Apotek Hjärtat, Sweden's second largest pharmacy chain, sought to improve operations and profitability following deregulation of the pharmacy market. They engaged consultants to analyze stores, identify issues, and design new standardized processes. Over 270 pharmacies implemented reorganized staffing, inventory, and sales training. Results included a 30% increase in profits, 15% reduction in working capital, and improved customer service levels and productivity. Continuous improvements ensure Apotek Hjärtat remains ahead of competitors in the challenging new market.

1. Retail | Store Operations
Increased profitability, sales
and efficiency by transforming
store operations
Apotek Hjärtat, the second- About Apotek Hjärtat
largest actor on Sweden’s
Apotek Hjärtat has more than 2300 employees and had a turnover of approximately SEK
recently deregulated pharmacy
7 billion in 2011. Their mission is to help customers achieve better health and well-being.
market, sought to improve
customer service and efficiency in The company acquired 206 pharmacies in the deregulation in February 2010 and has since
stores to increase customer April 2010 opened more than 65 new pharmacies. Apotek Hjärtat is owned by Altor Fund III
satisfaction and profitability. They and operates through-out Sweden, from Tomelilla to Kiruna.
engaged BearingPoint to develop
and implement a store operations
program for all of its more than Staying profitable in a new competitive landscape
270 pharmacies. In 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
Insight | Case Study

2. Retail | Store Operations
Figure 1. Number of pharmacies for main stagnated. In that year, legacy stores (meaning those that had existed since before
actors on the Swedish market 1 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
Apoteket AB, 365 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
Kronans Apotek Hjärtat, 270
resulted in heavier workloads and a need for efficiency solutions.
Droghandel,
209 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:
“The analysis phase gave us several new
insights to how our operations • decrease costs and work more efficiently
functioned –for example, before, we
• improve customer interaction in store to fit with the new market situation
could never had imagine that almost
25% of our pharmacy personnel’s time • increase sales margins by selling more non-prescription drugs and traded goods
was spent on goods receiving/picking” • open additional stores to strengthen market position
Apotek Hjärtat realized that a total transformation of their store operations was
Jacob Calmvik,
necessary. The strategy was to implement a change program that would provide their
Head of Business Development
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.
Figure 2. 41% do not welcome the
customer Store operations improvement program through a
three-phased approach
In cooperation with BearingPoint, Apotek Hjärtat began a store operations program that
featured three phases: analysis, design and implementation. The approach was to use
41% 59%
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:
Welcomes the customer
Do not welcome the customer
• Organization: create an organizational structure that more effectively supports the
company’s operations
Figure 3. Results from observations • Management system: set the conditions for effective operations characterized by
improved efficiency and a businesslike mindset
6% 11%
9% • Staff planning: staffing requirements (scheduling in terms of total number of
employees and their roles at specific times of the day and week) should primarily be
10%
determined by customer demand
40% • Processes: streamline processes and redistribute employee time from non-value-
24% adding activities to value-creating ones
• Sales: implement a behavioral and cultural change among employees to drive
increased sales and better margins
Sales non-prescription drugs
and traded goods • Inventory: adapt inventory levels to improve service levels and reduce amounts of
Sales prescription drugs tied-up capital
Handling goods
Other • Backroom organization: reduce disruptive factors and create a structure that
Administration facilitates greater efficiency
Non-value creating
The outcome of this list was a rollout package comprising training material including
2 Insight | Case Study tools, exercises and new store standards to be met by each pharmacy, and a rollout plan.

3. The rollout was implemented using a train-the-trainer approach. BearingPoint provided Figure 4. The scheduling is not based on
the regional managers with training sessions focusing on the methodology and rollout customer demand.
package. The regional managers then trained their pharmacy managers, who in turn
14
trained their employees. The regional managers developed their own individual rollout 12
10
plans, gradually increasing the number of pharmacies involved in the training. 8
6
4
2
During the implementation phase, the regional managers held weekly meetings with 0
7 8 9 10 11 12 13 14 15 16 17 18
the pharmacy managers to track implementation status and decide on corrective Staffing need based on customer demand
Actual staffing of pharmacy
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 created
Today, Apotek Hjärtat is realizing the benefits from the store operations project. Figure 5. Effect on main KPI:s from
Key financial results include: implementation
Productivity
• More than 30 percent of EBITA effects were realized in 2011, and at an annual run
rate, total effects will be captured in 2014.
• Working capital was reduced by 15 percent while overall customer-service levels were
retained.
• Improved work processes and a new way of working with staff planning resulted in
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 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43
improved usage of the new IT system. Waiting times are a critical KPI for pharmacies, Customer service rate
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:
• New store-management system implemented in all pharmacies, involving the use of
new store standards; KPIs; roles and responsibilities; a daily checklist and so on
• Improved work climate after a 5S exercise (sort; set in order; shine; standardize; 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43
systematize) in accordance with Lean Six Sigma principles was performed in all
pharmacies as part of the rollout
• More effective and standardized processes for ordering, goods receiving, and goods
flow
“The effect of the project has been
• Clearer organizational structure significantly improved results, mainly
due to increased productivity, improved
processes and a thorough store
Looking ahead
management system. The fourth quarter
Apotek Hjärtat’s transformation journey has just started. Although the initial change is of 2011 showed the best result since
complete, continuous improvements are necessary to stay ahead of the competition. Apotek Hjärtat was founded.”
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 Anders Nyberg
efforts to improve store operations. As a complement to this, audits are performed on a CEO
regular basis to help the company’s pharmacies remain compliant with the new store
standards of work that were implemented.
1) Sveriges Apoteksförening, branschrapport 2011, http://www.sverigesapoteksforening.se/apoteksbranschens-arsrapport-2011/
2) Årsredovisning, ApoPharm Holding AB 2011
Insight | Case Study 3

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