Corner Drugstores Stick Together; Compete With Discount Giants
(ANS) -- Harms Pharmacy in tiny Watertown, Minn., is like the corner drugstore in any small town in America -- hanging on for dear life amid the growing popularity of discount giants and chain drug stores.Owner Jerry Hirsch opened Harms in 1975, moving six years ago to a spot inside a local grocery store, Don's Food Pride, in a step to cut overhead costs.Wal-Mart had recently opened a store in the area, and Hirsch knew he would have to struggle to avoid the fate of many small stores nationwide that have gone under in competition with big discount stores.But Hirsch had a competitive edge. "I could see the trend (of megastores) coming," he said. He had already joined the Independent Pharmacy Cooperative, a type of buying group that pools the purchasing power of several thousand small stores."I had to be ready. I knew I would need some help to stay in business," said Hirsch, whose pharmacy is located just 30 miles west of the Twin Cities. "These big businesses can be intimidating to a little guy like me."He and other members of IPC did not try to keep the Wal-Marts of the world out of their towns, as many other businesses have. Instead, the drug stores joined forces. Hirsch said the alliance has helped keep his prices competitive and put his store in a better position to find new business."The cooperative has been a stroke of luck for me. It's ended up giving the people in this little town a choice, whereas I could have closed a decade past," Hirsch said.IPC has seen its membership explode in the past few years. It includes about 2,100 drug stores in 29 states, most of them west of the Mississippi. That number is up from 350 stores in 1992.About a dozen other, regional pharmacy cooperatives operate in the east and in northern California, according to Steve Niebauer, IPC president and CEO. There are about 30 recognized pharmacy buying groups nationwide, he said, but not all are cooperatives.In the past few years alone over one in 10 of all independent pharmacies have either closed or been bought by a chain, according to the National Community Pharmacists Association. In the United States, there are approximately 53,000 retail pharmacies, including 28,000 independents."It's an extremely competitive business and these pharmacies operate under very tight margins, now estimated in the 2 percent range," said Todd Dankmyer, senior vice president of communications with the pharmacists association.Dankmyer said a series of managed-care practices have harmed the ability of the independents to stay profitable. Their larger competitors can more easily align with health insurance companies that include prescription medicine in their plans, a definite draw for consumers.As managed-care groups direct clients to megastores and chains, community-based pharmacies are turning to the purchasing cooperatives to help stay afloat.The IPC is the largest of these, formed in 1984 as a last-ditch effort to save a dying breed, says Dan Moudry, a board member of the cooperative based in Madison, Wis.[EDITORS: OPTIONAL TRIM NEXT 6 GRAFS.]"There was a need for the small, privately owned pharmacies to come together to influence purchasing. That's the bottom line," says Moudry, owner of three pharmacies in the Minneapolis-St. Paul metropolitan area. "The larger chain-type operations like Walgreens were being rewarded based on their volume."The cooperative gives its members a similar volume advantage by funneling all purchases to the drug distributor offering the best price.The cooperative then passes on bulk wholesale discounts to group members, who are required to purchase a majority of their bulk inventory from the wholesaler involved.Along with the volume advantage in getting lower prices for drugs, says Hirsch, the cooperative brings another service. It handles negotiations with health maintenance organizations and drug giants such as Merck and Eli Lilly on behalf of pharmacists such as Hirsch.Acting independently, Hirsch says, he'd be lost dealing with these large companies."I don't have the staff, the time or the clout to meet with the big boys like the managed care groups," Hirsch said. "It's also tough to get the good prices from the various wholesalers -- the drug firms, the greeting card companies and the like."[END OPTIONAL TRIM.]With IPC, each participating business pays a $20 monthly membership fee and shares in profits each year. Niebauer projects profits at $30 million for 1997, up from approximately $16 million last year, $7 million in 1995 and $30,000 in 1991."We've been able to negotiate a lower cost of goods on the purchasing side thanks to our buying power, the power in numbers," Niebauer said. "It gives us power like the corporate giants, the Wal-Marts and Walgreens."Still, many independents shy away from cooperatives."A lot of owners simply don't want to give up their independence. We're basically dictating things, just like a chain, telling them who they have to buy from," said Neibauer. "Some don't like the very idea of that."Keith Morris, a spokesman for Wal-Mart stores, said company officials believe there is room for both the independents and chains."Wal-Mart caters to customers who have other things to do. They can come in and save themselves two or three trips all over town," he said. "But there are services smaller pharmacies provide that Wal-Mart can't, such as delivery service" to customers.He said the company dismisses the idea that the in-store pharmacies have driven smaller pharmacies out of business."I don't know of any instances where that has happened," Morris said. "Wal-Marts draw people into markets where they've never shopped and keep many local residents from spending their money out of town."Hirsch disagrees. Hirsch notes that in Minnesota last year 39 independent pharmacies folded, which he attributes to the arrival of megastores as well as managed care and mail-order pharmacy companies. The town of Owatonna, population 20,000, lost its last community-based pharmacy after having a half-dozen only 10 years ago.He worries that Watertown is down to one."I'm the last of my kind around this town and, if I go, there will be nobody coming down the pike to replace me," Hirsch said. "The profit isn't there and the start-up cost for a young pharmacist would be sky-high.""It would be impossible to do."SIDEBAR Drugstores Face Threat from Mail-Order Services (ANS) -- Like megastores, mail-order companies have become another bane to independent pharmacies, says Todd Dankmyer, a spokesman for the National Community Pharmacists Association."More and more pharmacy business has been driven from the community pharmacy into mail-order firms,'' he said. "It's hurt badly, no question."Because of the volume of their business, mail-order companies can offer better deals to individual customers and employers who cover prescription medicine in their health care packages.Yet by organizing into cooperatives, some local pharmacists have been able to help themselves -- and give a boost to small towns and rural areas, says Steve Niebauer of the Independent Pharmacy Cooperative. In such areas, there often is no place other than the small pharmacy for residents to have their prescriptions filled, he adds, driving his point home with a cautionary tale."I know of a town where the major employer was going to a mail-order pharmacy and the only pharmacy in town went belly up." Niebauer said. "I had people from the town calling, wondering how to get their pharmacy back and I had to say, 'You can't. You're too late.'"Contacts:Todd Dankmyer, vice president of communications, National CommunityPharmacists Association, Alexandria, Va., 703-683-8200.Keith Morris, spokesman, Wal-Mart, Bentonville, Ark., 501-273-4000.Jerry Hirsch, owner, Harms Pharmacy, Watertown, Minn., 612-955-2153, 955-2847.Steve Niebauer, president and CEO, Independent Pharmacy Cooperative, West Bend, Wis., 414-333-9684.Dan Moudry, pharmacy owner and IPC board member, St. Paul, Minn., 612-222-0571.Background:Wisconsin Independent Pharmacy Cooperative, 608-825-9556.