices, says buying director


Focus on growing items - not cheaper wholesale prices, says buying director

A slide from Brij Valla's presentation at the Sigma 2023 conference

Community pharmacies stand to benefit if they devote more energy to growing their items per month than to shopping around for cheaper medicines, Avicenna purchasing director Brij Valla has said.

Addressing the Sigma conference today (March 7), Mr Valla said many contractors need to shift their purchasing focus to improve their bottom line, stressing that with the current wave of supermarket pharmacy closures independents have an opportunity to boost their business.

He presented a breakdown of an average pharmacy’s monthly business, saying it showed that while drugs reimbursement accounted for 69 per cent of revenue, with 20 per cent coming from dispensing fees and other fees, the gross profit split had the reverse profile – with fees accounting for 60 per cent of profit and reimbursement 30 per cent. Rising costs have meant that some pharmacies are receiving wholesaler bills higher than their monthly income, he said.

Pharmacies should aim to maintain gross profits between 25 and 35 per cent, he said, adding: “If it’s less than 25 per cent, you’ve got a problem.”

Mr Valla said that while “most people are focused on drug reimbursement,” contractors “need to grow [their] items”. He quoted a presentation by AIMp chief executive Leyla Hannbeck the previous day that estimated that the current wave of supermarket closures will displace 880,000 patients and 16.6 million items annually.

“That’s a fact, it’s going to happen,” he said. “The question is are you part of that journey, or will you let other people take it, like the online pharmacies… the added footfall will also help with retail sales and the growth path of services.”

Mr Valla argued that having stock available is ultimately of more value than seeking out lower wholesale prices.

“If you’ve got stock, you can dispense the item,” he commented. He said an experiment with Avicenna pharmacies had demonstrated that relying on more suppliers does not improve availability and that “loyalty” to a mainline wholesaler can offer security.

Using fewer wholesalers also helps with cost reconciliations, said Mr Valla: “When you’re paying invoices to make sure that you’re being charged correctly, we have caught out thousands of pounds from some leading mainline wholesalers charging us incorrectly. So reconciliation is very important, and it’s easier to do that when you have less suppliers. In the current climate the best model that works for us is loyalty.

“I’ve gone to a supplier and put pharmacies on a loyalty scheme, and it turns out those pharmacies have the highest items growth and the best availability, [and] the lowest owings in the company.”

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