Proposal for opening a new pharmacy

Executive Summary:-

Being healthy without illness indeed is a great thing. However, because of many
reasons many people are affected as a result of illness. Medicines and pharmacies are
there to help people to become healthy and cure their illness. Health care institutions in
many organizations are there for this service. Educational institutions are among the
ones that have established the health care services for their constituencies.

Unity University also has a clinic and a pharmacy that provides the health care services
and Mechare Pharmacy is the University’s pharmacy located at the head office
compound of the CEO. As the University is expanding its services, there has come and
idea of opening a chain retail pharmacy.

This Paper tries to show the possibility of expanding the pharmacy activates and how a
retail pharmacy market can be a business unit that generates income to the university.

Opening a new retail pharmacy in one of the most populous areas of the city i.e. Kolfe-
Keranyo is the proposal forwarded. The Keranyo Academy compound is chosen for the
site of the first chain pharmacy. Taking experiences from chain pharmacies in the city,
Mechare pharmacy also needs to establish its own chains. The ratio of pharmacies with
that of the population of the city shows that there is still a huge gap that can be
covered and the possibility of making business out of it.

The performance of Mechare pharmacy indicates that if more chains are established,
the business will be feasible to work with.

The paper concludes with financial projection beginning with break even and then
making a significant amount of returns afterwards.

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1 Introduction
The pharmacy business, in general, is seen as an attractive business as long as the
supply of medicines is readily available, and the service is rendered efficiently.

This study is the result of such an idea and it is prepared by the general direction of
the CEO. From the observation of the pharmacies working in the city, it is seen that
chains and branches of pharmacies are taking much of the market share.

The Mechare pharmacy, with one selling point, is working along with the Mechare
High Clinic and is serving the employees of the MIDROC Technology Group
companies. Although it is serving only the employees, it is still generating revenue
with a positive margin.

As the university is expanding its services in other campuses, a possibility has

aroused to open chain /branch/ retail pharmacies around these campuses. As a
start- up, Keranyo Academy is chosen to be the area for the first retail pharmacy.

The proposal has seven parts. Part one is the introduction. Part two discusses about
the pharmaceutical industry, worldwide, the city context, and the university’s
pharmacies. Part three deals with marketing plan. Part four gives us information
about the business. Part five is the location and equipment part. Part six gives us
the financial overview. The last part notes the risks involved in the business and its
remedies.

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2 The Pharmaceutical Industry:-

2.1. An overview:-

Health institutions are important inputs that help to ensure a healthy society. The
health care delivery system of our country is guided by a national health policy and
a health sector development program.

Among the components of the policy and the program, strengthening the
pharmaceutical sector, is mentioned as number one.
This sector is regulated by the Drug Administration and Control Authority (DACA).
The drug retail activities are done by the public, the NGOs, and the private sectors.
With regard to the population, some older studies state that it is around 51.2 %.
The study also shows that there is no price control and it is subject to taxation,
except anti-retro vital (ARV) drugs.
The private sector, as a leading sector on pharmaceuticals, expenditure on drugs
account for the largest share of the total estimated drug expenditures.
2.2. Pharmacies and drugs stores in the city
The city’s health care access, like that of the country, is based on prevention
policy. The health facilities are improving their services and they have also
increased in number. The following table shows the number of health facilities of
the city based on the Health Bureau annual report of 2004 E.C.

Table 01: the city health facilities

Health Facilities Government Private Total

1 Hospitals 6 36 42
2 Health Centers 53 __ 53
3 Clinics __ 700 700
4 Pharmacies __ 293 293
5 Drug Stores __ 235 235
N.B. All government hospitals and health centers have their own pharmacies.

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The table above shows that the private sector plays the lion share in the city’s health
care facilities.
2.3. The University’s pharmacy:-

Mechare pharmacy is the university’s pharmacy working with Mechare Higher Clinic
since 2006. It is situated in the Kolfe-Keranyo Sub-City, in the vicinity of the Clinic,
at Mechare, the head quarter of the CEO.

The manpower includes five employees as seen in the table below.

Table 02 Manpower Profile:-

Job Position Educational Service Year in Remark

Status the pharmacy
1 Pharmacist II BSC Pharmacy Representing the
Technology 7Years unit
2 Pharmacist I BSC Pharmacy 1Year Service in the
university
3 Junior pharmacy technician II Diploma Pharmacy 1Year “
Technology
4 Cashier Diploma Accounting 6Years “
5 Attendant Cleaning Service II 12th Grade 8 Years “
Source: - University Human Resource Department.

