Being a MBA graduate and a pharmacist at the same time, I am always dumbfounded on why is there no official documented case studies on the various community pharmacy business models here in Malaysia. So, instead of waiting someone else to write it, I decided to start writing it myself. This article is written based on my limited personal experience from my work and it can continue to evolve in the future.
Here is some background
To better understand community pharmacy business, we need to first understand how the healthcare financing works in Malaysia. In the private sector, healthcare cost are normally covered by healthcare insurance and out-of-pocket expenses by the patient. Ironically, medication bought in community pharmacies are not claimable (at least at current point of writing) using the typical medical insurance that we have. Only medication dispensed from hospitals and clinics are claimable as part of a medical treatment. Thus, most transactions done in a community pharmacy is being paid by the patient themselves. Do keep this in mind as this plays an important role of how pharmacies carry out their business strategies.
So in order for community pharmacies to survive, they will need to convince their patients to buy from them instead of going to public hospitals (where the medication is almost free, because they only need to pay RM 1 for their medications) or go to clinics to get their medication (where normally covered by their employers). Not to mention the intense competition amongst the community pharmacies themselves as there are no regulation on medication pricing as well as distribution of the pharmacy locations. So in some instances, you may even see community pharmacies open side-by-side which each other.
Ok, now into the main story
If you made it this far, thank you very much for your patience. I am trying to bring you in on some background of the industry. Congratulations, you have made it pass the first round. Fuhh…
So next, in such a tough environment, how does community pharmacy business keep expanding and you see big chain pharmacies are opening more outlets? There are three main models that most community pharmacy business in Malaysia practices. Please take note that the models are not mutually exclusive, certain pharmacies may have a combination of some of these models if not all of them.
1. In-house product brands or exclusive product brands .
Due to the intense price competition in the market, most pharmacies (especially chain pharmacies) have their own preferred brand of products that they like to sell, The reason behind is because these brand of products, be it their own in-house products or a product brand that offers exclusive distribution rights to them, have better profit margin because it is not being commoditize by other pharmacies (which they normally be given at massive discount below the bottom line) to attract customers to visit their store (examples are like Abbott Ensure and Glucerna). Most of the time, these products are supplements and health food products where these are items more commonly sought for in a pharmacy setting. However, in recent few years, certain pharmacy chains are also expanding into OTC medications as well.
2. Value-added services
Community pharmacy is still a service-based business. Only few community pharmacies still operate as a product-based business, in which, they might no longer exist in the near future due to intense competition and innovation in the industry. Thus, being a service-based business, the level of service and the number of value-added services is also one of the key differentiating factors. One of the leading community pharmacy in Malaysia, Caring Pharmacy, pride themselves with the level of professionalism uphold by their pharmacist which is being maintained with regular training for their pharmacist. Pharmacies that has a Pharmacy Practice Manager (who is typically the person who is in charge to make sure the pharmacist does the right thing) should not fall too much behind in the service level. Most value-added services such as smoking cessation clinics, weight management programs, online medication delivery, wound care management and many more are chargeable on top of the products that are sold together with the program. With technological innovation and increase adoption of telemedicine, many pharmacies are also subscribing to telemedicine portals for their online service and gets e-prescriptions for their patients’ medication.
3. Wholesale or group purchase on goods
There are majority of community pharmacies are independently-owned, which we normally refer to as independent pharmacies. For those independent pharmacies, they are not able to white-label their own brand of supplement or negotiate with a brand for exclusive distribution. So in order to survive in the market, they actually join forces and make bulk purchases from supplier through one wholesale account to get the best price from the suppliers. Through this method, they can stay competitive in terms of cost price which the bigger chain pharmacies.
Here are some tips from me if you want to start up a new pharmacy business in Malaysia
So if you are a pharmacist who is looking to start your own pharmacy, here are my tips and sharing to what you can start doing as well as what trap to avoid.
- Consider joint-venture (JV) model with existing pharmacy brands. You can leverage on their network and system setup as well as a ready access to available stocks. (Note: Take a good look at the JV agreement and get a legal friend to go through it with you if possible, not all JV agreements are the same)
- Provide services that the population around your pharmacy needs or might need
- Don’t start a pharmacy with too many SKUs (products)
- As an owner pharmacist, focus on building relationships with your customers and promote your area of specialty
- You can’t please everyone. Let go of those customers who are just here to compare price
All in all, I hope that community pharmacy business in Malaysia will continue to flourish and head towards a better future. Cheers to Malaysian Community Pharmacy!
