THE TRIALS OF 'MARRIAGE'

H. EDWARD HECKMAN, R.Ph.

"We heard about pharmacy, had the space and just thought we'd pop one in," recalls a supermarket manager. "Boy, were we in for a surprise."

"It's easy popping one in; the difficulty comes after it's open," responds Swati Pathak, pharmacy coordinator at Bi-Lo, Mauldin, S.C., which operates 24 pharmacies.

While the wedding of pharmacy departments and supermarkets may seem to be a marriage made in heaven, many operators suffer irreconcilable differences. Grocers jump into the pharmacy game without a full understanding of what they are getting into.

A realistic understanding is more important today than ever. The business has gotten more competitive and pharmacy no longer offers the high margins it once did. The increasing percentage of third-party plan prescriptions and their declining reimbursement rates have meant less margin for error in managing the business.

Expensive salaries, licenses, pharmacists who won't manage, costly inventories and third-party receivables are part and parcel of what makes pharmacy so different from the rest of the store.

"It's important for supermarket company executives to understand pharmacy operations," says Jody Stewart, director of pharmacy at Raley's California division, West Sacramento, Calif. "It's an altogether different thing."

But if pharmacy is so expensive and such a bother, why is everyone -- including not only supermarkets but mass merchandisers and some warehouse clubs -- so anxious to jump in? The answer isn't brief or easy.

Supermarket executives can see long-term benefits, particularly in improving customer loyalty, and view pharmacy as an integral part of their future operations. While that's the long-term plan, it isn't surprising to see some players bail out during the short term. In the Midwest, the pharmacy vision goes back to the early 1970s to combination-store pioneers Jewel Food Stores and Osco Drug, now part of American Stores, Salt Lake City. Jewel has sustained its relationship with Osco, putting in place a winning combination by operating two distinct businesses under one roof.

Dominick's Finer Foods, Northlake, Ill., tested pharmacies back in the 1970s. The chain bailed out of its NeighboRx pharmacies only to re-enter the arena 10 years later. Currently, Dominick's sports nearly 70 units, counting its supermarkets and Omni SuperStores.

The synergies and potentials of pharmacies in supermarkets are just too great for food store companies to ignore, extending beyond the boost they give to HBC sales. Pharmacists have been likened to service ambassadors for the supermarket, leading one pharmacy director to say that the pharmacist is typically the person a customer will complain to, even if the complaint concerns the produce department.

Successful merging of two massive spending segments, grocery and drugs, can expand a store's customer base, boost sales per visit and increase the frequency of shopping trips to the supermarket. While the enhanced image is tempting, and the idea of solidifying the customer base is attractive, many supermarket operators never dream that grabbing the golden ring will be so difficult.

To integrate successfully, management and pharmacists must take an active interest in each other. As Stewart of Raley's puts it, "Managers and pharmacists must work on building a good relationship." Store managers must become pharmacy advocates and pharmacists must become store advocates, she explains.

Methods being tried to increase exposure in order to build such relationships include training programs and regular meetings at store level.

"We are working to develop training programs to teach store managers about pharmacy, and pharmacists about the store," says Pathak of Bi-Lo.

"Management trainees do a rotation in the pharmacy to get a handle on what goes on," says William Larson, director of pharmacy at Carr Gottstein Foods, Anchorage, Alaska, which operates 13 pharmacies.

"We also schedule the pharmacy manager to attend weekly department-head meetings," says Larson. "It makes them be part of the team and exposes them to all the issues and problems everyone else is facing."

To realize the benefits of the pharmacy-grocery combo, all employees must embrace the idea of having a fully integrated store.

How do you measure successful integration? The yardsticks vary from operation to operation, but teamwork and mutual respect seem to fit everyone's definition. Certainly pharmacy profits and increased health and beauty care product sales grab pieces of the integration-success puzzle.

As with any marriage, the road can be rocky for pharmacies and supermarkets. An important issue to address is how conflicts will be resolved. What issues come under the purview of the store manager? What decisions are professional in nature and are best handled according to the professional judgment of a pharmacist?

