Pharmacy retail attracting robust returns

Two decades back, the average consumer spending on healthcare was eight per cent; today it is 20 per cent. The customer has also become aware of various offerings in the pharma market, and is demanding better services. Pallavi Majha explores how the consumer has become a driving force for the pharmacy retail boom today

 

The mercury has reached a new high where the Indian consumer's priority for healthcare is concerned today. His spending on healthcare is comparatively higher than what he spends on apparels or entertainment.

Pharmacy retailing is expected to become more organised and corporatised in the coming years. Corporates that have already forayed into this segment are Medicine Shoppe, Apollo (into pharmacies), Global Healthline Pvt Ltd (owns 98.4), and SAK Industries' recently launched CRS Health. Zydus Cadila and Cipla too are rumoured to have plans for this segment. Health & Glow, belonging to RPG Group, in the south, is already in this area though it is not essentially into pharmacy retailing, but more of the health and beauty care business.

 

Market size and growth factor

The total size of the global health and beauty market is between US$ 18 to 20 billion (approximately Rs 900 billion), which includes over 7.5 lakh chemist shops. The market is growing by approximately 18 per cent per annum.

Statistics reveal that pharmacy retailing in India has a market size of over Rs 32,000 crore. The increasingly health-conscious Indian today has numerous retail pharmacies jostling for his attention (and money). These pharmacies offer a great choice to the consumer.

 

Reasons for the increase

There are various factors that have contributed to an increase in pharmacy retailing in India. Sanjeev Dani, Regional Director, India and Middle East, Ranbaxy, enumerates these, “Rapid urbanisation and growth of healthcare industry, introduction of premium, high-end medicines, introduction of hospital chains which has a cascading effect on healthcare delivery, start of professionalised pharmacy chains, the ministry's proposal to allow consumer stores to sell OTC medicines, are all responsible for the growth in pharmacy retailing.”

Adds Biju Mathew David, DGM, Operations, Global Healthline, “Increasing demand for better healthcare and quality healthcare services is the single driving force among various other factors contributing to the growth of pharma retail in India. At the same time pharmacy retailing has always been considered to be a decent business. Any well-educated person can opt for it as it is a clean, regulated, stable and sustainable business.”

 

Enter corporates

Acknowledging the potential for growth in India for pharmacy retail large number of corporates are entering the sector.

Philipe Hadyon, Business Head, pharmaceutical division, The Himalaya Drug Company, says, “Corporates recognise the immense growth potential and opportunities within pharmacy retailing.”

Here are some of the corporates:

Lifetime Healthcare Pvt Ltd

It announced the launch of LifeKen, a leading chain of pharmacy retail outlets. Currently, having four stores operational in Chennai, the company plans to establish in the city 50 outlets by next year. Expanding further in the south in three to four cities, it plans 200 stores by the end of the financial year 2006-07. And in the next three years, it plans 700 stores. A LifeKen outlet remains open from 7 am to 11 pm every day, 365 days a year and offers conveniences like free home delivery with plans to introduce night services shortly. Immediate expansion plans of the company include an initial investment of Rs 40 crore. 

Medicine Shoppe India

The master franchisee in India since 1999 is managed by licensee Melrose Trading Co. Pvt. Ltd. of US-based Medicine Shoppe International, the largest franchisor of independent community pharmacies in America, and part of Cardinal Health Inc (ranked 16th on the Fortune 500 list in 2005), with group annual sales topping $75 billion. Five years later it appointed 50 franchise stores in the country and by April 2006, it touched the 100 mark. The company aims to become a 200-plus pharmacy chain by the end of this year, and cross the 700 mark by 2010.

Apollo Hospitals

This healthcare giant has established a formidable network of 300 stores under the Apollo Pharmacy brand, but mostly in south India.

The Himalaya Drug Company

The herbal healthcare giant has nearly 100 stores and has signed up with Reliance Retail, of the Mukesh Ambani-controlled Reliance Industries, to set up its Himalaya Herbal Healthcare stores at the new malls, hypermarkets and supermarkets that Reliance plans to set up shortly.

Guardian Lifecare

In the north, Guardian Lifecare has set up a chain of about 50 stores, and is one of the fastest growing organised retail chains in the region.

 

Organised pharmacy retailing

Today, the pharmacy retail sector is getting transformed from unorganized retail to an organized one, and with the entry of corporates, organised pharmacy retailing in India will get a further boost.

Ashutosh Garg, CMD, Guardian Lifecare, informs that organised pharmacy retailing would be in keeping with the trend towards organised retail in virtually all segments.

MC Kini, CEO and Director, Lifetime Healthcare, believes that pharmacy retailing offers scope to reach an attractive scale. While the influx may appear sudden, corporates have been evaluating the market for some time.

