Drug Stores

Drugstore is a common term for a type of store centrally featuring a pharmacy. Drugstores sell

not only medicines, but also miscellaneous items such as candy, cosmetics, and magazines, as

well as light refreshments.

The pharmacy retail market is valued at INR 216 bn in 2009 and estimated to reach INR 432 bn

in 2011. The market is fragmented and dominated by the unorganized sector.

Pharmacy retail is growing at the rate of 20-25 per cent annually. The organized pharmacy retail

chain is dominated by 12-15 big players. There are more than 3500 organized retail pharmacy

outlets in India and it is expected to grow to10,000 by the end of 2011.

The organized pharmacy retail market is dominated by big industrial houses like Ranbaxy's

(Fortis), Pantaloon (Tulsi), Reliance Retail's (Reliance Health and Pharma) and Subhiksha as

well as health care players like Apollo Hospitals Group's (Apollo Pharmacy) , Medicine

Shoppe , Zydus Cadilla's (Dial for Health), Sagar Drugs & Pharmaceuticals' (Planet Health),

Morepan's (Life Spring), Lifetime Healthcare's (LifeKen), Global Healthline (98.4), Guardian

Lifecare's (Guardian Pharmacy), MedPlus to name a few.

Modes of Operation

Company Managed Stores - Company owned pharmacy outlets are owned and manage by

company itself. Major pharmacy chains in India like Fortis, Apollo, Alchemist, Subhiksha and

Dial for Health have their own pharmacy chains

Franchisee - Medicine Shoppe, MedPlus, Medicine Shoppe operates through the model of

franchisee stores in India.

Pharmacy Chain Formats

Hospital Pharmacies - They catered mainly to the requirements of patients admitted in the

hospital. They were housed in the hospital building and dispense a limited number of medicines.

The average size of such stores is 150-200 sq. ft

Retail Stores/Standalone stores - The second category of stores, near the residential areas,

provide the benefits of proximity to consumers. Some of these stores offered home delivery. The

target customers of the store were the educated middle and upper class households

Malls/Shop-in-shops - The biggest advantage, most retailers say, of having in-store outlets at

supermarkets or departmental stores is the fact that popularity of either brand rubs off on the

other. Guardian pharmacy recently signed an agreement to open outlets at Spencer's stores in

east India and is negotiating rights for northern India too. Spencer’s has tie-up with LifeKen

Medicines for store-in-stores at its Daily stores in the South. New-u, retail outlet of H&B Stores

Ltd. are located in Malls.

Townships - Many pharmacy chains are planning to set up their pharmacy chain in townships.

Apollo is planning to set up Medicity near Pune. Apollo has signed an agreement with Hindustan

Construction Co (HCC) to set up the medicity inside the upcoming project named Lavasa near

Pune.

Operational Pharmacy Chains in the Indian Market

Apollo Pharmacy: A division of Apollo Hospitals Enterprises Ltd., is India's first and largest

branded pharmacy network, with over 720 outlets in 17 states. Apollo pharmacy is accredited

with - International Quality Certification and is open for 24 hours. Apollo will have 1000

pharmacies by the end of financial year 2008-09. It is giving free health insurance on purchase of

above Rs. 6000 in a year.

Fortis Healthworld: Pharmacy chain promoted by the Singh family of Ranbaxy. It operates

under two models - Company owned and operated stores and Franchisee owned stores. Currently

Fortis has around 40 stores and planning to expand its presence to over 100 cities.

MedPlus Health Services: Hyderabad based pharmacy chain, MedPlus was launched in 2006

currently operates more than 500 stores in Andhra Pradesh, Maharashtra, Karnataka, Tamil

Nadu, Gujarat and Rajasthan and plans to increase it to 1000 by March 2009. Mauritius based

iLabs Management LLC has invested $5.2 mn in MedPlus.

Tulsi: Tulsi is a pharmacy retail chain of Future Group. Most of the Tulsi outlets are located in

Big Bazar. Future Group currently has over 35 Tulsi outlets across the country.

LifeKen: promoted by Lifetime Healthcare Pvt Ltd is a leading Pharmacy Retail chain in

Bangalore and Chennai. LifeKen operates in total 82 Stores in Bangalore, Chennai and Mumbai.

The list comprises 37 LifeKen Stores, 11 Pill and Powder Stores and 7 stores in Spencer's Stores

in Bangalore. LifeKen is planning to open new retail pharmaceutical chain in the cities of

Mumbai, Pune, Hyderabad and Kochi and is also set to expand to other cities in the South and

West and then to North and East.

Guardian Lifecare Pvt. Ltd is North India's largest retail chain of Pharmacy, Wellness, Health

and Beauty Retail outlets. The company has 149 outlets in 16 cities. Guardian Lifecare plans to

open another 150 new stores across India by March 2009 and Guardian chain will grow to 400

stores by March 2010 and will be investing Rs.100 crore to fund our expansion.

98.4: a pharmacy chain operating in Delhi and NCR is a brand of Global Healthline. Parent

company has presence in Europe and the Middle East. 98.4 has 27 stores in India and is expected

to ramp up the count to 300 by 2011.

SAK CRS: SAK Consumer Retail Services Ltd is a subsidiary of Delhi based business group,

SAK Industries. Its store brand, CRS Health- The Wellbeing Place, is one of India’s premier

Retail Pharmacy brands. The CRS Health stores have representation in all major centres in India

to include Delhi, Noida, Gurgaon, Pune and Chennai. There are more than 30 CRS Health stores

in India.

Foreign Player

Medicine Shoppe, the Indian arm of global chain Medicine Shoppe International started its

operations in India in February 1999. Medicine Shoppe follows the model of franchisee stores in

India.