Professionalism is a sacred and sensitive area with most pharmacists and requires careful handling. Many managers complain that pharmacists are "different." Actually, they are. Compared with other supermarket employees, pharmacists tend to be better educated, higher paid and more likely to have their own ideas on what it takes to run a successful pharmacy.

Many supermarket chains solve this problem by having a pharmacy director who is the arbiter on professional matters, with business issues handled by store managers. These pharmacists have, in effect, two bosses.

"When I first started as a pharmacist, there was very little communication" with store management, says Larson, who came up through the ranks at Carr Gottstein. "Pharmacists reported to the general merchandise manager, but that didn't work at all. "Now there is sort of a dual reporting. The store manager handles store issues and I handle professional issues," Larson says. Who ultimately is the boss depends on the situation and circumstances.

Even when it comes to reporting the "numbers," there are differences. "One of the most difficult things to try to explain to a store manager who hasn't been involved with pharmacies is how a pharmacy calculates the cost of goods sold," says Larson. "There is AWP [average wholesale price], acquisition cost, direct cost and wholesaler cost. A grocer sells apples by the apple; they know what their gross is going in. In pharmacy the gross margin varies by quantity and payment method. You don't know what your gross is until it comes out."

Occasionally, store management is reluctant to get involved in the pharmacies, preferring to let them "run on their own." Such an approach is destined to fail. Store management needs to be an integral part of the entire process, from planning to the actual opening and operating of new pharmacies. Store managers, for example, need to understand that it takes time to build a successful pharmacy business.

At the same time, pharmacists have priorities and concerns that may not be apparent to managers. Generally speaking, there is little professional interaction between pharmacists. The pharmacist is usually the sole practitioner on duty and only sees his partner during the shift change transitions. Colleagues are viewed as competitors. Pharmacists rarely display a strong interest in visiting other pharmacies; they've had enough by the time they get done in their own store. Without exposure and interaction to the outside, inbred perceptions may develop. The average pharmacist's focus tends to narrow over time.

Pharmacists get very concerned over wages. As expensive as pharmacists seem to management, wages can be a source of frustration for pharmacists. This is because all practicing staff pharmacists earn essentially the same money. Most operations offer only a 10% to 15% differential from the highest to the lowest paid personnel. The new graduate off the street commands nearly the same wages as a 20-year veteran. The difference usually comes as a premium for the chief pharmacist over the staff pharmacist.

Because of wage frustration, pharmacists often switch jobs for less than $1 an hour. If things aren't going the way they desire, they start looking. The shortage of pharmacists leaves the demand high and makes it easy for jobs to be found. As long as pharmacists maintain their licenses, they are employable.

Pharmacists also are experiencing professional turmoil, and the profession itself is going through rapid changes. The Clinton health care plan creates speculation and anxiety. The OBRA implications for patient counseling have put additional pressures on pharmacists. Pharmacy is trying to adapt from a count-and-pour function to providing pharmacy care services.

Once an integration plateau is reached, and team members are comfortable with each other, risks can be taken to explore new marketing ideas and concepts that can enhance total store business.

One supermarket chain promotes various nutritional topics in the pharmacy and ties them into promotions for products found in the four food groups. Another chain cross-merchandises prescriptions in separate promotions with soda, diapers and laundry detergent. Other supermarkets have found that promotions that offer, for example, a free video rental with a prescription for a sick child, can build good will for the store.

Several operations feature their pharmacy departments on the radio, hitting listeners with informational bits and emphasizing a professional image.

A supermarket is a convenient location for a pharmacy and the format will likely become a dominating force in the future, most retailers agree. "The chains that are really growing are the supermarket pharmacies," says Pathak. "It's exciting to be in this spot. It's like being in the right place at the right time."

H. Edward Heckman is the owner of Heckman & Associates, Chicago, a pharmacy consulting firm whose clients include supermarkets.