Although there is fluctuation in the number of staffs, the performance of the pharmacy
is encouraging.
The following table shows the financial performance of three years (2013-2016)
Table 03 Financial Performance

Performance
Indicators 2013/14 2014/15 2015/16
1 Sales (revenue) 1,547,344 1,750,277 1,528,084
2 Cost of sales 1,161,694 820,966 1,291,567
3 Gross margin 385,650 926,311 236,518
4 Total Expense 394,524 433,192 113,641
5 profit (loss) (8,070) 496,119 122,877
Source: - University Finance Services

2.4. The need for a new pharmacy:-

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There are a number of reasons for having a chain of new pharmacies for the
university. Few of the reasons are stated below.
I The current pharmacy is situated inside the premises of the CEO’s head
quarter and is limited in its service, only to the employees.
II The ratio of pharmacies services, including the drug stores, to that of the
population of the city is around 1: 85,731. This shows that there is still a gap
that can be filled if new pharmacies are opened.
III The pharmacies are scattered in the city, concentrating around business
centers. There is still a chance of opening them in many places.
IV Kolfe- Kerannyo Sub-City has the largest population of the city, and the
Keranyo academy, where the new pharmacy is suggested to be opened, is in
one of the busiest area of the sub-city and there is a lot of possibility of
having a market for a pharmacy.

3 Marketing plan :-
3.1. Potential Market:-

The new pharmacy is assumed to be opened in the Keranyo Academy. Since it is

in Kolfe-Keranyo Sub-City where the population is the highest in the city, there is
a huge potential for the pharmaceutical market. The different categories of
households, business people, the elderly, the young children, mothers, students
and other groups constitute the potential market.

The following demographic data shows the potential market for opening a new
pharmacy in the area.

Table 04 Kolfe- Keranyo demographic data

Indicator Number (quantity) Ratio

1 Population 428,654
1.1 Male 207,506

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1.2 Female 221,148

2 Hospitals 8
3 Health centers 3
4 Clinics 87
4.1 Higher Clinic 8
4.2 Medium Clinic 45
4.3 Lower Clinic 34
5 Pharmacies 5 1:85,731
Source:- 2007 Population census report –CSA
 Health Bureau report 2012

3.2 Competition:-

The major competitors are the larger and earlier established pharmacies and their
chains. These include Gishen, Kenema, Axum, Soloda, and Lion pharmacies and
their chains. The Red Cross pharmacy chains are also among the competitors.
In order to be competitive, the new retail pharmacy is assumed to use the
following marketing strategies.
I Delivering excellent customer service.
II Providing printouts accompanied by the medications, thus providing
directives on how patients are expected to take the medications.
III Positioning and making visible of the pharmacy to the community and
opening the pharmacy for long hours than our competitors.
IV Introduce our business by sending introductory letters to the locality and
the surrounding organizations.
V Sponsor relevant community programs.
VI Install our billboard in strategic locations.
VII Providing compounding service.

4. Description of the business:-

4.1 Products and services:-
3.a The products include a wide range of prescription drugs and medicines from
different manufacturing brands.
The business will also be engaged in the sale of beauty products, cosmetic,
baby products, and other related products.

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3.b The service will include education and management, consultation and
compounding.
3.c On the counter, products including the followings will be available
 Nutritional Foods
 Herbal medications
 Vitamins and minerals
 Wide selection of testing kits and accessories.

4.2 Sales :-

According to pharmacy practices, Medicinal Products that may be sold and supplied
are classified as:-
I General sale list medicines,
II Pharmacy medicines,
III Prescription only medicines.

As indicated in table 03 of this study, the annual sales of Mechare pharmacy for
the last three years (2013-16) were Br.1,547,344, 1,750,277, and 1,528,084
respectively. When analyzing the sales trend, there was an increase of 11.6% in
2014/15, where as it was a decrease by 14.5% in 2015/16.
This shows that there is a fluctuation of sales in the market and as a result the
next forecast has to be seen seriously.
In forecasting sales for the new pharmacy, and considering the new pharmacy’s
status of starting the business afresh, we have taken the least amount among the
three years sales and with the assumption of working with 75% efficiency as a
start- up, the estimated sales will be Br.1,146,063 for the coming years. (2017/18)

4.3. Operational practice:-

a Licensing:-
All licensing requirements will be met, and the pharmacy will be operated
under close supervision of a registered pharmacist.

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b All employees of the pharmacy will wear formal medical clothes or a white
gown and it will always be kept neatly.
c Smoking, eating and chewing will not be allowed in the premises of the
pharmacy and “No” sings will be posted.
d Cleaning procedures and schedules for cleaning of the flours, the shelves, the
rooms the toilets should be strictly observed.
e The refrigerator will only be used for medicines. It will never be used for any
other items specially foods stuff.
f A record of transactions will be in practice and drugs register and prescription
record book will be kept.
g A written procedure for checking and destroying or returning of expired drugs
shall be kept.
h Adequate compounding equipment will be available for in–house
compounding
i Restrictions will be displayed for persons below certain age to buy medicines.
j Manpower:-
A minimum of five persons will be employed for the new pharmacy. These are:-
I. Senor Pharmacist
II.Junior Pharmacist
III.Pharmacy Technician
i.IV Attendant /Cleaner)
V Cashier
k Integration:-
The new pharmacy, although it will work with operational autonomy, shall have
administrative relationships and professional consultations with the Mechare
pharmacy. The details of the integration system will be deployed.
5. Location, building and equipment
5.1. Location:-

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The proposed location for the new pharmacy will be in Kolfe-Keranyo Sub-City, in
the compound of Keranyo Academy adjacent to the main road. Students and their
families are visiting the area daily and this will give the new pharmacy an
opportunity to catch up the market very easily.
There are also residences and business shops within walking distances to the
proposed site, and thus, the new pharmacy will likely get attraction very easily.
As indicated in 4.1 of this study, the demographic information is also suitable for
the business of the pharmacy.

