How many pharmacies are there in the US?

Market sizing pharma and health care cases
New answer on Oct 25, 2021
3 Answers
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Tereza asked on Oct 23, 2021

Hi guys, I'm trying to solve this market sizing question. Any ideas on how to approach this? Thank you!

How many pharmacies are there in the US?

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Ian
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replied on Oct 24, 2021
BCG | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

Hi Tereza,

You'll learn a lot more from this by trying it out yourself first! Why don't you post your approach here and we can provide commentary?

How to approach market sizing

It's very simple: Do the approach the is the easiest for you given the question.

Are they asking you to estimate something where you don't even know where to begin from the top (maybe you have 0 clue as to the market size of the industry, the GDP of that country, etc. etc.)? Then do bottom-up!

Alternatively, does it seem impossible to do a realistic from-the-ground-up estimation of something (perhaps it requires just far too many steps and assumptions)? Then do top-down!

Fundamentally, you need to take the approach that just makes the most sense in that circumstance. Quickly think about the key assumptions / numbers required and whether you 1) Know them or 2) Can reasonably estimate them. If you can, go ahead!

An Example

Coincidentally, I just answered a Q&A for a great market sizing question here asking to estimate # of electric charging stations in a city in 10 years:

https://www.preplounge.com/en/consulting-forum/how-would-you-solve-this-market-sizing-question-from-roland-berger-7631

This one could be answered top-down (as I did) by estimating population of the city, # of drivers/ cars, etc. etc.

OR, it could be answered bottom-up by estimating # of stations you see per block (or # of gas/petrol tanks), % increase this might be over time (or # of EV stations that would be needed per gas tank given EV stations take 10 times as long), and # of blocks you'd estimate the city to have.

Take a look here for additional practice! https://www.preplounge.com/en/management-consulting-cases/brain-teaser/intermediate/taxis-in-manhattan-market-sizing-229

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Clara
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replied on Oct 24, 2021
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello Tereza,

I would always recommend you to give it a shot and then post it here, this would help you the most. 

Given that market sizing cases were the topic of many questions in this Forum, I developed a market sizing case, that you can find for free in PrepL´s library

https://www.preplounge.com/en/management-consulting-cases/candidate-led-usual-style/intermediate/market-sizing-new-startup-launch-baby-strollers-in-the-us-244

Let me know if you have any doubts with it, it contains a detailed explanation and methodology about how to solve this specific example, but you can extrapolate to many other market sizings!

Hope it helps!

Cheers, 

Clara

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Tereza on Oct 24, 2021

Thank you, Clara and Ian! I gave it a try. First, I’ll be more specific here and say we’re talking about pharmacies/drug stores in the European sense (so no CVS, etc., but “pure pharmacies”). I think that I’m mixing things but let’s see. I came up with two ways to solve this. I think that the first one is more suitable for pharmacies as they’re not like other businesses, I’d approach it geographically, but I made it too simplistic. The other approach would be probably more suitable for restaurants and I feel like that’s not the way to go. 1) This is too simplistic. I could decompose the number of pharmacies as (average # per city) x (# cities in the country). The average might be around 15 pharmacies. Larger cities can have much more, smaller cities are more numerous and usually have fewer. For the cities, I will assume that half of the US population lives in cities and that the average population is 150-200 thousand. Again, small cities are much more common than large ones, which is the reason for my estimate. This gives me an estimate of (350M/2)/175k = 1000 cities So, I estimate 15,000 pharmacies in total. 2) 1. I’ll segment the population into young (0-18), middle-age (19-65), and old (65-100). The age distribution is approx. 25% of young, 60% of middle age, and 15% of old population. > we have 87,500 young; 210,000 middle age and 52,500 old (Population is 350,000) 2. Frequency of pharmacy visits per age: I’ll assume young need something in a pharmacy once every 2 months, middle-aged once every 3 months, old once every 1 month, I’m neglecting tourists. > 87,500/(3x30) = 1,458 young people need something in a pharmacy every day; 2,333 middle age and 1,750 old every day = 8,263 people need something in a pharmacy every day 3. Now I’m stuck. I don’t think I should calculate how many people can be served by a pharmacy in one day (as their distribution is not based only on profits but also based on “needs”, and they can be full in peak hours but not all the time). Does the first approach make sense and should I just break it more down? Or should I somehow try to develop the solution for the second approach? Thank you!

(edited)

Antonello
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Content Creator
replied on Oct 25, 2021
McKinsey | MBA professor for consulting interviews

Hi!

Don't hesitate to post your solution here so that we can give you more accurate feedback.

Best,

Anto

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Ian gave the best answer

Ian

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