Retailing in Pharma: Opportunities & Challenges


By

Punit Kumar Dwivedi
Asst. Professor
Bankatlal Badruka College for Information Technology
Hyderabad

C. Chandra Shekar Reddy
Asst. Professor
Badruka College PG Centre
Hyderabad
 


INTRODUCTION

In the current globalized retail era it is very tough task to fight and survive in the global as well as local market.  The Pharma sector is one among sectors which is facing hard competition in is industry.  By introduction of retail malls the customers are getting all the daily use commodities under a single roof.  They are getting each and everything which are basic as well as secondary requirement for a high, middle and lower class segment of global society.  Now the question arises what will be the future of small retailer in pharma industry?  The answer is considering that pharma retailing is clubbed with fast moving consumer goods retailing in most cases.  The consumer is getting everything in air conditioned environment fruits, garments, healthcare articles as well as fulfilling other essential requirements.  So we can say it is "starting end" of small pharma retailers or we will use a hindi phrase "Swagat kehi saath vida ki hoti dekhi tayyari".

THE VALUE CHAIN ANALYSIS

The term Value Chain is used for adding some extra utilities in the product and then supply / sale it to the end user.  The value chain activity starts at the time of production and ends not after selling but continues till the consumption by the customer.  It includes different services provided by retailer / whole seller or manufacturer to the end-user customer.  The value chain of a pharmaceutical company also consists of all physical and technological distinct activities within the organization that add value to the consumers experience.  For all types of production organizations their must be some

1) Primary Activities &
2) Supporting Activities

The primary activity of a sample value chain are

1. Inbound logistics
2. Operations
3. Outbound logistics
4. Sales & marketing
5. Services

The each and every product in case of any organization will have to pass through all the primary activities then only product can easily face the competition and prove superiority.  Retailing comes under sales and marketing and services segment.  The terms logistics means the art of stationing and moving.  Inbound logistics deals with how the company is getting its raw material and sources to manufacture a certain product.  Where operation is a process or procedure or stages of product development by using raw materials, chemicals and machinery and know how and other essential requirements for operational activity.  The next stage is outbound logistics which deals with packaging of goods or commodity.  A good packing is good market making.  It totally depends upon the size of commodity.  It is only management control activity to ensure the type of packaging by thinking about the customer's conveyance as well as safety of product.  For the organizational welfare this is another management control activity to "think about the cost" packing".

The next step after the outbound logistics is delivery of product i.e. sales & marketing.  By using different sales promotion activities like advertising through different medias we can sell our product and also we can increase our turnover.  At this stage the management has to think about the advertising cost as well as other sales promotion activities and transportation cost to deliver the product to the various stockists, wholesellers, retailers and distributors.

The last step of primary activity of a value chain is services.  In business terminology we can say "Service to customer is service to God" because customer is King in the market and concerns are entertainer to the king.  Here we have to face lot of competition with our competitors.  The customer satisfaction is only 100% which encourage the products to do something new which results in growth of entrepreneurship.

The supporting activities are frameworks or structure under which all the basic / primary activities fulfills their best.  We can take the example of few very important supporting activities.

* Organizational structure
* Organizational infrastructure
* Human resource management
* Technology Upgradation and
* Procurement.

With the help of these above supporting activities the concern achieves its great success by producing good quality product which has good demand in the market and which helps in capturing market and creating the monopoly situation.

India is now considered as a fastest developing economy in the world. India is developing in every area of economy i.e in education, technology, agriculture, power generation, Information technology, space technology, development in roads, railways and airways etc.  We consider trade and commerce are the core areas of any country, here we consider retailing has to be given more emphasis as it is the subject of every common man in India today.  In Pharma Retailing there are two types of sectors :

1.  Organised Pharma Sector : Pharma chains like Apollo Pharmacy ,Med plus, Subhiksha, Hetero Etc.
2.  Unorganised Pharma Sector : Unknown and Small retail outlets.

The organized pharma chains are generally owned by large and Established business houses which have decades of experience in handling large Industries, organized businesses etc. They have expertise in Trading various Drugs, Manufacturing Drugs, Processing , Packaging , Logistics Handling , Inventory Management, cold storages etc.

These players are high end and deal in bulk quantities of raw-materials, Processing of raw materials to finished drug formulations. Branding the finished products then packaging and labeling the drugs and they have expertise in using all tools of marketing mix- i.e

1.  Product
2.  Price
3.  Place
4.  Promotion
5.  Service etc.

Advantages to Organised  Pharma Sectors/ Pharma chains

1.  Economies of scale : The large players in pharma retail sector buy Raw material in bulk quantity, process in bulk quantity, package in big lots, use high technology in processing, packaging and transporting, so they get the finished drugs at the lowest possible prices.

2.  Technology driven : These large players use modern ,latest and automated machinery in manufacturing Drugs, in Inventory management, supply chain management, use of latest  display tools, free samples to Doctors and hospitals etc.

3. Retailing their own pharma brands/generic brands along with competitors brands : It helps in promoting their own brands/generic brands which can fetch more profits using push strategy through doctors and hospitals by providing free samples, sponsoring free treatment to patients.