Kini further says, “Greater corporate involvement ensures that the required financial and organisational support is brought to bear. Corporate entities are also in a better position to attract funds as opposed to traditional retailers.”

Regarding the position of small time chemists Viraj Gandhi, CEO, Medicine Shoppe, states, “While it will be impossible for mom and pop chemist stores to disappear, the growth in the next five years will come from corporate chains.”

According to Dani, “Pharmacy retail is expected to become more organised in the coming years. It will follow the route of regulated markets and developed markets.”

The phenomenon of branded stores could become even more widespread, once insurance players enter this field.

 

Consumers have greater choice

With pharmacy retailing becoming more and more organised, and a large number of retail formats coming up, the consumer has a greater choice with respect to quality, price and variety.

Perceiving organised development, Kini says, “Availability of the right drug at the right time is particularly important in the area of pharmacy retail. Organised pharmacy retail brings in computerised operations, which enable proper management of inventory. Organised retailers can, therefore, effectively stock and manage a wider range of SKUs (similar kind units).

The organised retail formats invites the customer into the store as opposed to transactions across a counter in the case of traditional pharmacies. Customers can then access products, other than prescription drugs, which enable them to examine options available, in a conducive environment and make a more effective choice.

Haydon also observes, “The assistants in the modern retail formats are usually qualified B Pharmacy graduates or trained personnel and are able to better assist consumers in their purchases.”

Commenting on the availability of a larger real estate space for pharmacy retailers, Haydon says that this will allow them to display more products.

 

Value-added services

Apart from providing an upscale shopping ambience at no extra cost, most of the branded pharmacy retail outlets are providing value-added services like home delivery, prescription records, and reminder services, state-of-the-art pharmacy, a special diabetic care section, self-diagnostic equipment, natural foods, baby care products, skin care, toiletries, among other things. The overall value proposition for the branded outlet would have to include a number of value-added services to become more attractive to the customer over the neighbourhood chemist.

 

Trust factor

Though corporates are putting in major investments in the pharmacy retail segment, it would be some time before they actually manage to displace the position of the neighbourhood chemist, due to the sheer reach and size of the segment.

Garg opines, “The credibility and emotional bond has to be developed with every customer and organised pharmacies are working towards developing such bonds. We go through a detailed process of checking medicines before these are put on the store shelves.”

 

David opines, “Corporates are mainly concentrating on the basics of the consumer's requirements. They are working hand-in-hand with the community in building a close relationship between them, as standalone stores have, trying to win the confidence and trust of the people.”

Adds Kini, “Whether the format is organised or traditional, consumers do establish a level of trust with the pharmacy that they patronise.”

Organised formats are positioned to establish this trust on a more solid foundation because they offer genuine drugs, deploy qualified personnel and offer better services.

Other areas that corporates are addressing are, as Dhani informs, “Using technology such as holograms; working with FDA and law authorities for crackdown on spurious drug manufacturers; amendment of regulatory laws.

 

Impact on local chemist shops

With pharmacy retail outlets emerging on a large scale, the local chemists seem to be quite concerned about there future. Brushing aside chemists' fear, Garg says, “The market is very large and both the organised and unorganised pharmacy retail outlets will co-exist peacefully.”

Seconding the opinion, Kini adds, “The delivery and establishment of right practices by organised pharmacies will definitely encourage traditional retailers to implement the same in their stores.”

Going a bit further, Haydon says, “India is a vast country and population demographics of different cities and towns are very different. It will be difficult for high investment pharmacy retailers to extend their coverage to smaller cities, where people's purchasing power is still low.”

David cautions, “Local chemists who will not be able to provide value-added services, but only provide medicines, without the guarantee of their genuineness, are not going to survive any longer.”

 

Challenges in India

The most significant challenge is checking the sales of spurious and fake drugs. According to Garg, “Pharmacy retailing in India is a well-developed business. However, as in any other format of retail, the challenges continue to be employing trained people, establishing a strong supply chain and robust systems and applying good management practices.”

Dhani terms interrupted power supply and need for special storage facilities as challenges to be met.

Low returns on investment in the initial phase; staff training; and distribution and logistics, like stock holding, are challenging issues for Haydon.

Says Gandhi, “There are two main challenges. One, the price of medicines in India is very low. This has a direct impact on the profitability of retailers. Two, the margins are constantly under review and hence under pressure. So when you combine low prices with low margins, you get a business that has to be run very efficiently to make it profitable.”

 

The future of pharmacy

In the coming decades, pharmacists are expected to become more integral to the healthcare system. Rather than simply dispensing medication, pharmacists will be paid for their cognitive skills. Building trust in a product takes time and personal interaction and service. Organised pharmacy outlets will move towards building these linkages with their consumers, but this will happen only over a period time.

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