For pharmacy owners considering a brand conversion, one challenge they will not face is lack of choice. Indeed, it seems like every other month a new brand or banner group arrives on the retail pharmacy scene claiming to have a “point of difference” that will allow their franchisees to flourish in an increasingly demanding industry.
However, choosing the right brand, or whether to sign with a brand at all, is not always a straightforward decision. Prospective franchisees should give careful consideration to a range of factors before signing a franchise agreement. While there are plenty of brand conversion success stories, there are just as many cautionary tales.
Here are six questions to ask yourself when you are weighing up a brand conversion.
What do I need help with?
From flashy signage and TV marketing campaigns, to fixed pricing and automatic stock replenishment, the various brands and banner groups vary greatly in their support mechanisms and compliance requirements. Before you begin your search, you should determine exactly what you are seeking from a brand conversion, and what level of autonomy you would like to keep once you sign on.
Owners who want control over every aspect of their business, or who have distinct ‘vision’ for their business’s future, might do better to remain independent. Or, if you simply want guidance with one specific challenge, like stock purchasing, they might seek out an alternative model to a traditional brand. Pharmacy Alliance, for example, is an “independent members network” that offers flexibility with different levels of support.
Conversely, if you are eager to boost your struggling pharmacy’s turnover and you don’t mind following procedure, then a comprehensive and highly structured brand like Priceline might suit your needs.
What is my local demographic?
An essential part of the ‘brand selection process’ is a thorough analysis your catchment area. The age, ethnicity and socio-economic profile of your customer base should be central to your decision, as certain models complement certain demographics.
For example, if you are located in an affluent area with a largely elderly population, then your business might benefit from a conversion to a high-service, script-focused brand like Amcal. Or, if you are in a working-class area that is typically price sensitive, aligning with a one of the discounters might be more suitable.
What will my site allow?
It’s important to respect your site limitations. Trying to force a brand model into an ill-fitting site will almost always end badly. Pharmacists with less than 200m2 of floor space at their disposal space can basically rule out signing with a discounter, as they simply won’t have the necessary footprint for a retail-focused model. One exception to this rule is if you are in a position to re-locate to a more suitable site, however this is a costly option.
What other pharmacies are operating in the area?
Take a close look at your competition and identify any gaps in the market. If there is already an established Chemist Warehouse and a Discount Drug Store in your area, then it will limit your scope for success as a potential Direct Chemist Outlet. However, you might notice that there are no compounding pharmacies within a five-kilometre radius of your pharmacy. In this case, staying independent and installing a compounding lab could give you a crucial competitive advantage.
What exactly am I signing up for?
All brands will charge some sort of fee for their service. Think carefully about how this expense will affect your business and weigh that up against the potential benefits of the conversion. You might boost turnover by $1,000,000 after converting to a discount brand, but if your GP% drops and your expenses are up $120,000 due to the franchise fees and compulsory marketing, then your net profit may remain the same or even drop.
However, franchise fees are just one of many important components of a franchise/member agreement. Clauses relating to restraint, territory, termination etc. can have profound long-term impacts on your business, so don’t sign anything unless you are comfortable with each and every clause. AP Group strongly recommends engaging a pharmacy experienced solicitor to help you interpret the legal language and flag any possible issues with the franchise agreement.
Is this the best deal I can get?
Once you have decided on a brand, ask the franchise manager what else they can offer you to help sweeten the deal. Some brands won’t negotiate on fees, but most brands will negotiate somewhere, e.g. they may contribute to a refit or throw in some complementary marketing packages. Remember, franchise managers are salespeople and they want to win your business. Don’t be afraid to ask for more.
Conclusion:
It may sound melodramatic, but brand conversion decisions can make or break a business. As industry professionals, we come across too many pharmacists who have opted for wildly unsuitable brands or found themselves locked into franchise agreements they did not fully understand. Many of these individuals would have had more success (and a lot less stress) by remaining independent and developing their own model that is tailored to their circumstances. That said, a well-considered brand conversion can completely transform a business.
Often the benefits are pleasantly unexpected – you might, for example, find that your ‘difficult’ landlord becomes a little more agreeable after you convert to a well-recognised brand. Ultimately, making the right brand decision boils down to being diligent with your analysis and true to your situation. Don’t reach for the flashy brand that doesn’t fit your needs and don’t be afraid to remain independent if necessary. Good luck!
– David Gilbert, SA & NT Sales Manager at AP Group
