K-VA-T TELLS RETAILERS: INTEGRATE RX FINANCIALS

LIZA CASABONA

CHICAGO -- Integrating the financials of the pharmacy into the larger retail corporation's should be a priority for supermarket pharmacy directors and managers to simplify pharmacy operations and help protect margins, said Don Clark, director of pharmacy, K-VA-T Food Stores, Abingdon, Va.

"We have to make accounting our job. Everybody who has a responsibility for pharmacy has to understand how accounting affects us and how we affect financials." Clark was speaking during a program at the Food Marketing Institute Pharmacy Conference, co-located with the FMI Show here earlier this month.

Obstacles supermarket pharmacies face in integrating their financial information within the company include different gross margin differentials; different measurement methodologies for inventory turns and sales per labor hour vs. prescriptions per labor hour; and controllable expense categories like labor.

"Supermarket operators aren't experts in the pharmacy business; we need to educate them," Clark said.

Pharmacy business is further complicated by factors such as the third-party involvement of insurance companies, pharmacy benefit managers and Medicaid.

In pharmacies, 86% of sales aren't controlled by the retailer, and the margins on third-party sales are significantly lower than those on cash sales, 17% vs. 37%, Clark said.

While pharmacy profit margins have historically been higher than average supermarket profit margins, they have started to decline, Clark cautioned.

"Years ago the margins were such that you didn't even have to be smart to make money in the pharmacy. Today with the margins that we're looking at when we're done, we put about four cents of every dollar into the bank," he said.

Meanwhile, there are other profit sources tied to the pharmacy, like incremental health and beauty care sales. K-VA-T's HBC sales are 8.9% higher in stores that have a pharmacy, said Paul Cox, assistant vice president of finance, who also spoke during the presentation.