Pharmacies cost-cutting potential

Published on: 18th August 2016

After months of consultation and despite millions of petition signatures, the Government is due to confirm any day now that funding for the community pharmacy contractual framework in England is to be cut by 6.1% from October 2016. By the time you are reading this, the announcement may well have already been made.

Kim Murray, associate partner in our lease consultancy team explores the various opportunities.

Clearly the cuts will have a major impact on the sector – the Government itself admitted up to 3,000 pharmacies could close as a result and the proposed £170m reduction in funding is due to hit every pharmacy to the tune of about £14,000. Times are set to get tougher for community pharmacies.

The debate will inevitably continue but, like any other business, in times of economic hardship the focus must now shift to cost-savings. There is no doubt that the funding cuts will be challenging and pharmacies must look for ways to streamline operations, reduce expenditure and ease the impact of funding cuts where possible.

One of the biggest opportunities to do this is in property costs. Whether they are co-located with a doctor’s surgery or in a traditional retail premises, rent is one of the single biggest costs for any pharmacy, especially when you consider the cumulative cost over the period of a five or ten year lease. And with the budget cuts set to come into force before the end of the year, it is more important than ever to make the most of rent reviews.

The most important thing for any pharmacy due to start a new lease or negotiating a rent review is to seek advice from their professional advisors; experts who know exactly how to negotiate in order to get the best possible deal. Before this latest round of funding cuts, this may not have been a priority – we know from experience many pharmacies have often agreed rent just because they can afford it within their budget, or because they think they have to take the first offer. Quite simply, this is not the case.

There are many variables that come into play for rent reviews, including the terms or duration of the lease, and location in relation to the doctors and local competition. In the current climate, the most important factor for any pharmacy is the saving that could be generated by an expert advisor over a lengthy lease period. Can you afford to ignore that cost-cutting potential?

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