Insight | Case Study

About Apotek Hjärtat Apotek Hjärtat has more than 2300 employees and had a turnover of approximately SEK

7 billion in 2011. Their mission is to help customers achieve better health and well-being.

The company acquired 206 pharmacies in the deregulation in February 2010 and has since

April 2010 opened more than 65 new pharmacies. Apotek Hjärtat is owned by Altor Fund III

and operates through-out Sweden, from Tomelilla to Kiruna.

Staying profitable in a new competitive landscapeIn 2009, before the deregulation of the pharmacy market, Sweden had about 929

government-run pharmacies. After the decision to deregulate, two-thirds of these were sold

to private actors. The result was a competitive landscape with about 10 chains and several

individual players, many of them pure greenfield ventures. The largest actor is now

government-owned Apoteket AB (36 percent market share), followed by Apotek Hjärtat (21

percent) and Kronans Droghandel (14 percent).

Since the deregulation, the number of pharmacies in Sweden has risen by 34 percent1 .

While the higher pharmacy density has been positive for consumers, it has become highly

challenging for the companies involved. By the end of 2011, overall market growth had

Retail | Store Operations

Increased profitability, sales and efficiency by transforming store operations

Apotek Hjärtat, the second-

largest actor on Sweden’s

recently deregulated pharmacy

market, sought to improve

customer service and efficiency in

stores to increase customer

satisfaction and profitability. They

engaged BearingPoint to develop

and implement a store operations

program for all of its more than

270 pharmacies.

“The analysis phase gave us several new

insights to how our operations

functioned –for example, before, we

could never had imagine that almost

25% of our pharmacy personnel’s time

was spent on goods receiving/picking”

Jacob Calmvik,

Head of Business Development

stagnated. In that year, legacy stores (meaning those that had existed since before

deregulation) experienced an average sales decline of about 11 percent compared with

2010, having lost that business to newly opened pharmacies2.

In addition, statistics show that in 2011, general retailers captured almost 20 percent of

the Swedish market for non-prescription drugs. This represents a substantial risk to

pharmacies’ profitability, given that sales of non-prescription drugs generate higher

margins than sales of prescription drugs1.

During this market turbulence, Apotek Hjärtat also implemented a new IT system which

resulted in heavier workloads and a need for efficiency solutions.

Hence, the challenge for Apotek Hjärtat as a newly established company was two-fold.

First of all, they realized that they had to establish their own way of working; all routines

and processes were originated from Apoteket AB, the previous state monopoly. Second,

to manage profitability on this new, highly competitive market, they understood that

they had to achieve the following objectives:

• decreasecostsandworkmoreefficiently

• improvecustomerinteractioninstoretofitwiththenewmarketsituation

• increasesalesmarginsbysellingmorenon-prescriptiondrugsandtradedgoods

• openadditionalstorestostrengthenmarketposition

Apotek Hjärtat realized that a total transformation of their store operations was

necessary. The strategy was to implement a change program that would provide their

employees with standardized processes and tools to help them in their daily work.

Apotek Hjärtat knew that they were undertaking a tough journey, but that they had to

take control of their operations if they were to outperform competition.

Store operations improvement program through a three-phased approachIn cooperation with BearingPoint, Apotek Hjärtat began a store operations program that

featured three phases: analysis, design and implementation. The approach was to use

pilot stores to identify symptoms and root causes for poor performance; define industry-

leading practices; and test and validate new solutions.

Key findings from the analysis phase resulted in an extensive list of areas and specific

required improvements:

• Organization:createanorganizationalstructurethatmoreeffectivelysupportsthe

company’s operations

• Managementsystem:settheconditionsforeffectiveoperationscharacterizedby

improved efficiency and a businesslike mindset

• Staffplanning:staffingrequirements(schedulingintermsoftotalnumberof

employees and their roles at specific times of the day and week) should primarily be

determined by customer demand

• Processes:streamlineprocessesandredistributeemployeetimefromnon-value-

adding activities to value-creating ones

• Sales:implementabehavioralandculturalchangeamongemployeestodrive

increased sales and better margins

• Inventory:adaptinventorylevelstoimproveservicelevelsandreduceamountsof

tied-up capital

• Backroomorganization:reducedisruptivefactorsandcreateastructurethat

facilitates greater efficiency

The outcome of this list was a rollout package comprising training material including

tools, exercises and new store standards to be met by each pharmacy, and a rollout plan.

