Branded pharmacy chains pump up the volume

For a few years now, the way people buy their medical supplies has been changing. Local stores have become spiffier as branded chains have mushroomed across neighbourhoods. Now, as a flock of online players raises the pitch with hard-to-beat offers, chains such Apollo, MedPlus and others are introducing new offers and coming up with value-added services to keep customers loyal and expand their footprint.  

The pharma retail business is highly fragmented with over seven lakh retail stores across the country. Branded stores make up for less than a per cent of the total while the rest are stand-alone mom and pop style stores. Branded stores are a small percentage of the total, but they are driving change in the vast unorganised segment of the industry.  

The pharmacy chains have built their brand values on assured quality, better service and discounts. But the traditional retail challenges of high rentals and rising overhead costs combined with the growing threat from online pharmacies such as Netmeds, Bookmeds and such others is forcing them to scale up and move to a service-plus model where loyalty points, discounts and other allied benefits help acquire and retain customers. Pharmacy chains benefit from economies of scale and generally have a better revenue mix because of a wider assortment of health care and hygiene products. Scaling up means pressure on costs including higher lease rent and salaries.

Playing the loyalty card

The Apollo Hospitals’ pharmacy division runs over 2,500 stores in 18 states and is the largest brand in this space. Along with physical expansion it is now looking at a more sophisticated marketing strategy to woo customers. While it continues to add around 250 stores each year, all of them owned and operated, Apollo Pharmacy is also planning a digital thrust and a mobile app. P Jayakumar, chief operating officer of Apollo Pharmacy said the digital initiatives and the app will be rolled out in the next financial year.

A few months ago it introduced pre-loaded gift cards and a SMS alert mechanism which notifies customers that their medicine stock may need a refill. “So far we have sold two lakh cards,” Jayakumar said. He adds that they have introduced many initiatives like providing certain hospital services free of cost to existing customers or setting up nurse stations at select pharmacies to “provide basic services like blood pressure and sugar check.” 

MedPlus, the second largest pharmacy chain with 1,400 outlets is targeting growth through the franchisee route. Another focus area is private label brands and the company also plans to distribute its in-house label via other retail outlets. The chain already has an omni channel presence allowing customers to place orders and purchase via multiple platforms.

MedPlus is dominant in the South and East India. “We will continue to saturate these markets initially and then look for a pan India expansion. Currently 1,350 stores are company owned and rest, franchised. We have initiated franchising recently and this will be our main route of expansion henceforth and we are looking at adding another 2,000 stores in four-five years,” said Dr Surendra Mantena, chief operating officer of MedPlus Health Services.

Last year MedPlus had roped in singer S P Balasubrahmanyam as brand ambassador. It has also set up a group health insurance and loyalty programme for members. Members earn cash discounts or a free household item like a toothpaste or brush along with the purchase.

Meeting the online threat

The big chains say they are ready to take on the online discount warriors, in fact even better their game. “Online pharmacies offer convenience to customers and we expect them to grow in popularity. However the regulations around these are being worked out. We feel we are in a great position to take advantage of this channel regardless and already have significant online presence ourselves,” Mantena said. “There is a lot of buzz about the online pharmacy; however we are awaiting direction from the government and the FDA on online sales. From a perspective of technology readiness, the company is moving ahead and making its present IT systems future proof,” Jayakumar added.

Rana Bawa, president of Ogilvy CommonHealth Worldwide feels bigger organised pharmacy chains are better positioned to integrate offline and online business models. “The branded chains bring in a feel of modern retail and ethical marketing. The next golden opportunity could be sale of devices and implants,” he said. Bawa however sees little possibility of a massive expansion of branded chains. “There is no need gap which branded chains are addressing and hence I do not see an explosive growth.”

Sriram Shrinivasan, partner and leader (emerging markets, life sciences) at EY, believes a third business model could emerge in India alongside chain stores and online pharmacies. This is the banner model which is prevalent in Australia. “Organising retailers under a banner will help provide a consistent set of services, and leverage the power of many. Traditional shops can get benefits of scale while retaining entrepreneurial independence,” he said.