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Executive Summary

The average Rx charge by independent pharmacies in 1983 increased 9.9% to $10.89, surpassing the $10 mark for the first time, according to 1984 edition of the Lilly Digest. In addition, the Digest reported a 3.3% increase in the number of Rxs dispensed by independent pharmacies. "The share of new Rxs increased by 466 [3.5%] to 48.9% of total Rxs dispensed during 1983," the survey found. "Renewed Rxs were higher by 437 (up 3.1%) than the previous year's figure and accounted for 51.1% of Rxs sold." The average pharmacy dispensed a total of 28,404 Rxs during the year. The survey was based on data from 1,547 pharmacies. The Digest pointed out the Rx charge "has been increasing in recent years, and the uptrend is occasionally cited as 'proof' that Rx prices are rising." However, the report stated, "such a conclusion cannot be drawn from the data, since the average Rx charge includes other variables in addition to price -- particularly the number of doses dispensed." The Digest figures indicate that Rx depts. were responsible for increased overall volume at the average independent. Rx sales increased 13.5% while other sales declined by 2.7%. "For the fourth consecutive year, total Rx revenue accounted for over half of the sales volume in the typical community pharmacy, at 58.5%," the Digest commented. "The Rx department's contribution to total sales volume in the average Lilly Digest pharmacy for 1983 was the largest, both in dollars and as a percent of sales, in Digest history." Gross Margins Dip To Lowest Level Since 1951; Net Margins Stable Due To Lower Wage To Sales Ratio Total sales volume grew 6.2%, to $528,864, in 1983, "below the average annual growth rate of 9.4% observed over the past decade," the pharmacy report said. The cost of goods rose at a faster rate, up 7.0% in 1983 to 66.9% of sales, the Digest noted. "Associated with this was the decline of gross margin to the lowest level since 1951 -- 33.1% of sales. The report added that "although total expenses fell percentagewise, they rose by almost $7,000 (up 4.5% from the 1982 figure)." Net profit before taxes was up an average of 6% over 1982 to $932. The report noted, however, that overall the data "suggest that there was a slight decline in the net profit position among stores reporting for 1983, when compared with statistics for 1982." The Lilly Digest said "15% of all pharmacies reporting during 1983 operated at a loss -- up from 14% in 1982." In addition, "21% of stores submitting data realized a net profit of less than 2% -- unchanged from the prior year," while 10% of the stores (down from 11% the previous year) showed a net profit of 10% or more. The Digest noted that employee wages during 1983, although slightly higher dollarwise, accounted for less of the sales dollar. "The reduction (0.5%) was sufficient to offset the decline in gross margin, with the result that net profit was unchanged at 2.9% of sales," the pharmacy report stated. The report pointed out that total inventory increased, but declined as a percentage of sales from 15.3% to 14.9%. "Rx inventory required about $3,500 more in 1983 than in the previous year but decreased as a percent of sales (down 0.2% to 10.7%)," the report said. "As a result, the Rx department's sales productivity moved from $9.19 to $9.34 per stock dollar." Additionally, the report noted that store space for an average independent community pharmacy remained in the 2,500 square foot range, while sales per square foot of floor area increased 8.4% to $16.48.

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