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Rx SALES ACCOUNTED FOR MORE THAN 60% OF TOTAL DRUG STORE VOLUME IN 1984, ACCORDING TO 1985 LILLY DIGEST; INDEPENDENTS "ABANDONING" OTCs TO CHAINS

Executive Summary

Rx sales accounted for more than 60% of total drug store volume in 1984, according to the recently released 1985 Lilly Digest, reporting on independent pharmacy operations for 1984. "The growth rate of Rx sales again surpassed the increase in other sales, both in dollars and as a percentage," the survey reported. "Rx revenue accounted for more than 60% of total sales volume in the average Lilly Digest pharmacy -- an 11% increase over that for the previous year. Other sales recorded almost a 3% gain, thereby reversing the decline reported for 1983." The digest explained that the average pharmacy's greater Rx revenue "resulted from a 1.3% increase in the number of Rxs dispensed, accompanied by a rise of $1.11 in the average Rx charge, from $10.89 to $12." An annual analytical report on pharmacy operations over the previous year, the 1985 Lilly Digest s based on data compiled from a survey of 1,341 community pharmacies across the U.S. Renewed Rxs represented 51.4% of total Rxs, up from 51.1% in 1983, "and continued an uptrend that began five years ago," the digest noted. "At that time, renewed Rxs had declined steadily for over a decade." The report maintained that renewed Rxs are "important" as a reflection of patient loyalty to a pharmacy. "Overall, there was a gain of 372 Rxs dispensed" per drug store. "The average independent community pharmacy reporting to the Lilly Digest dispensed a record 28,776 Rxs during 1984," the Digest states. Total 1984 sales increased by 8% in the average pharmacy surveyed "and established a new record at $571,313," the digest stated. "This growth was somewhat below the average annual rate of 9.4% noted over the past decade." Although the cost of goods sold increased at a faster rate than sales growth and caused gross margins "to decline to a new low of 33% of sales," the digest reported that "decreases in proprietor's or manager's salary and employees' wages more than offset the increase in miscellaneous operating costs." Consequently, total expenses fell to 29.9% of sales, and net profit before taxes improved to 3.1% of total sales. "Many" independents are abandoning their front-end and OTC business to chains while increasing their share of the Rx market, the Lilly Digest suggests. In a section containing an analysis of market trends by University of North Carolina Pharmacy Administration Professor Jean Paul Gagnon, PhD, the digest examines changes in the distribution of Rx and other sales between chain drug stores and independent pharmacies. "The percentage of Rx sales to total sales in the independent pharmacy has grown from 47.9% in 1974 to 60.5% in 1984. Thus, many independents are abandoning their OTC and front-end business to chain pharmacies, mass merchandisers, and grocery stores," Gagnon maintained. "Chains have increased their share of Rx sales, but at a lower rate than independents -- from 16.5% in 1974 to 23.7% in 1983. Independent pharmacies seem to have tied their future growth to Rx volume, which may increase over the next 15 years," he said.

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