Tuesday, May 15, 2012: 08:58:34 PM

RETAIL Insight

It’s Good to Be a Chemist

Rajiv Goyal — Chairman and Managing Director, Surya Pharmaceuticals, provides an in-depth view of modern pharmacy retail in India

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Pharmacy retail in India is an age-old business, with some of the oldest pharmacies dating back to the 1800ís. According to the 1881 census, there were 17,720 chemists and druggists in India. Most of the major pharmacy houses were run by British pharmacists, and Kolkata was the capital of the pharmacy trade. Traditionally, the pharmacy business has been ownermanaged. The dispensing of drugs largely remained in the hands of untrained or partially trained compounders, and setting up a pharmacy was relatively easy payment ofóall that one required was the usual trade and professional tax.

This scenario changed when doctors from Portugal set up practice in India. These doctors were accustomed to working with trained pharmacists, which led to pharmacy emerging as a recognised profession in India. The dispensing of drugs by trained pharmacists soon ensued, as well.

Several chains of pharmacies were set up across various statesóthey included Dadha & Co., Bill & Co., among others. Thus, chain pharmacies came into existence in India over 100 years ago. The range of products stocked by the pharmacies in the British era included photographic apparatus, surgical instruments, hospital furnishings, toilet requisites, wines and liquors, stationery and newspapers, auction marts, crockery, sporting requisites, jewellery and even ammunition. Important pharmacy shops were dispensaries, and each had a doctor attached. Thus, the chemist business has evolved from being primarily trade-based to servicebased. Over a period of time and with changing consumer demand trends, chain store retailing has taken centre stage in the Indian retail business environment, and is growing at a rapid pace.

From Trade to Service
The core USP of chain store retailing is to provide consumers with a ëone-stop shopping solutioní to all their health needs. This is achieved through a large network of retail outlets with a focus on fulfilling the preventive, supportive and curative needs of individuals and society at large.

A recent study by Viva Pharmacy states that retail outlets provide a host of valuable services along with the promise of ëgenuine medicinesí at all times. Reputed pharmacies regularly work on a prescription reminder service through their stores, offer special price-off packages for senior citizens on their monthly purchases of medicines and even extend health management programmes.

Survey of Pharmacy-chain Owners
In todayís bustling economy, one can never underestimate the power of ësmall storesí even in the presence of the big-box format. Hence, large pharmacy retail chains operate express, mid and large-format stores. The merchandise is as per popular demand, covering all major FMCG and FMHG categories, with a clear emphasis on providing genuine medicines. Reliable merchandising and regular availability are crucial for pharmacy retail outlets to survive today.

In the face of increasing competition with greater penetration of entrepreneurs and retailers into the  pharmacy sector, the design and layout of the stores have also gained prominence. A distinct and contemporary design helps attract the customersí attention, and enables the store to stand out among others. Special efforts must be made to provide extensive lighting, and incorporate more effective space management techniques through linear display and the use of designer elements. In order to derive economies of scale, the methodology used for roll out and management should ideally be based on a clustered approach. This will enable the chain to maximise availability and be operationally efficient in the shortest possible time.

Advantages of Pharmacy Chain Retailing Over Traditional Medical Retailing Formats
Pharmacy chain retail offers several benefits to customers over traditional medical retailers. One of their key offerings is the issue of bills. This ensures that customers receive absolutely genuine medicines with every purchase. Since traditional medical retailers do not practice this kind of standardisation, customers cannot expect the same level of assurance. Besides, pharmacy chains employ licensed pharmacists and are generally associated with trained doctors. Thus, customers receive ample reliable advice about their medication, and the benefit of doctor-endorsed substitution, as opposed to self-substitution. This is a notable safeguard to the customersí health.

A fundamental advantage of pharmacy chain retailing is its abundance of working capital. This enables pharmacy chains to provide customers a wider range of medicines than traditional forms of medical retailing, and also permits them to provide 16ñ18 hours of operation. It equips them with the ability to invest significantly in Information Technology (IT). This, in turn, facilitates micro-detailing and the provision of comprehensive information to customers.

Because of such vast differences between pharmacy chains and conventional medical retailers, the traditional chemist channel is segmenting and the modern trade organised pharmacy trade is rising.

Pharmacy chain retail in India is currently valued at over `440 bn, and it has grown at an average of 18 percent per annum over the last few years. It is anticipated to grow at the rate of 15 percent CAGR over the next 5 years. The industry comprises over 8,00,000 pharmacy retail outlets and 50,000 stockists/distributors. Nevertheless, it remains largely disorganised with organised retail constituting only 4 percent. This provides ample scope for new entrants in the field of pharmacy chain retailing.

Presently, two-thirds of organised pharmacy chain retail exists in urban areas and one-third in rural areas. However, rising incomes and the development of tier II and III cities have opened up several new opportunities for organised pharmacy retailers across various economic segments. Currently, leading players in organised pharmacy retail are Apollo Pharmacy with 1,100 stores, Med Plus with 800 stores, Guardian Pharmacy with 240 stores and VIVA with 256 stores.

Advice for Prospective Pharmacy Chain Retailers
High margins of 25ñ35 percent make pharmacy chain retailing a very lucrative business in India. Almost all the major foreign players are eagerly awaiting policy changes, which promise to make it more conducive for them to enter the Indian market. Currently, regulations permit 100 percent FDI only in single-brand stores, and pharma-retail falls into the multi-brand category.

Further, with the growth of the rural economy, there is tremendous opportunity to be unlocked through deeper penetration of the rural market. This, coupled with good margins and the overall boom in organised retail, will make the big retailers look at pharma retail quite favourably.

However, despite this untapped potential, there are challenges in the form of inadequate infrastructure, skilled manpower crunch, high attrition levels, soaring real estate prices, regulatory framework and political sensitivity, along with supply chain and logistics issues, which could prove to be intimidating for newcomers in the field.

Future of Pharmacy Chain Retail in India
The $4 bn domestic pharmaceuticals formulations industry is dominated by 5,00,000 retailers in the unorganised sector, and is largely limited to the urban markets. Organised retail is at a very nascent stage in India unlike the United States and the United Kingdom, where retail chains contribute 54 percent and 48 percent of retail pharma sales respectively. There are approximately 10 players operating 500 outlets in the organised retail sector. In the coming 3ñ5 years, the growth of the organised retail is expected to be huge, but is also expected to be limited to metros and tier-I cities.

The current fragmentation has resulted in several limitations in the quality and integrity of supply chains, despite the latter accounting for more than 30 percent of the retail cost of a drug. The fragmented structure makes it prohibitive for pharma companies, distributors and retailers to invest adequately in the infrastructure necessary to facilitate stock and secondary/tertiary sales visibility. This has hampered the planning process while rendering the supply chain porous for the entry of counterfeits. Additionally, there are issues around unfair retail substitution and compliance to GMP, which are detrimental to the patientís interest.

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