Insights
986 Pharmacy: Entrepreneurship in an Industry of Corporate Goliaths
By Melody Yuan
How this independent pharmacy is beating out big box stores and branching out.
What happens when three pharmacists, a lawyer and a creative artist join forces with a mission to improve the pharmaceutical industry? This is exactly how 986 Pharmacy was created, with the vision of providing health care for the people and keeping patients’ body temperatures at a healthy 98.6 degrees.
The health care industry today makes up roughly a sixth of the U.S. economy; more specifically, the U.S. alone accounts for 45 percent of the global pharmaceutical market, with total nominal spending on medicines amounting to $450 billion annually. On average, America spends about $5,000 more per person on health care compared to other developed nations. This space is notoriously dominated by large institutions, insurers and providers. “But that trend is hopefully shifting,” says Ken Thai, co-founder and CEO of 986 Pharmacy. “There are very few younger, independent pharmacy owners today, and a lot of them are older store owners in the retirement stages of their careers. I want to really promote ownership in the modern world with young, up-and-coming entrepreneurs in the pharmacy world.”
Parallel to the story of David and Goliath, 986 Pharmacy has entered an arena of pharmaceutical giants with the intent to win over some of the market share and help transform the industry. As an adjunct professor who teaches a number of college classes at various universities, Thai is determined to create a pathway for entrepreneurs and independent pharmacies to flourish. “We’re going into a climate where there’s been a lot of recent corporate mergers. Smaller businesses are eaten up by bigger corporations, and it’s very discouraging as a pharmacist out in the real world,” says Thai. “You graduate, look around to see the giants in the marketplace like Walgreens and CVS, and think, ‘Oh my gosh, there are no other business opportunities.’”
Using SBA loans to secure independent ownership
When Thai graduated from the University of Southern California as a registered pharmacist in 2002, he didn’t hesitate to open his own pharmacy. Located just a few blocks down from East West Bank’s El Monte branch, it didn’t take long for Thai to decide to work with East West Bank to secure a small business (SBA) loan for operational finances.
“When I was first introduced to Dr. Thai, I noticed a very strong business and strategic plan with slight liquidity issues,” says Danny Chan, vice president and El Monte branch manager for East West Bank. An SBA loan allowed 986 Pharmacy to have secure yet flexible funding, which allowed the business to look strategically at the future without being financially tied down.
Chan talks about the advantages of SBA loans over conventional ones here:
“East West Bank has been a great partner, and Danny has really helped us to not only grow on the financial side, but also gave key perspectives on strategic decisions and advised us on how to best position ourselves for the long-term,” shares Thai.
Part of this long-term positioning involved creating the 986 Pharmacy franchise, which came about as a result of his attempts to encourage independent ownership for his students. The business has grown notably since, with 15 new stores across the country, 203 jobs created, and more than 50,000 patients served. “My courses focus a lot on the idea of independent pharmacies, which is unusual because most pharmacy schools tend to be more clinically focused than they are for real-world applications,” says Thai. “This led to a lot of my students and staff wanting to work with me, and because many of them didn’t have the resources to begin their own pharmacies, I would bring them under my wing and offer them a staff position at 986.”
Thai adds, “If they did well, we would move them up into management positions, and if there were future opportunities, we would offer them a chance to become a partner. One day my sister, who happens to be a lawyer, pitched the idea of franchising to me.” Thai and his 986 Pharmacy team ran with the idea and created the franchise under 986 Degree Corporation.
Standing out and finding your business vantage point
After 986 Pharmacy opened its El Monte location, a CVS opened a mile down, and then a Walgreens opened a block away. “I remember my colleagues telling me that this was the end, and that 986 Pharmacy would be extinguished by these giants,” Thai says. Rather than viewing this added competition as a challenge, however, he viewed it as an opportunity. “I said, ‘This is great,’ because now I’m going to get these guys to pour hundreds of thousands of dollars in advertising for these locations, and of course, once people see my store and decide to check it out, they’re never going to leave.”
Fast-forward 13 years and Thai’s augur has become reality. “My store is processing more than 1,500 prescriptions a day at this point,” says Thai.
Thai and his team attribute their success and popularity to the company’s ability to personalize. “We live in a world where networking and relationships are of key importance, so we crafted our practice around the needs of the community,” says Thai. When he first decided to open a store in the El Monte neighborhood, he went around to homes and local stores to introduce himself and his business. After the store opened, the staff was trained to remember customers by face and name, and to recall the types of medications they needed. 986 Pharmacy also provides a medication delivery service that can process and deliver to patients’ doorsteps within two hours. “Our medical delivery system is like Amazon Prime, but better,” jokes Thai.
“Many believe independent businesses have a disadvantage in corporate America,” says Chan. “But Dr. Thai and his executive team developed strategies to make the less competitive environment more advantageous for their pharmacy.”
Thai adds, “Our El Monte location is my real-life counter to the naysayers. I tell people that if the big pharmas try and come near my business, they’re going to be in for a lot of big surprises.”
Taking charge to change the industry landscape
Despite 986 Pharmacy’s burgeoning success, the reality remains that independent pharmacies face an uphill struggle. Some of their pain points include working with insurance companies and providers to maintain the regularity of being paid in a timely manner.
“Our business payments are so dictated by the payers and pharmacy benefit managers (PBM), and as pharmacy business owners, you’re constantly thinking about when you’re getting paid, the payment terms, copay restrictions, regulations and whatnot,” says Thai.
Taking out an SBA loan from East West Bank helped alleviate some of the financial stressors around working capital for 986 Pharmacy, but Thai has also gotten involved with the California Pharmacists Association to change the landscape for independent pharmacies. “One of the things we did as an organization is that we took charge of enforcing Senate Bill 1195 that created a regulatory body to audit many of these insurance companies,” says Thai. “That was a huge landmark accomplishment for us because, despite all of the lobbying that these insurance companies do out on Capitol Hill, we were able to have this small counter-punch to get this regulation passed. As a small business owner and independent pharmacist, this was truly an uplifting moment.”