Drug retailers body sees red over FDI

Written by MG Arun | Mumbai | Updated: Jul 31 2012, 08:09am hrs
With the buzz around allowing foreign direct investment (FDI) in multi-brand retail getting louder, apex drug retailers body All India Organisation of Chemists & Druggists (AIOCD) is giving final shape to its plans to launch 500 branded retail outlets under the name Medicines Plus More.

These outlets, to come up in Mumbai and Maharashtra in the initial phase, will help drug retailers, 65% of whose sales come from drugs and the rest from personal goods like soaps, creams and hygiene products, gain higher margins from the business. The outlets are also expected to be more attractive for customers with trained pharmacists and value added services like free blood glucose or hypertension tests.

We intend to roll out 500 Medicines Plus More shops in Mumbai and Maharashtra, said JS Shinde, president, AIOCD, which boasts of more than 7 lakh drug retailers across the country as its members. Later on, we plan to expand to Chennai, Delhi and Kolkata. He added: With the positive signals around multi-brand FDI, its a matter of survival for chemists.

With 35% of a chemists sales coming from non-pharma products, competition is already rife with the proliferation of shopping malls, Shinde said, further putting individual retailers under pressure.

The idea is to launch the first few stores by the year end, although Shinde, who claims that the final phases of training of chemists has been completed, is unwilling to peg a launch date. He has personally supervised the training, and says 19 education programmes has been developed for the purpose.

The Indian drug retail market, largely unorganised, is estimated at R50,000 crore, and has been posting over 18% growth annually over the last few years. Apollo Pharmacy, promoted by healthcare major Apollo Hospitals, with 1,400 stores across India, is the largest player in the organised segment, which also includes players like Religare Wellness, Medplus and Himalaya Healthcare.

AIOCD's Shinde said the integration of the selected chemists with AIOCDs central hub in Chembur in Mumbai through SAP Enterprise Resource Planning (ERP) is under way. Also, standard operating procedures (SOPs) and customer relationship management programmes are being worked out. AIOCD is a company floated by the apex body to incorporate the branded retail business, as well as an existing research and data service. An AIOCD member, selected for being part of the branded chain, needs to put in R10,000 as an up front, one-time fee, as well as give 0.4% of its revenues to AIOCD as service fees. He will continue to own the shop, and all other investments in furniture and other facilities will be his, the incentive being the promise of higher sales and margins.

Margins from the Medicines Plus More stores format are pegged over 15%, from just 10% at present from a normal shop. AIOCD has collected R50 crore for the launch, of which R15crore has already been spent on IT infrastructure.

Industry professionals say AIOCD should be able to successfully pull off its branded retail stores plan, given its historical prowess to muscle its way in matters of drug pricing and distribution. AIOCD is a powerful body, and has a say in the distribution of any newly launched drug in the country, said a former supply chain executive with one of Indias largest drug makers. They will be in a position to demand heavy discounts in bulk procurement of drugs, which will add to their margins.

AIOCDs Shinde, however, underplays talks of the organisations much-touted bargaining power, saying the body provides a win-win situation to all concerned. It is practically impossible for any pharma company to talk to over 7 lakh retailers, since the sector is fragmented. We facilitate that, and educate them on new medicines that come in.

He adds that consumers also benefit, since the organisation ensures a minimum stock of drugs with its members, and introduces new drugs through them to buyers. AIOCD recently made its stance on the drug pricing debate public, stating that it favoured the move to decide the prices through a market-based formula, but wanted the price to be decided on the weighted average price of all the drugs in each category.