Retail | Store Operations

2 Insight | Case Study

Figure 1. Number of pharmacies for main

actors on the Swedish market 1

Figure 2. 41% do not welcome the

customer

Figure 3. Results from observations

41% 59%

Welcomes the customerDo not welcome the customer

Apotek Hjärtat, 270

Apoteket AB, 365

KronansDroghandel,

209

40%

11%

24%

10%

9%6%

Sales non-prescription drugs and traded goodsSales prescription drugsHandling goodsOtherAdministrationNon-value creating

Figure 4. The scheduling is not based on

customer demand.

The rollout was implemented using a train-the-trainer approach. BearingPoint provided

the regional managers with training sessions focusing on the methodology and rollout

package. The regional managers then trained their pharmacy managers, who in turn

trained their employees. The regional managers developed their own individual rollout

plans, gradually increasing the number of pharmacies involved in the training.

During the implementation phase, the regional managers held weekly meetings with

the pharmacy managers to track implementation status and decide on corrective

actions. A standardized follow-up tool was utilized for this purpose so that all

pharmacies were evaluated using the same criteria.

Throughout the project, Apotek Hjärtat and BearingPoint representatives worked

hand-in-hand, and a critical factor for the implementation’s success was that the

regional managers led the initiatives taken in their own pharmacies. In addition,

communication and a change of mindset among employees were two key factors for

success.

Sustainable results and value createdToday, Apotek Hjärtat is realizing the benefits from the store operations project.

Key financial results include:

• Morethan30percentofEBITAeffectswererealizedin2011,andatanannualrun

rate, total effects will be captured in 2014.

• Workingcapitalwasreducedby15percentwhileoverallcustomer-servicelevelswere

retained.

• Improvedworkprocessesandanewwayofworkingwithstaffplanningresultedin

greater productivity (weighted volume/number of work hours).

In addition, because personnel costs have been reduced, customers’ overall waiting

times have been cut – thanks to a combination of the standardized sales process and

improved usage of the new IT system. Waiting times are a critical KPI for pharmacies,

and the fierce competitive landscape has resulted in further pressure to serve customers

quickly.

However, the improvements encompassed more than just financial results. Apotek

Hjärtat has also benefited in the following ways:

• Newstore-managementsystemimplementedinallpharmacies,involvingtheuseof

new store standards; KPIs; roles and responsibilities; a daily checklist and so on

• Improvedworkclimateaftera5Sexercise(sort;setinorder;shine;standardize;

systematize) in accordance with Lean Six Sigma principles was performed in all

pharmacies as part of the rollout

• Moreeffectiveandstandardizedprocessesforordering,goodsreceiving,andgoods

flow

• Clearerorganizationalstructure

Looking aheadApotek Hjärtat’s transformation journey has just started. Although the initial change is

complete, continuous improvements are necessary to stay ahead of the competition.

Therefore, as a final step in the project, Apotek Hjärtat has appointed a store

development manager whose main responsibility is to monitor the quality of ongoing

efforts to improve store operations. As a complement to this, audits are performed on a

regular basis to help the company’s pharmacies remain compliant with the new store

standards of work that were implemented.

Insight | Case Study 3

“The effect of the project has been

significantly improved results, mainly

due to increased productivity, improved

processes and a thorough store

management system. The fourth quarter

of 2011 showed the best result since

Apotek Hjärtat was founded.”

Anders Nyberg

CEO

1) Sveriges Apoteksförening, branschrapport 2011, http://www.sverigesapoteksforening.se/apoteksbranschens-arsrapport-2011/2) Årsredovisning, ApoPharm Holding AB 2011

Figure 5. Effect on main KPI:s from

implementation

15 17 19 21 23 25 27 29 31 33 35 37 39 41 43

15 17 19 21 23 25 27 29 31 33 35 37 39 41 43

Productivity

Customer service rate

02468

101214

7 8 9 10 11 12 13 14 15 16 17 18

Staffing need based on customer demandActual staffing of pharmacy

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Insight | Case Study