NWDA MEMBER SALES OF PHARMACEUTICALS ARE 71.3% OF TOTAL 1984 NET VOLUME; UP FROM 62.6% OF TOTAL SALES IN 1977; SALES TO HOSPITALS COULD SURPASS CHAINS IN 1985

Pharmaceutical product sales as a percentage of wholesalers' total net volume increased to 71.3%, or $8.98 bil., of industry-wide sales, up from 62.6% in 1977, according to figures published by the Natl. Whsle. Druggists Assn. (NWDA) in its newly issued "Operating Survey" for 1984. "The product sales mix data. . .indicated that pharmaceutical products continued to increase their relative importance to drug whslrs. in 1984," NWDA said, pointing out that OTC, toiletry and sundry sales declined for the second straight year. Pharmaceutical sales were even greater for those whslrs. characterized as high-profit firms, comprising 75.7% of their sales. Total NWDA member sales rose 12.7% in 1984 to $11.7 mil., representing a real growth rate of 4.8% when adjusted for inflation. Comparing this figure to the 18.6% and 16.7% increases in 1982 and 1983, an NWDA cmte. analysis of the survey states that the results "appear to indicate a pause in sales growth over the preceding years, though they are still impressive. The growing importance of hospitals in the whslr. customer base continued to be evident during 1984. Sales to hospitals by NWDA members increased 20.3% to $2.2 bil., after a 30% increase in 1983. "If present trends continue," the report states, "hospital sales will probably equal or exceed chain drug store sales in 1985." As a percentage of net sales, sales to hospitals accounted for 18.61% of the business. Independent and chain drugstores still made up the lion's share of the whsle. drug business, comprising 53.4% and 19.7% of 1984 gross sales, respectively, down from 54.5% and 20.8%. Thus, the long term decline in the relative share of this market held by independents continued despite growth in dollar volume. Other customer segments include clinics and nursing homes, chain drug warehouses and mass merchandisers. While each of these groups showed increases in 1984, together they accounted for less than 9% of gross sales. "Firms with high returns on total assets (i.e., high-profit firms) tended to excel in chain drug and hospital sales in 1984," the report stated. Sales to independent drugstores by high-profit firms were significantly less, 46.2%, of their gross sales than their lower profit counterparts, while chain drugstores, hospitals and all other accounts had respective shares of 25.7%, 24.2% and 3.8%. Ironically, while the high-profit whslrs. demonstrated an increased emphasis on hospital sales, this segment of the business continued to squeeze industry-wide operating margins. For the third year in a row, operating profit margins declined, although the 1984 drop from 2.56% of net sales to 2.54% was only half the decrease during the past two years. Net profit after taxes nevertheless increased slightly to 1.4%, as did return on investment, which increased to 15.3% on a LIFO basis. Referring to this return on net worth as "very attractive," the report explains that the performance was better than most firms in the U.S. economy in 1984 as well as most whsle. distribution firms in other commodity lines in North America. NWDA called the performance, on an inflation-adjusted basis, "outstanding." The report notes that total operating expenses "continued their long-term, steep decline" to 7.3% of sales in 1984, down from 7.5% in 1983. While combined administrative and electronic data processing expense "stabilized" at 2.75% of sales, as did buying expense at 0.2%, selling expenses, median warehouse expenses, and delivery and shipping expenses all showed decreases in 1984. Handling costs per invoice line increased from $1.27 in 1983 to $1.32 in 1984, NWDA reported, with high-profit firms spending $1.05 to handle an invoice line compared to $1.61 for the low-profit firms. "This continues a trend, but seems to represent an acceleration," the report states. The 1984 inventory turnover figure of 7.29 times was a slight improvement over 1983, but short of the 7.34 times realized in 1982. Warehouse productivity also increased substantially in 1984, with sales per square foot of space reaching $798, up from $765 in 1983 and $594 in 1982. After improving in 1983, the wholesalers' average collection period moved upward in 1984 from 26.44 to 26.71 days. "This is an area that whslrs. should focus on in 1985, because of the severe consequences of losing control of collections," the report admonishes. On a regional basis, the highest reported increase in 1984 was the 20.86% gain by the Empire region, which is made up of the Mid-Atlantic states. This was the second year that the Empire region led all others. The smallest increase was reported by the Pacific region at 9.15%, and only three of eight reporting regions posted a higher rate of sales growth over the previous year.