Medicine Shoppe tries to appease franchise holders

More than 150 Medicine Shoppe stores have closed since 2000, leaving the company with about 950 in the United States. Earlier this month another 70 franchise owners representing 82 Medicine Shoppe locations filed a demand for arbitration against the company.

St. Louis Post-Dispatch
June 20, 2006

Medicine Shoppe tries to appease franchise holders
Mary Jo Feldstein

Medicine Shoppe International Inc., of Creve Coeur, has watched at least 14 percent of its franchises pull out or go bankrupt, and another 9 percent have filed for arbitration against the company for breach of contract.

But now the nation's largest operator of franchised pharmacies is rolling out a series of initiatives including in-store health clinics that it says will provide new value to franchisees.

Medicine Shoppe's new programs are designed to improve accounting, billing and inventory management while giving franchisees new ways to bring in customers and generate cash flow.

"It's the scale and leverage of a chain that enables the care and individuality of an independent," said Terry Burnside, Medicine Shoppe's president. Burnside announced the changes during a meeting this month of franchisees in St. Louis.

It's been a difficult few years for independent and franchised pharmacies. Some insurers and pharmacy benefit managers are requiring their members to patronize certain large chains or order their drugs through the mail. At the same time, new technologies have made it easier for bigger players to track inventory and keep patient records.

Some Medicine Shoppe franchisees allege the company has failed to keep up with these industry advances and charges store owners too much for the limited services it provides.

More than 150 Medicine Shoppe stores have closed since 2000, leaving the company with about 950 in the United States. Earlier this month another 70 franchise owners representing 82 Medicine Shoppe locations filed a demand for arbitration against the company.

The franchisees allege Medicine Shoppe and its parent company Cardinal Health Inc., a pharmaceutical distributor based in Dublin, Ohio, make decisions in favor of their short-term financial performance and against franchisees.

"It was absolutely the last resort," said Todd Pendergraft, of Broken Arrow, Okla., one of the franchisees who filed the complaint. "We have made overtures to Medicine Shoppe International and Cardinal. Those overtures have been rebuffed at every turn. We did not want to come this far on this."

Burnside declined to talk about the arbitration matter, but both sides agree part of the problem has been inadequate leadership. Medicine Shoppe has had five presidents in the last seven years. Burnside joined the company in September 2004 and was quickly named its president.

Burnside said he's made several changes to the management team including hiring the executive who helped launch in-store clinics for Wal-Mart Stores Inc.

Medicine Shoppe will partner with a yet-to-be-named company that will help operate the health clinics. The program will begin as a pilot with franchisees in Pennsylvania, Ohio and Indiana.

Similar to the retail-based clinics being opened by large pharmacy chains, they will be staffed by nurse practitioners and overseen by physicians. Burnside expects the first of the clinics will open in August. Eventually, he hopes as many as half of Medicine Shoppe franchises will include a clinic.

Most of the other programs could begin immediately, while some will take as long as 90 days to put in place. Burnside said the company has also designed an advertising and marketing campaign to accompany the stores' new features and services.

Jana Bennett, a registered pharmacist who owns two Medicine Shoppe locations in Texas, thinks an in-store clinic would be convenient for her customers.

She also appreciated technology to help manage inventory. Better inventory management will improve cash flow and customer service, she said.

"I think all of the programs that were rolled out are really designed to make us more efficient," Bennett said. "They're giving us all these new tools to help us be better businesspeople, which will give us more time to be better pharmacists."

Bennett said the key to being a successful franchisee is taking advantage of all the services Medicine Shoppe offers.

"You have to work to get your money's worth out of it," Bennett said. "If you just sit back and be frustrated … it's your own fault."

Medicine Shoppe International Inc.
What does it do? Operates pharmacies, most of which are franchisee-owned
Stores: 950 in the U.S.
Headquarters: Creve Coeur
Parent: Cardinal Health Inc. of Dublin, Ohio


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