Should you be interested in reading the Logistics, Regulatory needs and Backend operations of

Pharmacy Chains, do let us know by means of comment and we will be happy to write about it.

Drivers & Challenges of today’s drug retail industry

Drivers

Growth in pharmaceuticals sector

Increase in healthcare spending

Changing disease profile

Growth in OTC segment

Attractive margins

Consumer attitude

Challenges

Fragmented industry

Long distribution and supply chain

Counterfeit drugs

FDI regulations

Growth Trends of drug stores

Loyalty Schemes

Value Added Services

Entry of Government in Pharmacy Retailing

Rural Expansion

Tie ups with Retail firms

Organized Retailers Starting Pharmacy Chains

Entry of Private Labels

Indian drug store scenario

• The pharmacy trade generates an estimated business of Rs. 32,000 crore.

• Additional Rs. 18,000 added by hospital pharmacies and exports.

• Pharmacies generate Rs. 15,000 crore through body care products.

• Total expenditure on health per capita (Intl $, 2009): 300

• Total expenditure on health as % of GDP (2009): 15.0

Analysis of Pharmacy Retailing in India

PEST ANALYSIS

Political Structure and Trends

• Entry licensing requirements need to be fulfilled.

• Continuous inspection (drugs sold at a price not exceeding the MRP) under the Drugs

Prices Control Order.

• Pricing Ministry of Chemicals and Fertilizers (MoC&F) instituted - National

Pharmaceutical Pricing Authority (NPPA)

• Margins at different stages set by the government.

Economic factors

• Taxation: From 2006 - new policy calculates 4% value-added tax (VAT) as part of the

MRP - customer pays box price

• NPPA ordered a 2.84 per cent reduction in prices of formulation drugs under Government

control.

• FDI Despite having foreign direct investment (FDI) through the ‘indirect route’, Indian

“owned and controlled” company can venture into sectors like multi-brand retail.

• So, even if foreign holding in a company is 49%, its investment in another downstream

subsidiary company will be termed as fully domestic investment and the downstream

company will be treated as an Indian company and can venture into a sector like multi-

brand retail, which has not been opened to FDI till now.

• Venture Capitalists showing interests in Indian retail sector.

• Private Equity - The Ajay Piramal Group launched a $200 million PE fund dedicated to

healthcare. A part of it is meant for retail pharmacy chains.

• Rising retail space prices & rising Salary demands of qualified pharmacists to run a

pharmacy

SOCIAL Environment

• Increasing use of Lifestyle drugs among the Indian Population - benefit for the

pharmaceutical sector.

• Growing middle class population – increased spending power – increased spending on

healthcare.

Technological Environment

• Interlinking Various parts of health systems. Database construction & developing

common protocols – a challenge.

• Specialist medical equipment - offering pharmacies the opportunity to expand service

offerings

• Desk-top supply-chain management systems offering the opportunity to reduce the costs

of pharmacy retailing.

• Nine out of 10 blockbuster drugs in the future will be bio-tech based - special storage

facilities and transportation.

Porter 5 Forces Analysis

Entry Barriers (HIGH)

• A company can be a manufacturer, wholesaler and a retailer saving margins.

• Contacts between existing retailers and distributors-better trading margins-barrier for new

comer.

• Inventory management – better for experienced players – no learning curve for new

comer.

• Obtaining licenses is not very difficult. Government regulations – fairly transparent.

• Soaring retail space prices are a very high barrier to entry

Power of Supplier (LOW)

• Pharmacies - The only Point of Sales (POS), Changes in the stocking patterns

• Many generic versions of the same drug – more availability – more competition – less

supplier power

• Also pharmacists’ trusted advisory role - power to influence what the customer walks out

of the store with

Power of Buyer (HIGH)

• Different retail formats, Internet – offering more choice, thus Customer switching costs

are low.

• The healthcare industry - relatively unaffected by buyer power. People fall sick – need

medicines anyway.

• Polygamous Buyers– fulfill requirement by buying from multiple pharmacies (Little

product differentiation)

• Little knowledge about pricing.

Availability of Substitute (HIGH)

• High substitutability between retail outlets . MedEx - based on the home delivery model

• Alternative therapy retailers – e.g. the “Patanjali Chikitsalaya” by Baba Ramdev

• Growing ‘wellness’ market - demonizing pharmaceutical products – promoting ‘natural

and herbal therapies’.

Competitive Rivalry (HIGH)

• Central Government’s Jan Aushadhi stores - unbranded generic medicines at very low

prices. Retail space availability free of cost in hospitals. Will play on Volumes still

achieving a margin of 15-18%. MIS by government.

• A host of new retail chain projects in pipeline (Reliance, Bharti etc.) and some already

started and having expansion plans (Medicine Shoppe, Fortis, Appolo etc.)

Some facts about Drug stores in India through interaction with Drug retailers

• Private sector medicine distribution characterized by a high number of generic

equivalents, retailers and wholesalers with limited storage space, and high levels of

competition at each level of the system.

• Manufacturers can only sell to a licensed wholesaler; wholesalers can only sell to

licensed retailers.

• Storage limitations are a factor in how medicines are distributed. Sometimes, wholesalers

deliver to retailers even on a daily basis.

• Wholesalers are responsible for bearing the costs of local delivery (Distribution costs are

included in the wholesale margin)  

• Licenses: To obtain a retail chemist’s license, the applicant must be registered with the

Pharmacy council.

• Granted by the state Drug Controller.

• Monitored at the state level (in NCT Delhi, by the Drug Controller of DHS)