For local ‘druggists’, pharmacy chains hold no threat

Ramesh Chandran is as relaxed as he was 20 years ago, when he joined his family business of retailing medicines. All that talk about foreign direct investment (FDI) in retail wiping out local kirana shops does not spook him one bit.

The walrus-moustached 47-year-old pharmacist says the structure of his small-scale business is such that the advent of branded ‘big brothers’ such as Trust, Apollo and MedLife poses no threat.

Regular clientele (whom he knows all by name) and first-time customers keep Chandran’s business brisk.

“My business has been growing by 25% every year and I’m happy,” he said.

Of the Rs50,000 crore worth of medicines sold through more than 5  lakh local drug stores (or ‘druggists’ — as some chose to call themselves), branded pharmacies account for a minuscule Rs2,000-2,500 crore share of sales.

Those figures are expected to change in the course of time as branded players expand.

Chandran’s outlet, measuring no more than 200 square feet, is located in a largely residential area, about a kilometre from Panacea and Chord Road Hospitals in Bangalore. To be sure, he has heard that branded pharmacies have glass doors, spacious air-conditioned interiors and uniformed staff. He is also aware the biggies have been striving to carve a place for themselves in the highly fragmented pharmacy space in India.

But Chandran is happy to note there is not even a single branded pharmacy anywhere in the vicinity of his store. “Well, there are a few branded pharmacies in Bangalore. But the sheer (large) number of local retailers like us has dwarfed them entirely,” he says.

For every branded pharmacy, he adds, there are some ten neighbourhood chemists. “Medicine retail is a completely different game compared to electronics or FMCG (fast-moving consumer goods),” he says.

Medicines and OTC products don’t require ‘enhanced shopping experience’ offered by supermarket ambience or mall atmosphere, he says. “Consumers like the display at big outlets. They can pick and choose from various brands. It is the consumer who makes the decision whether to buy a Sony or a Samsung TV, or Tiger or Parle-G biscuits.”

But when it comes to medicines, most consumers just present the doctor’s prescription and make the payment, says Prasad Danave, honorary secretary-general, Retail and Dispensing Chemists’ Association, “Neither the shop’s ambience nor the brand names of medicines ring a bell in the mind of a consumer.”

Branded players face several other challenges. For one, they need an investment of `12-15 lakh to start an outlet. Other entry barriers include rentals, which are very high in key locations, and rising cost of qualified manpower.

Also, since many branded outlets run 24x7, they need extra staff. “At any given point in time, there is one pharmacist and two other staff. Three shifts imply nine people in all manning a store,” says Ramamoorthy. Typically, a pharmacist receives a starting salary of rs8,000 per month, while other staff draw `5,000-6,000.

Several local chemists have started offering 10% discounts to customers, thereby forcing branded players to follow suit. Chandran says only small stores can offer personalised service to customers. “Since I know my customers well, in case of a cash crunch, I allow them to pay the balance later.”

Another challenge is inherent in the nature of the business. For every medicine, there are 20-30 brands. The consumer will buy only the brand prescribed by the doctor.

Madhukar Gangadi, founder and chief executive, MedPlus Health Services which runs 1,050 outlets in India, says that if the big store does not have the brand prescribed by the doctor, the customer will turn to another store. This forces big stores to stock as many brands as possible. “Storing numerous brands means piling on inventory, adding to the storage area.”

K A Cariappa, vice president - operations, Trust Pharmacy, which has 86 branded outlets in Karnataka and Tamil Nadu, concedes that there is stiff competition from the ubiquitous local drugstore.
Despite the talk that big players pose no threat, the advent of branded pharmacies has nevertheless led local small-time shops to invest in renovation and better service, in order to retain their existing customers, says P B Ramamoorthy, chief operating officer, Apollo Pharmacy.

That is not all. Come 2012, local chemists affiliated to the Chemist Association of Maharashtra will be branded as well, as M+M (or Medicines+More) and will boast renovated stores, a dress code for staff and all such features, says Danave.
Despite the stacks appearing loaded against them, branded players are undeterred. Ramamoorthy says Apollo, which has 1,300 pharmacies, will add 300 outlets each year. MedPlus has similar expansion plans, says Gangadi.
Chandran remains unfazed, though.

Irrespective of the big players’ projections, the 5 lakh-plus local chemists will continue to dominate the business, he says.