4.  Passing advantages to patients and consumers : With the optimum use of available resources and technology, some price.  Advantages can be passed over to patients

5.  Increase in market share and profits : With all the advantages from points 1 to 4 above the pharma chains can achieve higher market share and profits.

6.  Discount parameter :  According to the latest self-study we have found that up to 10% discount is offered by retail pharmacy chains like Apollo, Hetero, Subhiksha and Med Plus.

The second type of pharma retailers are the individual outlets i.e  small retail medical shops

DISADVANTAGES TO SMALL RETAILERS

1.  No economies of scale to small medical stores : These small stores buy in small quantities from drug distributors with higher prices with no schemes thereby it reduces profit margins 

2.  Small geographic area : These small retail medical shops operate from small lanes and by-lanes where it could cater to limited range of patients who belong to that surroundings only. This results in lower turnover of sales resulting in lower profits.

3.  No home delivery services : These small medical shops generally run on low man power or some times run as a family business and therefore cannot effort to hire persons for home delivery of medicines.  

4.  Winding up of  medical shops : Notwithstanding the business threats from large pharma chain stores most of these stores close their stores by sustaining huge loses.

5.  Losses from expiry of medicines : New formulas are frequently launched into the market and doctors always want to try new formulas on patients thereby sales of old formulas are slowed down which causes huge quantity of expires of medicines which in turn result in heavy loses.

6.  Discounts can not be offered :  Small medical shops buy in smaller quantities and cannot avail the advantage of various schemes on quantity purchases, there by their unit purchase prices are higher and can not offer discount to patients/ customers.

MAIN ACTIVITIES INVOLVED IN RETAILING

1. Choosing store location :
Three attributes are important to all retail locations

a. Attractiveness
b. Convenience
c. Proximity

2. Sourcing / Buying / Vendor Partnership / Supply Chain Management

3. Achieving efficiencies in retail operations

a.  Margin-Turnover position
b.  Investment productivity
c.  Space Productivity
d.  Employee Productivity
e.  Average size of transactions

AN ILLUSTRATION OF SUBHIKSHA DISCOUNT CHAIN

Subhiksha gets about 30 days credit from suppliers and uses about 7 days for its cycle, saving 23 days value.  Subiksha has three models : -

1. Pharmacies only which are 150 square feet in area.
2. Departmental stores plus pharmacies, 1000-1200 square feet, and
3. Supermarkets plus Pharmacies, 1600-2000 square feet.

To include pharmaceuticals has been a particularly good strategic move for the store.  Medical expense is something that most middle-class people  dread. By offering pharmaceuticals at all its stores at 10 percent discount,  Subhiksha has built customer loyalty.  Subhiksha had to face furious opposition at every stage from fellow retail traders as manufacturers and companies have tried refusing to supply Subhiksha. The tactic of offering pharmaceuticals at a 10 percent discount in particular, caused a great deal of controversy. Pharma companies, distributors and chemists have been up in arms against the discounting by Subhiksha.

To be able to offer such a high level of discount and still be profitable, Subhiksha needed three things,

1. Command large volumes to enable volume discounts from
2. Manufacturers and cut out middleman
3. Slash overheads and inventory costs.

The Subhiksha Stores have none of the frills of the large outlets. They are simple, functional outlets, directly operated, not franchised and comparatively small.

The Subhiksha format rests on two main planks

1. Lower prices
2. Neighbourhood stores

Subhiksha believes that the MRP is just a cap on prices and prefers to sell everything at less then MRP. It manages to provide discounts in the range of 10 percent on nearly all products. Subhiksha's appeal to the average middle class household is considerable, the price savings mean a lot for them.

CONCLUSION

In the field of pharma retail the Apollo Hospital enterprise is doing its business with more than 642 pharmacies across the country with an aim to reach 1000 units at the end of profit year 2008.  Las year Apollo added 262 pharmacies and gained the profit of Rs.8.8 crore.  Now they have aim to reach Rs.16 crore for the year 2008-09.  The share of organized retail in the total market is likely to grow many fold from existing 2% in the coming year.  The latest Indian retail review shows that in the year 2010 this rate will be 20% because growth is attracting new players in the market.  So in conclusion we can say that though there is hike in retail market and specially in organized retail.  Then we have what will be future of unorganized small retailers.  I am using the sentence for small retailers of famous Hindi Novelist -  Premchand "Kisaan ab apni hi zameen par mazdoor bankar reh jayega.

REFERENCES

Business world
Business & Economy
V.S. Ramaswami & S. Namkumari
Business line.
The Hindu
Economic Times.
 


Punit Kumar Dwivedi
Asst. Professor
Bankatlal Badruka College for Information Technology
Hyderabad

C. Chandra Shekar Reddy
Asst. Professor
Badruka College PG Centre
Hyderabad
 

Source: E-mail August 12, 2008

           

Articles No. 1-99 / Articles No. 100-199 / Articles No. 200-299 / Articles No. 300-399
Articles No. 400-499 / Articles No. 500-599 / Articles No. 600-699 / Articles No. 700-799
Back to Articles 800 Onward / Faculty Column Main Page