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Smaller pharmacies stay competitive by keeping operating costs low and providing personal, and in some cases, customized service to clients in the drug dispensary. Others can also compete with large chains on front-store pricing

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Ryan Kennedy worked as a district supervisor for the CVS pharmacy chain in Maine several years ago. At a board meeting once, a colleague mentioned that about 10 independent pharmacies in the state were going out of business each year.

Mr. Kennedy travelled regularly for his job, and as he began to understand the competitive landscape, he took note of the types of stores that were surviving the threat from larger retailers.

"It was the small, niche pharmacies that were holding on, and it was the big ones that were failing," he said.

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Mr. Kennedy and his wife are both from New Brunswick, and they moved back five years ago to raise a family in their home province. He opened his own pharmacy in Saint John rather than go to work for another large chain.

Based on his experience in Maine, he decided to set up a small, health-focused store with a well-staffed prescription-drug dispensary and a modest front store selection of over-the-counter medications and products like toothpaste and diapers.

"It really boiled down to the fact that I believe I would be a crappy front-store manager, but I know I'm a really good pharmacist," says Mr. Kennedy.

Small stores like Mr. Kennedy's are competing in a sector increasingly dominated by grocery stores like Loblaws, big box retailers like Wal-Mart, and large national pharmacy chains like Shopper's Drug Mart.

The number of large pharmacies has increased from 6,107 country-wide in 2007 to 7,287 in February of 2013, according to figures from IMS Brogan. However, the small– and medium-sized independent stores are holding their own across the country. There are currently 1,619 independent stores today, down only slightly from 1,622 in 2007.

The smaller pharmacies are staying competitive by keeping operating costs low and providing personal, and in some cases, customized service to clients in the drug dispensary. Furthermore, small pharmacy owners are also battling with large chains on front-store pricing; though others, like Mr. Kennedy, cannot.

But regardless of their strategy, smaller pharmacies – as a general rule – focus on quality patient care in the dispensary.

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Take Robin's Pharmacy, for example, a 1,200-square-foot store on Commercial Drive in Vancouver, B.C. Unlike traditional pharmacies, staff doesn't wear name tags or lab coats, and they're on a first-name basis with customers. Store owner Robin Manweiler says this casual approach suits an urban neighbourhood with a small, tight-knit feel.

"We provide a small-town, homey environment in a big city," he says. "Our staff members treat customers like friends."

Mr. Manweiler opened his store in 2009, after working for 13 years for a big-box pharmacy. He said he needed to work in an environment that better reflected his values.

"We have different missions," he says, in regards to the way big and small retailers operate. "Their focus is the bottom line. The mission is patient care for me. I wanted be in control of patient care and how you treat your customers."

While working at CVS, Mr. Kennedy similarly found himself in an environment that didn't suit him. He was working long hours, with little time spent properly serving client needs. Before he opened his own pharmacy, he admits that he nearly quit the industry entirely to pursue a career in medicine.

"If this is what it means to be a pharmacist, I don't want to do it any more," he said of his time in a large, chain pharmacy. "I don't have those thoughts any more. I feel like I'm part of a health-care team, and I feel like I'm a big part in helping people achieve their health goals."

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Most pharmacists enter the profession because they care about properly serving the needs of customers in the drug dispensary, according to Al Dresser, a pharmacist and small business consultant who owned his own small pharmacy in Tottenham, Ont., for 18 years.

In his pharmacy, which he sold two years ago, he always told prospective employees that he expected them to stay focused on people's health needs. "I made it clear I was hiring them to take care of my friends and family," he says.

Patient care is more important than the bottom line, argue Mr. Manweiler and Mr. Kennedy, but developing a sustainable business model is also critical.

Mr. Kennedy, who has an Masters of Business Administration from the University of Baltimore, says focusing on the patient makes good business sense. He worked with a chain store in the U.S. that stopped growing when it cut pharmacy staff in a bid to increase profit.

He now employs three full-time technicians and one part-time. He says a larger store, with a similar-size dispensary, would employ one or two people full-time with several part-timers.

"Our whole business model centres on being well-staffed, being set up to spend the time with our clients so they have a good understanding of our client's health needs," he says. "We can maximize their health outcomes in relation to their pharmacy purchases."

Mr. Kennedy also says he can't compete with larger stores on the pricing of front-store items. And even though he's part of the co-op Pharmasave, he still doesn't have the wholesale buying power to be competitive with larger pharmacies and grocery stores. He keeps a small supply of front-store items for customer convenience, but at relatively high prices.

"Diapers are a perfect example," he says. "I opened this store when my oldest was 18 months old and still in diapers. I do not buy diapers from myself."

Robin's Pharmacy is part of the co-op Medicine Centre. Mr. Manweiler, who has an MBA from the University of Toronto, is able to offer competitive pricing on front-store items. But the profit margin is low, he says, and he'd have to triple the size of his store to make it worthwhile. "It's not my passion, either," he says.

Independently owned pharmacies can also compete with larger stores by reaching out to local communities. When Mr. Manweiler opened his business, he spent time getting to know the neighbourhood, both to market his store and assess the needs of his potential customers.

He soon learned that many community members had mental health issues. He started working with the Kettle Friendship Society, a non-profit organization that supports people with mental illnesses, and that clientele now accounts for 50 per cent of Robin's business.

Developing specialties is another way small pharmacies can distinguish themselves, suggests Mr. Dresser. A pharmacy in an area with an aging population could focus on geriatric care, for example, or one in an industrial community could specialize on the treatment of asthma.

"This is something big chains cannot do," says Mr. Dresser, who has an MBA from York University. "They're set up to deliver consistent, uniform service. It's hard for them to tailor their services to local situations."

Mr. Manweiler and Mr. Kennedy each operate one location. While they both planned to add new stores, financial considerations have delayed those plans.

In Mr. Manweiler's case, the cost of rent in Vancouver was too high. In the future, he may open new locations outside the city.

Shrinking margins on generic drugs and lower than average dispensing fees are slowing Mr. Kennedy's growth plan. He says uncertainty around the provincial government's plans for future pricing changes makes it hard for him to plan a budget for a new store.

But both men remain happy they made a go of it on their own. Mr. Kennedy still works long hours, but does it in the service of his own good, and the good of his customers.

"If I'm working an 11-hour work day, I can spend 10 hours and 50 minutes focusing on my patients, which is what I want to do," he says. "It's been a good business model for us, but also professionally fulfilling."

Special to The Globe and Mail

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