5.2 The building

The Keranyo Academy is built in the premises of ELFORA Argo-Industries P.L.C.

In order to keep in line with the neighborhood plan, the new pharmacy is
expected to be built the same way as that of the academy.
As per the minimum requirements of the city’s Drug Administration and Control
Agency, a self contained pharmacy house is needed to be built. A minimum of
fire rooms is required and the total area is expected to be about fifty (50) sq.
meters. The different rooms will contain:-
I A dispensary room,
II A drug store room,
III A compounding room,
IV An Office,
V A toilet room

The floor type, the ceiling, the doors and windows, and other fixtures will be as per
the minimum requirements of the agency.
The floor plan and layout is suggested to look like the following:-

Figure 01 Floor plan of the new Pharmacy.

 T
 oi
le
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Store

Counter cashier
Compounding room
booth
Dispensary
Office

5.3 Furniture, equipment and apparatus:-

Apart from the minimum requirement list, the following furniture, equipment
and apparatus will be maintained.
 Dispensing counter
 Lockable Steel Cabinet
 Glassware shelves
 Refrigerator

 Digital Scale of min. 100kg. weight

 Computer with printer
 Landline telephone
 Reference Materials
 Fire Protection System
 Office equipments:-
 A desk and chair for the senior pharmacist,
 Chairs for guests in the office.
 Chairs/stools/ for dispensary
 Two tables and chairs for store room and compounding room.
 Two desk top computers with printers (one for the office, the other for
dispensary)
 Cash register machine.

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6 Financial Plan:-
6.1 The Goal:-
The goal of the financial plan is to build a business that will survive with its
own cash flow, without the need for injecting finance from external source
once it starts its operation.

6.2 Total investment cost:-

 Cost of building ----------------------------- 500,000
(Pharmacy house)
 Cost of equipment & furniture’s----------- 165,089
Total 665,089

6.3 Cost of goods sold:-

Start up inventory (medicines) ---------------------- 802,244
6.4 Assumptions:-
The assumptions for making the expenses include the following:-
I In the start –up year (2018), only four employees will be hired, and
they will be the senior pharmacist, the pharmacy technician, the
cashier and the cleaner.
II Starting from the next year (2019) on wards, the remaining
employees will be hired.
III The salaries and benefit packages will includes:-
 Salary based on the current salary scale.
 11% pension contribution.
. Benefits expenses are assumed as 2% of the basic
salary.
. Training fee is assumed as 1% of the basic salary.

 The start-up capital is expected to be covered from the owner’s equity.

6.5 Projected Income Statement

Year

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Item 2018 2019 2020

1 Sales 1,146,063 1,260,669 1,386,736
2 Cost of Sales 802,244 818,289 834,654
Gross margin 343,819 442,380 552,082
3 Expenses
3.1 Salaries & benefit 246,240 328,320 430,373
3.2 Marketing expense 20,000 10,000 10,000
3.3 Utilities Expense 30,000 30,000 30,000
3.4 License fees 3, 000 3,000 3,000
Total Expense 299,240 371,320 404,152
4 Profit (Loss) 44,579 71,060 147,930

As seen in the table above, the new retail pharmacy can make profits as long as it
fulfills its assignments with a professional manner.

7 Risk Management:-
The major risks that are likely to be associated with the retail pharmacy and the
responses that can be made are shown in the following table.

Table 05 risk management plan

Potential risk Degree Response

1 The possibility of harm to occur to the  Develop safety standards and make
pharmacy work force:- Medium sure that they are observed strictly
2 Malpractice as a result of patient  Establish a code of conduct and
contact Medium follow up
3 Delivering wrong medicines as a result  Close supervision using check lists
of carelessness Medium
 Closely working with potential
4 Shortage of medicines Minor suppliers
5 Might not attract enough customers Minor  Use different marketing strategies

Further assessments as the business runs on will be helpful to mitigate risk that involve
in the operation.

8 Conclusion:-

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The pharmacy business is a good business provided it is well established, well stuffed
with drugs and medicines, and is managed by professional pharmacists.
The new pharmacy should be encouraged to normalize prices to win the business,
advising customers on how to use the medicines and should use other marketing
strategies relevant to the business.

The proposal suggests that there is a potential business in retail pharmacy activities and
thus reaching long term goals and achieving success.

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