Pharmacy – Who Will Better Survive In An Economic Downturn
In an article I wrote in December 2018, I mentioned how frustrated my mentor Fred Raven, the first independent pharmacy broker in Australia, would become with the inability of many pharmacy owners to accept change. Pharmacy, he said, was an ever-changing playing field. He was right, of course. It seems the industry has always been in a state of flux. At the time I wrote the article, pharmacy was faced with the King Review. It caused immense consternation at the time. However, it’s water under the bridge now and, yes, once again, pharmacy adjusted to the playing field. Then came the 7CPA. Still to be agreed upon, with Location Rules front and centre, and broadsides coming from the Australian Medical Association (AMA) and corporates with vested interest in seeing the rules changed or removed entirely. Will the coronavirus crisis now sway decisions to any of the negotiation stumbling blocks in favour of pharmacy? One would certainly hope so. In the Pharmacy Daily eNewsletter on April 2, Shadow Federal Health Minister, Chris Bowen, is certainly urging the government to get on with it and sign the agreement.
How the effects of the coronavirus pandemic unfolds in the coming months no-one knows. However, we have to accept the fact that the world economy in 2020 will be in a bit of bother.
I believe there is a certain sector of pharmacy business that will fare better than others if we are to experience a subdued economy here in Australia. But, before we get to that, let’s take a look at some facts as they are right now.
Firstly, as Australians, we are so far removed from the rest of the world that I think, initially, we failed to grasp the gravity of the coronavirus situation. Tragedies unfold on our TV screens from afar – wars, terrorist attacks,erupting volcanoes, earthquakes, tsunamis, you name it – but, due to the tyranny of distance, I guess we have been lulled into a false sense of security that we are a bit immune to such things. But, the coronavirus is here, and there is no getting away from the fact that it has impacted our daily lives.
The federal government deserves a pat on the back for taking quick action. We may have thought it was slow off the mark initially but it’s been flat stick ever since. This is very much policy on the run but these are extraordinary times. What other choices are there? The stimulus is massive and will help minimise the damage to the economy when the pandemic is finally under control. Keep in mind though, the PM has stated the stimulus is temporary. If the coronavirus pandemic leads to a financial downturn after the event, the government will most likely resort to traditional methods of attempting to stimulate the economy, and not revisit the massive stimulus on the table right now. Historically, the first line of defence is to cut interest rates to jumpstart an economy. The Reserve Bank of Australia (RBA) has already jumped in and cut interest rates to another historic new low rate of .25% and has initiated Quantitative Easing (QE), something it has never done in the past, by buying government debt (bonds) to alleviate the effects of a soft economy. This exercise should drive “both variable and fixed rate mortgages, as well as business loans of all shapes and sizes, lower than they are today, and, most importantly, will remain low for years”.
When we finally get our “get out of jail” card from the pandemic, I believe there will be that initial flurry of economic activity. We would have been locked up for far too long and we are so accustomed to our great lifestyle here in Australia. Consumerism is well and truly entrenched in our society. I can see restaurants and cafés bursting at the seams for a while. Buy now pay later providers may very well get a good work out with some consumers having major withdrawals after being on a reduced, and possibly, no income. However, overall, after the initial spurt, I think spending will most likely be a bit subdued moving forward.
It goes without saying, the coronavirus stimulus won’t save every single Australian business. Unemployment, unfortunately, will trend higher. That will lead to less discretionary spending. As reported daily, the world economy is facing headwinds. Overall growth will slow and most likely go south for a while. Our economy, of course, won’t be immune. But the stimulus put in place by the Australian Government is calculated to put us in a better position to rebound as quickly as possible.
So, what impact will a subdued economy have on pharmacy business and who is better placed to survive a slowing economy? My opinion, in a subdued spending environment, pharmacy businesses with predominantly dispensary driven income, a good base of services provided under the PPI programme, low overheads and minimal competition will be the more consistent performers.
However, I am the eternal optimist. In 2010, during the Global Financial Crisis (GFC), there was still strong demand for pharmacy businesses. To me, that says volumes that pharmacy business is sought after no matter what the economic environment. Of course, borrowing criteria had tightened but there was still plenty of demand. My hope is things won’t be as dire as what some say it may be. Fingers crossed my optimism wins out.