Self-Care and Specialty Distribution Offer Opportunity
Edition: September 2001 - Vol 9 Number 09
Author: Christopher M. Pancratz
The industry seems to be in one of its almost regularly scheduled but always unique times of change. Now that e-commerce has assumed its place as tool instead of miracle, and consolidation has slowed to a crawl (although some who keep an eye on TYCO might argue this), it is almost as if everyone in the industry is breathing a collective sigh of relief and spending their time and resources on the nuts and bolts of making money. (What a concept!)
That's a good thing, of course. There have been many new technological developments in recent years, and much has been learned about efficiency in logistics. Many distributors and others are taking this opportunity to capitalize on some of those technological efficiencies by upgrading systems and implementing new cost-saving measures.
But even while things are relatively quiet, the market continues to change. Two especially significant changes though still somewhat out of the line-of-sight of traditional medical products distributors are: 1) the rise of self-care, which is providing an entirely new class of customers, and 2) the proliferation of new-product opportunities in specialty product distribution for sales-capable dealers.
Self-Care a Significant Trend
Have you seen or heard actor Wilford Brimley on his horse hawking Liberty Medical on television and radio?
Home care may continue to be the fastest (maybe the only) growing medical products segment, but self-care (Brimley's arena) is the wave of the future. What's the difference? A home care purchase is generally initiated for a patient by a third party caregiver, social worker, provider, etc. But self-care generates purchases initiated and concluded by the patient.
Self-care is growing, and will continue to grow with the age wave the "boomer" population (those born 1946 through 1964) moving through American society. We in this huge group of people have grown up in the information age television, and now the Internet. We are increasingly applying information technology to our own health care. We are learning more about medical conditions, available treatments and the products needed to treat them. Liberty Medical is the vanguard of companies that will make these products easy for consumers to purchase.
New distribution companies are starting up constantly, and almost invisibly, as distributor specialization continues to serve manufacturers seeking new channels to the customer. While many "traditional" med/surg distributors bemoan the lack of new products available to them, manufacturers of new technologies are facing increasing difficulties in getting their products in front of the customer. Why?
Major distributors are committed to reducing the SKUs they carry.
GPO contracts make the introduction of new (non-revolutionary) products difficult.
Some providers, especially large hospitals, have gotten serious about standardization.
Many traditional med/surg distributors lack product sales capability.
Contrast these conditions to those of just a few years ago, when many customers were actively seeking -- and "full-service" distributors were promoting -- one-stop-shopping. Hospitals attempted to force manufacturers of self-distributed products, and those that distributed exclusively through specialty distributors, to push their products through the hospital's prime vendor. Hospitals rationalized that this would reduce handling costs by having everything arrive on one truck and billed on one invoice.
This change in focus and other trends in the marketplace have given new life to the growth of specialty dealers.
Specialty Product Dealers
Specialty dealers are, first and foremost, sales organizations focused on a specific medical specialty or hospital department (cardiology, OR, orthopedics, etc.) They generally carry fewer than 10 product lines, most often five or six, and sometimes only one. They offer services that may include education, in-service training, service and maintenance.
Specialty distribution has been through its own rounds of consolidation. Companies such as 3CI (now part of Allegiance) and Tri-Anim Health Services have absorbed local and regional dealers to build national or near-national organizations. But new products continue to become available and the manufacturers of those products need access to the customer. So, local and regional companies with solid customer relationships and selling capabilities prosper and grow. New dealers are starting up regularly, as individual sales professionals choose to establish their own businesses.
Today, there are upwards of a thousand specialty dealers across the United States, and the number is likely to continue to grow, even with future consolidations, providing an opportunity for medical products professionals with solid customer relationships, an understanding of customer service and the ability to sell.
So, even though it may seem quiet in your immediate world, look beyond your normal boundaries and see the change that is ALWAYS there. I have been in this industry more than 30 years, and I have never seen more exciting times than those that are
About the Author:Christopher M Pancratz is CEO and Principal Consultant in Pan Development Associates, providing strategic and operational growth and planning services. He spent nearly 20 years with Chicago Hospital Supply Corp., a medical products distributor in the Midwest, in many capacities from sales representatives to President/CEO. He also served for 10 years as an executive director/vice president of the Health Industry Distributors Association (HIDA). He can be reached at firstname.lastname@example.org or (703) 626-2446.
WHO IS LIBERTY MEDICAL?
Liberty Medical's website (www.libertymedical.com describes the company as follows:
"Liberty, the nation's leader in home delivery of specialty medical supplies, combines a highly trained staff, state-of-the-art technology and convenient home delivery to help people live healthier, more active lives. Since 1989, hundreds of thousands of customers have come to rely on Liberty to provide reliable home delivery of their diabetes and respiratory supplies at no charge."
Liberty Medical is the brand name distribution company of publicly traded PolyMedica Corporation (NASD: PLMD). PolyMedica positions itself as a nationwide provider of direct-to-consumer specialty medical products and services, primarily focused on the diabetes supply and consumer health care markets. In the fiscal year ended March 31, 2001, net revenues rose 40 percent to $220 million, reflecting increased sales from the diabetes testing supply and respiratory pharmacy segments. Net income before extra items and accounting changes increased 80 percent to $29.7 million. These earnings benefited from higher margins.
Other distributors are serving this market as well, and in different ways. Some of them are traditional distributors providing distribution of supplies to patients, at the patient's request, via a contract with a payor. These distributors, such as Liberty Medical, are the early leaders in what will certainly be a race to capture this new class of trade.